The path ahead for broadband

OvumBroadband access is now as important as other essential utilities such as gas, water, and electricity. In developed countries, fixed broadband is available in the majority of homes and penetration is above 60% of households in many markets.
However, mobile broadband usage is growing rapidly in both developed and emerging markets. Will the future of broadband see the convergence of broadband-based fixed and mobile services? Or will mobile broadband substitute for fixed services?
Our research suggests that where fixed broadband exists, particularly in the developed markets of North America, Western Europe, and Asia, fixed–mobile convergence (FMC) solutions will predominate. By the end of 2015, 38% of the world’s 3.6 billion broadband subscribers will have access through both fixed and mobile networks. Although emerging markets represent a smaller opportunity for converged operators, FMC will still be important among certain user segments and should not be ignored.
In contrast, the fixed–mobile substitution (FMS) opportunity will account for 28% of the world’s broadband subscribers in 2015. However, this opportunity will only be viable in specific circumstances. Emerging markets with no pre-existing fixed-line infrastructure offer the greatest potential for operators, but the affordability of mobile broadband services will be crucial. In developed markets, low-end users offer some potential, but segmenting these customers will be extremely important.
FMC/FMS debate is crucial to operator investment strategies
In the developed world, broadband has become a basic requirement, while in emerging markets the adoption of broadband continues to accelerate. With the Internet increasingly becoming the primary channel for information, services, and communication, those without access will be at a distinct disadvantage. By the end of 2015, over 3.6 billion people will have broadband access, which equates to 50% of the world’s population.
Of those 3.6 billion people, 66% will have access to mobile broadband, either through a small-screen mobile handset or through a big-screen device such as a laptop, netbook, or tablet. However, 72% of broadband subscribers will still require a fixed connection to provide them with an adequate level of bandwidth in the most cost-effective manner.
Operators that are able to optimize their networks to maximize the financial returns from their customer base will be the major beneficiaries of this trend. As such, the demand for FMC and/or FMS is critical to operators’ future investment strategies. Our recent reports The Future of Broadband: Fixed–Mobile Convergence (December 2010, OVUM052859) and The Future of Broadband: Fixed–Mobile Substitution (December 2010, OVUM052855) investigate the demand for broadband FMC and FMS over the next five years.
The greatest broadband FMS potential exists where demand and affordability combine
In 2015, approximately 1 billion people worldwide will use big- or small-screen mobile broadband as their primary form of Internet access. This accounts for 28% of all broadband users globally, and 13% of the world’s population. While these are significant numbers, broadband FMS will be a minority access method compared to FMC.
The primary driver for FMS is a lack of fixed-line infrastructure. However, the affordability of devices and the availability of sufficiently capable mobile networks are a prerequisite for FMS penetration. Therefore, the largest opportunities for broadband FMS will exist in emerging markets in Eastern Europe (where 38% of broadband users will be mobile-only in 2015), South and Central America (35%), and Asia-Pacific (34%).
Operators adopting a substitution strategy in developed markets will be forced to target niche segments. Their primary target will be users requiring low-end connectivity, but these users will provide lower returns.
Integrated players need to take a pragmatic approach to broadband FMS, particularly in emerging markets. For some operators, it may be more cost-effective to serve areas with no broadband access with mobile technologies, which will have a major impact on the marketing messages presented.
FMC maximizes revenue potential
In 2015, approximately 1.4 billion people will have access to broadband through both fixed and mobile networks. The majority (84%) of these customers will be from developed markets in North America, Western Europe, and Asia-Pacific.
The increase in “dual-access subscribers” will drive a new generation of increasingly sophisticated service bundles that bring added value to FMC customers and additional revenues to service providers. However, this opportunity will not be limited to developed markets. There will also be a market for broadband FMC bundles and services in emerging markets, particularly in rapidly growing urban areas where there is a larger proportion of high-value customers. Service providers in emerging markets will have to work hard to develop the right marketing and tariff strategies if they are to maximize the FMC market. In addition, these players must also provide cost-effective mobile broadband services to the low-end, but larger, FMS segment.
As with any type of service bundling, the revenue benefits from broadband FMC bundled services can only last for so long. Eventually, customer growth will slow and price competition will drive ARPU down. Therefore, if integrated operators are to continue driving revenue growth, they must eventually look beyond the basic bundle.