Will Landline Voice Die a Fast Death?
“Voice traffic in Western Europe continued to migrate rapidly from fixed to mobile services in 2006, and it won’t be long before half of all voice minutes originate on mobile phones,” says Dr. Alastair Brydon, Analysys Associate. In fact, Mobile call charges now form almost 80 percent of enterprise call bills,” says Margaret Hopkins, Analysys Associate.
“In many markets it looks as if fixed voice is going to suffer not the slow and lingering decline many have predicted, but a rather rapid one,” says Brydon.
“At the current rate of traffic migration, 90 percent of all voice minutes in Finland will originate on mobile phones by 2008,” he notes.
In five Western European markets, more voice minutes originate on mobile networks than on traditional voice and broadband networks combined, he says.
Finland had the highest level of fixed-mobile traffic substitution in Western Europe in late 2005, when mobile-originated calls accounted for 64.6 percent of voice traffic. A year later, mobile originated calls were 74.6 percent of all calls.
Traffic substitution is also progressing rapidly in markets that have previously undergone little mobile substitution. Germany, for example, has experienced much less traffic substitution than the Western European countries until recently.
About 17.5 percent of German voice traffic originated on mobile phones in the fourth quarter of 2005. However, this proportion increased by 6.8 percentage points to reach 24.3 percent in the fourth quarter of 2006. Tariff changes that encourage mobile use close to and within the home are a factor.
In fact, as VoIP makes fixed telephony far cheaper, it might be that there is more mobile calling, not more landline calling, which is what elastic demand would suggest.
“This outcome is great if, as a supplier, you can provide both fixed and mobile in a neat broadband/VoIP/mobile bundle and thereby maximize your profit,” says Analysys. “If, on the other hand, your business is supplying only fixed voice--of whatever flavor--then you probably cannot win.”
The nineteenth-century Scottish economist Sir Robert Giffen is said to have observed that a rise in the price of certain staples, such as bread and potatoes, led to an increase in consumption of those commodities among laboring families, says Analysys.
Conversely, a price decline for an inferior good might spur purchases of a preferable good, not more consumption of the good whose price has declined. The reason is simply that there is more discretionary income to spend on the more-preferred goods.
Giffen theorized that the rise in price meant that they had to curtail their consumption of preferable foodstuffs such as meat, and so substituted with higher consumption of the inferior good.
So the question is whether lower VoIP prices stimulate landline or mobile usage.
That’s worth keeping in mind as VoIP competition so often centers on lower prices: lower prices might just hasten the fixed service demise, since it frees up consumer resources that can be spent in the mobile domain, which in the Giffen analogy is a preferable good.
“What is particularly worrying for fixed-line operations is not that fixed mobile substitution is happening, but the pace at which it is happening,” adds Rupert Wood, Analysys principal analyst. IP
