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November 22, 2005

Report highlights new threat to carrier fixed-line sales

Mobile giant Vodafone Group Plc and its rivals are accelerating the onslaught on fixed voice revenues that could have a major impact on telecom operators around the world, according to a new report by UK-based telecoms consultant Analysys Ltd.

By CBR Staff Writer

The report, Accelerating Fixed-Mobile Substitution, says that Vodafone’s newly enhanced ZuHause home zone service in Germany is one of a growing number of examples of mobile operators aggressively targeting fixed voice revenue. Vodafone’s service is in response to the huge success of a similar service in Germany known as Genion offered by UK-based mobile operator, O2 Plc. O2 is currently being acquired by Spanish telecoms carrier Telefonica SA.

Vodafone’s ongoing development of the ZuHause home zone voice service is significant for the German market and the mobile industry in general, said report author Dr Mark Heath. With its unrivalled global presence, large customer base, strong brand and marketing resources, Vodafone could have a major impact on fixed operators worldwide if it launches similar initiatives in other markets.

The concept behind home zones is when a user is within his or her home zone makes a call via their mobile handset, the calls are charged at the same rates as normal fixed-line calls using a traditional telephone. This has huge implications for many fixed-line carriers already facing huge pressures due to tumbling fixed-line revenues, because of the switch to mobile phones and Voice over IP.

According to the report, the majority of voice traffic in developed markets still resides on fixed networks, and mobile operators have a great opportunity to attract this to their networks. We’re seeing mobile-only operators leading the assault, said co-author Dr Alastair Brydon. For them, the business justification for driving fixed-mobile substitution, including the complete removal of fixed PSTN services, appears compelling.

The report identifies a wide variety of tactics that are effective in achieving fixed-mobile substitution. For example, home zone services launched in 1999 have been central to O2 achieving the highest ARPU of all German operators. A key benefit of home zone services is that they allow mobile operators to compete with the prices of fixed network voice services in the home, while maintaining a substantial price premium for mobility elsewhere, said Heath.

However, while the concept behind home zones is attractive, there are sometimes problems associated with it. Users could have to contend with two different telephone numbers, and it only usually benefits the person making the call, and not the person contacting a person within a home zone. There is also the risk that mobile operators are effectively sacrificing future revenue streams with this approach.

Analysys is a global telecoms consultancy and research company that was last year acquired by Datatec International, the international arm of South African network services group Datatec Ltd.

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