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4G mega buckets: enough to cause European fixed broadband operators a few sleepless nights

15 апреля 2011

Just when European fixed operators thought they had seen off the threat of fixed-to-mobile broadband substitution, some, mainly in Nordic markets, are encountering new mobile services that are genuinely substitutive again.

3G mobile broadband has looked increasingly unviable as a mainstream competitor to fixed broadband; low, static average usage levels and poor customer satisfaction levels bear this out. However, those mobile network operators (MNOs) with 4G, awash with spare capacity, are now marketing ‘mega buckets’ of data (up to 30GB per month) offering speeds of ‘up to 100Mbit/s’. If we assume for the time being that realistic speeds are about one seventh the theoretical maximum, then these look like real equivalents of an ADSL2+ service.

Figure 1 compares the retail price per GB of selected top-end European 4G services, with top-end 3G services in Denmark and the larger European markets of France, Spain and the UK, where 4G is not available. In Denmark, where 4G services are available from one MNO, prices for 3G mobile broadband packages have fallen fast and now look starkly different from where they were a year ago and from those of most 3G players in countries with no 4G.

A case of déjà vu?

Many MNOs flooded the market with cheap data when they rolled out HSDPA, and in most European markets this had a direct impact on the number of net additions on fixed broadband. Although the threat of substitution eased somewhat in the last two years as most new mobile broadband subscribers used it as a complement to fixed, a sizeable rump of mobile-only users remains. So how much of a threat are bargain buckets of data this time round?

Our view is that they are a real, but circumscribed threat, enough to cause some sleepless nights for fixed operators. Fixed broadband subscriber growth is slowest – and in one case negative – in those Nordic countries where 4G is already available. However, in markets where fixed broadband can and does already address a high proportion of the population, the threat will not be strong enough to alter the balance of fixed and mobile data in the long term as long as fixed players respond appropriately.

4G mega buckets of data will mainly appeal to one of the same key demographic segments that already take 3.5G as a substitute to fixed: non-home owners or young people on the point of moving from parents’ home. Current pricing levels may not be quite appealing enough to draw people off fixed.

Current top-end pricing levels of mobile broadband, at about EUR40 per month, continue to be more expensive than fixed, but consumers have shown a willingness to pay a premium for mobility. In Denmark, 20GB capped services cost the same as ADSL double-play services. Fixed operators have to remember though that the most appropriate comparison is with a fixed double-play of Internet and voice. Most mobile-only broadband users will want to save on the price of a fixed voice service too, which will probably be in the region of EUR10–15 per month, and fixed data-only services usually cost only marginally less than double-play services.

4G mega buckets may not be able to compete on speed in the long term because of the shared access medium of mobile. But with relatively empty networks, they could easily trump ADSL2+ on speed in the short term.

Data allowances of 20–30GB may not be enough in the long term to compete where mean Internet data consumption on fixed is already about 20GB and growing at a rate of about 50–60% per year. Moreover, past evidence shows that many MNOs trimmed mobile broadband allowances on 3.5G when networks started to fill. Providing too many mega buckets will hurt the MNO.

LTE coverage continues to be limited. However, it is static coverage rather than seamless wide-area coverage that matters. For substitutive users, most usage will be at home, and as long as they live in the 4G footprint, so wide-area coverage for the individual user will not be too much of an issue.

This should be enough to stimulate fixed operators to move ahead rapidly with NGA, with or without an IPTV service to help anchor the role of the fixed broadband connection in the home. The threat from LTE should be as much a driver of FTTx as cable. But time to market, not a permanently insuperable access speed, is of the essence. FTTH simply takes too long to build out; far better to roll out and develop FTTC/VDSL services quickly. This will enable mobile broadband to be a somewhat slower and more expensive wide-area complement to fixed again. In the meantime, fixed operators need to ‘push the capacity button’ – it is far cheaper for them to add capacity than it is for MNOs – and dramatically increase/abolish data caps on fixed broadband.

Rupert Wood, Analysys Mason’s Principal Analyst


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