Price War Looming For Fixed and Wireless Operators

Price War Looming For Fixed and Wireless Operators

A price war in the Western European voice services market could cost fixed and mobile operators as much as EUR15 billion in lost revenues over the next five years warns Analysys, the global advisers on telecoms and new media.In its new report, The Future for Fixed-Mobile Substitution: options for fixed and mobile operators, Analysys states that a price war could result in the value of the total voice market falling from EUR185 billion in 2002 to EUR170 billion in 2007.

In this 'price war' scenario, fixed operators would see revenues decline by
14% from EUR96 billion in 2002 to EUR83 billion in 2007, with fixed call
minutes remaining static at 1324 billion. Simultaneously, mobile operators'
sales would fall by 2% from EUR89 billion in 2002 to EUR87 billion in 2007 -
despite a 69% increase in mobile call minutes from 310 billion to 522 billion.
Table available to journalists on request.

"Fixed-mobile substitution is inevitable and will become more prevalent if
the price difference between using a fixed and a mobile phone is eroded
significantly," says report author Eddie Murphy. "However, it is important
for fixed and mobile operators to avoid a price war at all costs, as this
would ultimately devalue the overall voice market."

The report examines the key drivers for fixed-mobile substitution (the
relative price of fixed and mobile voice services, convenience, spectrum,
and health issues) and assesses the impact of the primary drivers (relative
price and convenience) using a number of alternative scenarios.
* Status Quo - the price differential between fixed and mobile voice
services remains marked and fixed-mobile substitution does not progress
appreciably beyond current levels

* Controlled Competition - mobile operators target the fixed voice traffic
of particular customer segments and grow their use of mobile voice services
substantially

* Price War - mobile operators and fixed operators become involved in a
spiral of price cutting, which sees the total value of the voice market
shrink significantly.

"In all three scenarios the overall value of the voice market will shrink,
while the volume of traffic carried grows," added Murphy. "The message for
mobile operators, particularly new entrant 3G operators, is that it is
possible for them to strengthen their position through careful management of
fixed-mobile substitution, as is demonstrated in our Controlled Competition
scenario."

The report explores the strategic options for major participants in the
voice services market, including incumbent operators with and without mobile
divisions, established mobile operators and 3G new entrants. The report also
examines the opportunities for resellers and MVNOs in an integrated European
voice market.

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