Wireless Voice Traffic Threatens Fixed Extinction
From the July 12, 1999, issue of Wireless Week
By Paul Quigley
LONDON--Cellular users in Europe generated 80 billion minutes of billable outgoing voice traffic last year, a surge that signals
a downward slide for wireline carriers.
If placed "end-to-end," as journalists are wont to do for effect, those billable, wireless minutes would be equivalent to 150,000
years and a connection to the Paleolithic era.
Slowly but surely, as cellular traffic has grown, Europe's fixed operators' voice traffic market has faltered. The continent's
telecom chiefs, such as Iain Vallance of British Telecommunications plc, Ron Sommer at Deutsche Telekom and Michel Bon of
France Telecom, face increasingly unpleasant shareholder meetings over the coming years.
Average revenue per unit is going down faster than these executives expected. Moreover, voice traffic on fixed networks has
peaked, according to a new study by Luton-based telecom consultancy Strategy Analytics Ltd. The upshot? Incumbents are on
a downward slide.
Wireless carriers cannot celebrate yet, however, because price competition has slowed profits.
Meanwhile, there's been a dra-matic shift in calling habits across the region. The average cellular user in Western Europe
generated 88 minutes of outgoing voice calls each month during 1998, while ARPU topped $53. "Europe's cellular customers
are increasing the amount of time they spend on their phones across the board," said Phil Kendall, head of wireless research at
Strategy Analytics. "In the voice market alone, landline traffic won't increase after this year. It will actually start falling from now
on."
Cellular networks accounted for 9 percent of all European telecommunications traffic last year, capturing 28 percent of total
revenue. By 2004, cellular customers will generate 46 percent of all outgoing voice traffic in the region and encroach on 49
percent of the big telecommunications revenue pie. By 2004 more than 80 percent of landline traffic will be data.
Perhaps a more revealing statistic, according to the survey, is that by 2005 cellular will overtake landline for voice traffic.
"It's a big revolution," Kendall said. "Cellular operators are starting to talk about attacking the landline market. One 2 One
claims that it's not competing with fellow cellular operators--they're targeting BT." However, while data traffic on landline
networks is going through the roof, the survey found, most of these calls are simply cheap local calls. "It's not where the big
money is," Kendall said. "If all an operator is doing is long-distance and international voice traffic, I would seriously urge them
to reconsider their business plan."
How will fixed operators respond to this historic shift in fortunes? Kendall foresees incumbents emulating their cellular
adversaries. "I would be surprised if we don't see companies like BT giving away free bundles of minutes for a nominal fee,"
Kendall said. "France Telecom already bundles free minutes on top of its fixed telephone subscription."
The total European voice traffic market will keep on growing, the survey found, while much of cellular's traffic is "extra"
traffic--existing simply because users find a reason to use their ever-present phones.
Cellular carriers, however, have grown at the expense of profitability, which may thwart invest-ment as well as shareholder
returns. "Competition has gone berserk across Western Europe over the last few years," Kendall said. "Prices have fallen so
fast that operators would be unwise to keep going for new customers alone--they've got to address how to increase the value
of their existing customers."
But making money in a gladiatorial arena where enemies are across borders as well as in their own back yard, adds to the
climate of chaos and confusion. Kendall thinks the industry will never witness cellular carriers operating at a loss. "In the longer
term they'll make small margins on voice traffic while trying to bump up profits on the value added side--particularly
infotainment and multimedia services," he said.
Kendall said that, although wireless Internet use would probably become a major, future profit center, carriers will be wise to
maintain wireless voice users. "If all you're doing is wireless data then customers are going to have to get their mobile voice
[service] somewhere else, and there's always a risk they'll decide to switch their data to their voice provider," he said. "So
ignore voice at your peril."
Projections call for wireless voice traffic to reach 500 billion minutes by 2004, when Strategy Analytics projects that landline
carriers will predominantly carry data traffic. Those half trillion minutes, if placed "end-to-end," would reach back 1 million
years. Given Kendall's caveats, that long-distance call might be a warning to fixed operators that extinction lies in their future.
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