Research Notes

Mobile operators that have made significant ADSL investments in recent years are facing difficult times

In Europe a number of mobile operators have in recent years spent enormous resources in purchasing, expanding and operating fixed line broadband businesses that are most often based on ADSL. Their strategy was to create a supplement to their mobile business.
However if you take a closer look at these initiatives, they have not only been expensive, but we are also seeing that these mobile operators are having great difficulty in getting a healthy business from their fixed line broadband ventures that can justify the large investments they have made.
If you examine mobile operators like Netcom in Norway, Sonofon in Denmark, Tele2 in Sweden, Vodafone in Germany etc, there is no doubt – from their shareholders viewpoint – that their fixed line broadband ventures have not developed positively. There are very few “tier 2” operators that can document that their fixed line broadband ventures have been good business for their shareholders.

We believe that mobile broadband will be a product that customers primarily use on their portable PCs and that the mobile telephone will play a smaller role on this market. The majority of the Brazilian population and the rest of South America will use wireless technologies to access the Internet.
As detailed in our new report “Successful Strategies on the Mobile Broadband Market“, that describes and analyses the changes currently happening on the mobile broadband market, the big question is whether mobile broadband will further increase pressure on the fixed line broadband, resulting in the trend of decreasing broadband prices continuing.
Pricing and product strategies can vary a great deal from player to player, but all have in common that customers are increasingly demanding mobile broadband and that as these new technologies develop, there is an increasing probability that mobile broadband will cannibalise the fixed line broadband business – the ADSL market is already receding in countries like Finland and Austria.
If you are one of the operators that has invested substantial capital in a fixed line broadband business, there is a large risk of an increasing number of customers cancelling their fixed line broadband connection and using a mobile connection instead. On the other hand, having a large fixed line broadband customer base is a unique opportunity to cross sell to existing customers – thereby compensating for some of the loss of revenue that the operator will experience.
Usually market competition will dictate how prices develop – on the other hand we know that operators have a habit of copying each other’s products and that a negative price spiral can be slowed down for a period by using a visible strategy where you ensure that your competitors have no doubt as to what price levels you want on the market.
If you look at how prices have been developing in the mobile industry since it started, our analyses show that penetration came first – and then came price reductions. However, on the mobile broadband market we are seeing a completely different price development – a development that is divided into phases and that is not based on the roll out of the operators’ networks, moving from UMTS to HSDPA to HSUPA and LTE. Simply put you could say that competition is not being dictated by how prices are developing or the customers’ ability and willingness to purchase mobile broadband, but instead by the operators’ ability to deliver a national mobile broadband product.
The mobile broadband price development shows that the this is becoming more a more mature and knowledgeable business area and operators are realising that the first movers are also the companies that are getting the best business in the longer term.
In many countries you will still find that the very first operator that launched mobile telephony is still the largest operator on that market and likewise the second operator to launch is still number two and so on and so on. In other words there is a substantial advantage in being a “first mover” and whether a company was a first mover or not can – at the end of the day – be the deciding factor as to whether they have a very healthy or a very unhealthy mobile business.
Through the years there have been many attempts of “tier 2” or “tier 3” operators trying to conquer a better position on the market – on the other hand experience has proved that this is an almost impossible task that cannot be achieved through organic growth – and especially not on high penetration markets. Only through purchasing competitors and market consolidation, or by having an aggressive wholesale strategy is it possible to improve a company’s market position on the mobile market.
We have thoroughly examined and analysed these – and many other – issues in our new report “Successful Strategies on the Mobile Broadband Market“. The report is therefore an efficient tool for mobile broadband providers in their efforts to create and implement an optimal strategy.

Contact us to get a copy of the report

Request the report