Mobile-only operator: you're doomed for extinction

Voice substitution is well established in both mature and emerging markets. Fixed voice minutes have been substantially eroded by mobile and VoIP in almost all markets. And if voice were the only issue, substitution would be the dominant trend and mobile-only operators would be the future winners.

Broadband changes this dynamic. The communication needs of the future will demand high speeds capable of supporting 3D gaming, HD video, and augmented reality. Even ‘beyond 4G’ mobile networks will not deliver comparable speeds/capacity to fixed, and will be much more expensive data pipes. As a result, if you have any ambitions to become a ‘total communications provider’, then you can’t be mobile-only. If competitors offer converged/bundled services, the mobile-only player will be under pressure to adapt. From an enterprise perspective, mobiles are unlikely to become as reliable as fixed for security issues. Vodafone, previously the chief advocate of ‘mobile-only’ operation, is abandoning this strategy outside emerging markets.

In mature markets, the remaining niches for mobile-only operator’s are the low-cost voice segment and low-usage broadband customers. But many of these customers will also have high-speed fixed connections with integrated operators who offer fixed/mobile bundling at a discount. Therefore the only secure niche for the mobile-only operator is the customer segment that is truly mobile-only – no fixed voice, no fixed broadband. Typically this will be less than 20% of a mature market, and mobile-only operators must fight even for that.

These facts are being reflected in reduced financial performance at some mobile-only operators. In Singapore, M1 reported flat revenue and EBITDA in its latest results. Mobile-only operators need to widen their offer to include fixed broadband services, and match their competitors ‘bundled offers.

The emergence of national high-speed broadband policies has provided the platform to do this. In Singapore, M1 is now growing its fixed revenue rapidly, albeit off a small base, and reported 16,000 fibre subscribers at the end of the September quarter. It also resells cable broadband. This move is consistent with other mobile-only carriers world-wide. Maxis now offers high-speed broadband services on the Malaysian fibre network. Vodafone entered the fixed market in New Zealand several years ago, and will offer services on New Zealand’s future fibre network. In Australia, Vodafone is moving towards offeringfibre services based on the Australian NGN.

It would be wrong to underestimate the challenge this poses to mobile-only operators. Their best asset in this fight is their existing mobile customer base, who are the primary target for a fixed service up-sell.This makes it imperative for mobile-only operators to start and accelerate the process of bundling fixed and mobile services. If they wait too long, integrated competitors will target their mobile customer base and erode their revenue and profit base.

In a few years, we expect that mobile-only operation will be confined to emerging markets where fixed infrastructure is limited or the population is large enough to support a profitable mobile-only operation. In those markets, user expectations will remain within what mobile can deliver, at least for several years. But in mature markets, it increasingly looks like the mobile-only operator will go the way of the dodo.