Cannibalisation of fixed-line traffic by mobile networks is having a negative impact on revenues am...
Cannibalisation of fixed-line traffic by mobile networks is having a negative impact on revenues among incumbent telecom players in emerging markets, according to SchroderSalomonSmithBarney (SSSB).
Vladimir Postolovsky, equities analyst at SSSB, says negative fixed-line growth is being seen in most emerging, Middle East and African telecom markets, with the estimated line substitution to mobile currently up to 5%.
Postolovsky believes the main drivers of this move from fixed line to mobiles in emerging markets are the former's penetration, pricing, distribution and the time it has taken for local consumers to become accustomed to mobile phones and their convenience.
He says: 'We find there is almost nothing fixed-line operators can do to resist the pressures of mobile cannibalisation. We believe the only effective defence for incumbents is to try to maximise their exposure to their domestic wireless sectors.'
Michael McNamara, telecoms analyst for the Pacific and emerging markets team at Gartmore, says mobile cannibalisation is particularly prevalent in emerging markets because, compared to the more developed economies, fewer consumers already have a fixed line.
As a result, he says fixed-line penetration in emerging markets is stagnant, whereas mobile penetration is growing at a fast pace.
McNamara adds: 'The barriers to entry to the mobile sector are becoming less expensive, with the cost of handsets continually coming down. It is also becoming cheaper to own a mobile compared to a fixed-line phone, for which customers must have a contract.'
While fixed-line traffic has grown to a degree in the emerging markets, McNamara believes the majority of this has come from the internet. He says internet usage as a percentage of fixed-line services has increased from single-digits in 1997 to around 30% currently.
McNamara adds: 'While the minutes of use on fixed-lines has risen, the revenue per minute has actually been falling because tariffs from the internet are lower than the voice message tariffs.'
On the other hand, he says, 90% of the tariff on mobile telephony is taken from voice messages.
Postolovsky says the most important conclusion from SSSB's analysis is that mobile cannibalisation is unlikely to stop or even slow when mobile penetration reaches its ceiling. In fact, he notes, as far as the impact on wireline cashflows is concerned, SSSB believes cannibalisation is likely to accelerate when penetration reaches this point.
While mobile cannibalisation is a powerful and irreversible trend, Postolovsky feels it is poorly researched. He says there is lack of data available for a quality analysis, as well as a limited history of the trend and difficulty in separating the impact of cannibalisation on the financial performance of wireline operators from a number of other factors.
'We believe the market is underestimating the magnitude of the swing in the impact of mobile growth on the cashflows of the integrated incumbents,' he adds.
Based on its analysis into mobile cannibalisation, SSSB has downgraded its forecasts for wireline operators, while its earnings expectations for mobile companies have been revised upwards.
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