Fixed line decline slows
This is the key conclusion to Analysys Research's study Central and Eastern European Fixed Telecoms: market sizings and forecasts 2004-12, which is brave enough to look forward six years into the future.
In 2005 fixed-line penetration, and the number of voice call minutes originating on fixed networks, declined in most markets in the region at a slower rate than in previous years. So what were the underlying reasons for the decline in fixed lines and minutes, and why has that decline slowed?
The lethargic speed in provisioning fixed lines and the glamour of mobile are cited as common reasons for the decline. However, the most important reason was the failure of fixed-line operators to adequately address the problem of appropriate tariffing for fixed voice calls in low-GDP markets.
The threat, real or apparent, of stiff competition in fixed calls encouraged a bout of self-defeating tariff rebalancing, raising PSTN subscription prices to levels which, considered as a proportion of disposable income, were often three or four times higher than in Western Europe. No wonder, then, that fleet-footed mobile operators could easily exploit the lack of affordable tariffs with offers that, although they involved a far higher per-minute rate, were more affordable overall for large segments of the population.
Long term market damage
A short-term defensive measure therefore created long-term damage, exposing fixed operators' businesses not only to fixed-mobile voice substitution - to some extent an inevitable process given the desirability of the mobile product - but also to competition from mobile in Internet services. This happened even though mobile, in the opinion of Analysys Research regarding CEE, has a markedly inferior product to DSL.
There are three factors that suggest the worst is now over, discussed in turn below:
- fast-growing economies mean that disposable income levels are on the rise. 2005 was the first year this decade that saw, in general, an improvement in the affordability of fixed lines;
- the inexorable rise of the monthly part of the bill has slowed, stopped, or even gone into reverse in some markets. Operators like TP have tried new tariff structures that in part reverse the process of rebalancing, combining lower subscription costs, higher call charges, and a hard-fought right to bar carrier selection; and
- LLU or naked DSL are both now beginning to appear in the region. While DSL (with or without VoIP) is no more affordable than PSTN for the poorer segments of the population, it makes a difference among middle-income households that LLU or naked DSL can reduce the regular monthly bill, and thereby reduce the appeal of wireless broadband alternatives.
Overall telecoms spend as a proportion of GDP has declined in CEE to a point where it is little higher than in Western Europe, about 2.3% (see figure 1). If CEE falls into line with Western Europe, then this is sustainable; it is expected that households will continue to spend this proportion of GDP on telecoms rather on savings. If, in CEE, unit prices for fixed and mobile continue to fall, and spend on core services falls, much better opportunities are expected for exploiting those customer savings and delivering new services by the end of the decade.
For the first time, telecoms will be driven not only by constant price adjustments in cash-poor economies, but by delivering new services where consumer cash surpluses appear. Broadband-based TV and video services in countries with low pay-TV penetration may represent the best bet for harnessing this cash dividend.
Figure 1 Fixed and mobile retail spend as a proportion of GDP in CEE, 2001-12 (source: Analysys Research, 2006)
Central and Eastern European Fixed Telecoms: market sizings and forecasts 2004-12 analyses current trends and market developments in the CEE fixed telecoms market, with separate forecasts for the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Russia, Slovakia, Slovenia, Turkey and Ukraine. Both the report slide pack and the Excel data annex provide detailed forecasts of subscriber numbers, average spend per site, and overall spend for three types of site (residential, small and medium business, and large business) and six service categories (fixed subscriptions, voice calls, retail VoIP, dial-up Internet, broadband and business network services). In addition, the forecasts provide line data forecasts for seven narrowband and broadband access technologies, broken down by business and residential segments.