The state of play

The cultural integration of the mobile phone in mature markets and the pre-eminence of GSM networks in less mature ones has led to end users preferring to make voice calls via mobile devices rather than fixed landline phones. However the growing popularity of broadband internet in the region means fixed line connections are still on the rise. GULFCOMMS Preview examines what these trends mean for MENA operators.

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By  Administrator Published  July 31, 2007

The possibility of replacing fixed line voice communications with mobile technology appeared more like a pipe dream in the early nineties, when industry players largely focused on developing fixed wireless solutions, that is to say PSTN solutions based on wireless technology. However, with around 2.5 billion mobile subscribers worldwide, the substitution of landlines in favour of mobile communications, particularly voice, is growing, and is being driven by numerous factors.

Due to increased competition and more efficient networks, and, in particular, the take off of 3G, the cost of making a mobile calls has decreased and Milan Sallaba, director and office head of Oliver Wyman, believes mobile tariffs are set for a further decline - faster than fixed - in the years to come.

"Falling equipment prices, intensifying competition among mobile operators, as well as the capacity increase brought on by 3G networks, is expected to further drive mobile prices down and users may start to feel that they can afford more calls over more convenient mobile handsets," says Sallaba.

Linked to this is sustained macro economic growth. For instance, in the Middle East and Africa, the environment for the development of fixed-to-mobile substitution (FMS) continues to develop, as gross domestic product growth allows more money to be spent on telecommunications. However, the perceived or real cost of a mobile call compared to a fixed call may equally act as an obstacle for quickly expanding FMS, now often supported by the advent of fixed VoIP.

Another aspect encouraging the FMS trend, according to Sallaba, is the personal nature of the device supporting the increased 'individualism' of our society.

"The mobile handset today plays a central role in many people's daily life and centres around flexible lifestyles and maximising convenience. In a modern household, each family member may very well have one mobile phone, but there is seldom more than one fixed line. Personal calls are increasingly made to mobile phones, in order to ensure that the intended individual is reached," says Sallaba.

Akshay Lamba, senior consultant at KPMG, sees the primary motivator behind the spread of FMS as the strong desire of telcos to switch traffic onto their newer and less depreciated networks.

"The amount of money that has gone into GSM networks is increasing. How do you as a telecoms company recover that money quickly? You do that by increasing the traffic on you network, so that is where fixed line substitution comes in when you try and look at your customer base and say at what point in time what services can I offer that will encourage people to use the mobile network more than the land line network," says Lamba.

Sallaba also highlights the flexibility and functionality afforded by a mobile handset, as well as the growing quality of mobile voice calls, as strong factors driving the trend toward mobile usage. Fixed telephony has an inferior position on both voice and non-voice services, the latter having increased user focus on the mobile handset. Even simple applications such as an address book have increased the reliance on the mobile to the extent that the fixed line in many situations is viewed as not fulfilling basic needs, and the popularity of other services, such as SMS and MMS, further promote and support FMS.

The quality of mobile voice transmission has been greatly enhanced since the mid-1990s in mature markets and has become less of a factor for users when given the option to make a call over a fixed or mobile line. However, in less developed markets such as those in the MENA region, a lack of network coverage still frequently results in a low quality service and therefore is still a concern for voice users.

"The quality of mobile calls is typically perceived to be lower than fixed calls. Coverage remains an important issue in many markets, including MEA. Insufficient network coverage does result in lower voice quality, which has a direct negative effect on fixed-to-mobile substitution development," says Sallaba.

In markets with well-developed fixed and mobile networks, where consumers have a real choice, there is a trend for traffic to shift from fixed to mobile networks. This trend is driven by changes in user attitudes and preferences. Countries in the MEA generally have less developed fixed-line infrastructure than, for instance, Western European markets, and the economics and the possible speed of rolling out mobile networks simply is more attractive than additional fixed-network rollout.

In the UAE for example, the fixed and mobile networks are almost as old as each other. If you look at Europe or the US the fixed lines are far older than the mobile. So the basic idea is to pull traffic toward the mobile network in order to be able to generate higher revenues," says Lamba.

Hence, in the MENA region a large proportion of voice traffic growth is carried over mobile networks instead of fixed networks, making mobile networks the key means of communication rather than a substitute for fixed-line communications. Users often do not have a real choice between fixed and mobile but are driven to use cellular technologies for all their calls out of necessity. In the MEA, many new users are ‘mobile only', and the households they live in will no longer necessarily have a fixed line.

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