Mobile-only households: fixed voice will all but disappear in some Central and Eastern European countries

Friday, 30 September 2011 12:52  |  Emma Buckland, Analysys Mason

Fixed voice household penetration has proved resilient in most parts of Western Europe, but in Central and Eastern Europe (CEE) the proportion of mobile-only households had increased to 41% at the end of 2010. Senior Analyst at Analysys Mason Emma Buckland explores the regional factors that have brought about fixed-line abandonment in CEE, the main reasons why CEE fixed-line operators have been largely unsuccessful in stemming it and our expectations for this trend in the next five years.

Take-up of fixed voice has always been low in CEE

Our dataset clearly indicates that fixed voice line penetration has historically been low or average in Central and Eastern European countries, certainly when compared with Western standards: at the end of 2003, the penetration rate was 55% in the Czech Republic, 68% in Poland, 51% in Romania, 43% in Slovakia and 41% in Ukraine. Decades of underinvestment in fixed infrastructure meant that when mobile voice became widely available during the 1990s, it was a more compelling offer than PSTN with its long waiting lists, poor customer service and, in some instances, limited rural availability. Consequently, mobile voice penetration soared while that of fixed voice stagnated or started to wane. Network effects kicked in, which compounded the problem for fixed-line operators: more users wanted to use mobile voice to be able to call and be called by their friends and families while a decreasing user base for fixed voice contributed to making the service less and less attractive.

By contrast, fixed voice services were well established and popular in Western Europe in the 1990s when mobile voice hit the mass market, and fixed operators were able to maintain high, even if sometimes decreasing, voice penetration. This situation continues (see Figure 1).

Figure 1: Household penetration rates for fixed voice and population penetration rates for mobile handset SIMs, 2010 [Source: Analysys Mason, 2011]

Fixed operators in CEE cannot use the same strategies as their Western counterparts to keep or entice voice customers

Faced with different circumstances than operators in Western Europe, operators in CEE cannot use the same strategies to stem fixed-line abandonment:

• In Western Europe, fixed voice is cheaper than mobile. The average retail price per minute on fixed networks (including revenue from line rental) was 37% lower than the same on mobile networks at 2Q 2011. Western European fixed operators can use relatively cheap prices to keep customers³, in a way CEE fixed operators cannot. Because the mobile market in CEE is more competitive than the fixed market, mobile voice is cheaper (by 63%, excluding Russia, at 2Q 2011).
• Some fixed operators in Western Europe have used VoBB as a means to lower the average cost of calling from fixed lines, while maintaining PSTN prices: people who want to keep a PSTN service will continue to pay for line rental, even if it increases, and cost-conscious customers can move to VoIP-based services. With mobile already far cheaper, there is little window of opportunity for VoBB in CEE, except in countries where it is already well established like Slovenia and Croatia.
• Fixed voice is increasingly sold as an adjunct to fixed broadband in Western Europe because the perceived value of the fixed service has moved from voice to Internet access. This means that fixed voice penetration can only fall as low as that of fixed broadband and in Western European countries where the latter is high, this should guarantee that fixed-line abandonment remains a limited phenomenon. The same cannot be said for CEE where fixed broadband penetration rates are growing but are relatively low, and lower than those of fixed voice: this means that, although the popularity of double- and triple-play packages is increasing in CEE, fixed voice can still only be sold on its own merit in many households, where it will be directly compared with mobile voice.

None of the above factors will change in the next five years. Therefore, we see no reason why fixed-line abandonment should slow down in CEE. Fixed voice will not disappear but mobile-only households will become the majority in half the countries by 2016 and will account for 47% of households in the region, or 55% excluding Russia and Turkey.

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