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The decline of fixed lines: implications for universal service

…regulators need to address how the universal service should best evolve to address both market and technological developments.

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Over the past few years, operators in mature markets have been reporting falls in the number of fixed line services. According to Eurostat, fixed lines in Europe peaked in 2001 and have been declining ever since.

In such markets, the majority of services are residential, and we have been seeing a shift from virtually universal take-up – where almost every home has a service – to a situation where a significant number of households are relinquishing their fixed lines. The most extreme example of this trend is in Finland, where only 36% of households now have a fixed line (Exhibit 1).

Exhibit 1: Proportion of households with fixed lines, 2007 [Source: regulators, CDC, Statistics Canada]

So what is happening? As we approach the end of the first decade of the twenty-first century, mobile phones have become ubiquitous. In many mature markets – including Australia, Austria, Finland, Norway and the United Kingdom – mobile penetration has already exceeded 100%. Many consumers consider that having both a mobile and a fixed line service is unnecessary, so many markets are seeing a growing segment of “mobile-only” households.

But what about broadband access? Won’t a fixed line be needed to use VoIP applications such as Skype? Naked DSL eliminates the need for a consumer to pay for a rarely used fixed voice line purely to have broadband access, and is now available in a growing number of countries, including Austria, Canada, Finland, Norway, Sweden and the United States.

In both the UK and US mobile-only households tend to be in lower socio-economic groups, for whom mobile prepaid services are an attractive option, providing flexibility and control over spending. Research undertaken by the UK regulator Ofcom found that 15% of working class households are mobile-only, compared to only 5% of middle class households. In the US the CDC has found that in less than four years, mobile-only households have increased from one in twenty households to nearly one in six by the end of 2007. Characteristics that increase the likelihood of adults living in mobile-only households include share dwellings, tenanted dwellings and low income.

The traditional focus of universal service schemes has always been on fixed lines, with one of the intended beneficiaries being low income groups. However the target market is clearly turning away from services specifically created to address their needs, preferring options offering better management of spend plus being better suited to their lifestyle.

So – are fixed line prepaid services the answer? These have been introduced by a number of operators, particularly in developing countries, and enabling consumers to control spend. However, fixed line prepaid services would be more likely to cannibalise existing postpaid fixed lines rather than persuade low income consumers to take up both a mobile and a fixed line prepaid service. They would be of most benefit to consumers for whom mobility is not important. Note that a recent survey by the Australian Communications and Media Authority (ACMA) found that nearly a quarter of consumers with both fixed and mobile services would consider substituting their fixed line service with a mobile.

Universal service schemes are typically aimed at ensuring affordable services are available to everyone, but if the service offered is not the appropriate option for the target consumers then regulators need to address how the universal service should best evolve to address both market and technological developments.

May 2008

 

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