Friday, June 3, 2016

Mobile "Is Not Yet" a Functional Substitute for Fixed; Emphasis on "Not Yet"

Sometimes the key phrase in any sentence is “not yet,” as in the observation by Strategy Analytics that “mobile broadband is not yet replacing fixed services.”

"The reality is, fixed broadband is continuing to grow in the US, and not being replaced by mobile broadband as some have reported," said Jason Blackwell, Strategy Analytics director.

Some parsing clearly is called for. Some of us would say we are not aware of any analyst or researcher actually claiming that mobile Internet access is substantially or completely displacing fixed connections in the U.S. market.

Unlike the case with voice services, there has not been widespread substitution of mobile for fixed access, taking the form of customers terminating fixed connections and substituting mobile connections, though there has been speculation about what “could” happen in the future.

But most observers consistently say mobile is not a substitute for fixed Internet access. In fact, some observers only suggest that could happen in the future.

The point is that virtually nobody argues that mobile broadband access “already” displaces any substantial amount of demand in the U.S. market, in the same sense that voice lines have literally been abandoned in favor of mobile voice.

But it would be correct to argue that “both and” was the intermediate stage in the voice replacement process: most people added mobile, but kept fixed line services.

Only over a process of decades did a growing percentage of people actually conclude that keeping a fixed line did not make sense. Several market changes drove the sentiment shift. First, once every adult in a family or household had a mobile subscription, the question of keeping a voice line became a real viable choice.

Also, only after the big change to “unlimited domestic” calling (no long distance charges) did mobile actually become a preferable option to fixed voice, allowing full functionality at lower prices. That process also took some time.

Too, the need to keep a fixed voice line for dial-up access disappeared, as separate high speed access connections became the substitute product for dial-up Internet access.

Nobody argues such a change already has happened in the U.S. Internet access business, only that it could happen, and that platform shifts to 5G networks, millimeter spectrum, virtualized networks and small cells, for example, will make wireless access a functional substitute in the future.

When and if such a transition begins to happen, it is likely to follow the same route as did the shift to mobile voice. In the interim “use both” will be the intermediate stage, since the price per bit and speed comparisons will not be fully equivalent.

Potentially, as more users have experience with both services, and if the packaging makes the products functional substitutes in a speed and usage allowance sense, some users will begin to shift, literally dropping the fixed connection.

Outside the United States and the “developed” world,  the choices are profoundly different.

In developing markets, substitution is a reality, though not in the sense of “replacement of a fixed connection by a mobile connection.”

Because of the unavailability of any fixed connections, most Internet users rely on mobile, not fixed connections.

The point: In virtually all developing nations, mobile is a substitute for fixed line access, as all data on mobile and fixed Internet access show.

To be sure, the claim that mobile is, or is not, a functional substitute for fixed access becomes a public issue where mergers are proposed, leading market contestants to make one or the other argument. That is polemics, not analysis.

To the extent that Wi-Fi, though an untethered service, is a fixed form of access, not a “mobile” form, the argument is raised by cable operators and others who argue that dense Wi-Fi hotspot networks can underpin a significant part of the network access solution for some mobile operations and business models.

The Strategy Analytics report on U.S. Internet access methods, which points out that “cable operators added 3.3 million new subscribers in the 12 months from April 2015 through March 2016, helping drive total fixed broadband household penetration to nearly 80 percent.”

The study also points out that cable's broadband market share has increased to more than 62 percent.

Perhaps that is context for the assertion that “some” have claimed mobile, in the U.S. market, “already” is a functional and widespread substitute for fixed access.

To my knowledge, virtually nobody ever has made that claim, other than to say one could make that choice, in some instances. One could do so, though relatively few have done so.

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