Recession Impact: ARPU
December 08, 2008
By Gary Kim, Contributing Editor
One possible scenario for the telecom industry during the current economic slowdown is that fixed-to-mobile substitution accelerates, as consumers reduce their communications bills by cutting their fixed line in favor of mobile services. With mobile broadband deals now more readily available and affordable, there is potential substitution on the broadband front as well. But Ovum (News - Alert) recently polled about 8,000 consumers and found something more nearly in line with historical types of consumer behavior in recessions.
What Ovum researchers found is that the majority of consumers who do think they must economize will scale down rather than cancel their broadband service. About seven percent of respondents would ditch their fixed line for both voice and broadband in favor of mobile services, and only one percent said they would be prepared to keep their fixed voice but cut their broadband access.
Some six percent said they would cut their mobile subscriptions.
The majority of respondents, 65 percent, said they would simply look to reduce spend in certain areas, rather than canceling one of their services altogether. At the top level, how they might reduce spending was fairly evenly split across reducing fixed voice calls, mobile voice calls and multi-channel video subscriptions.
Such behavior would be entirely consistent with the ways consumers have behaved in past recessions: keeping the basic services but cutting back on enhanced services or delaying upgrades to advanced services.
In the multi-channel video area, one historically has seen consumers keep their enhanced basic service, but maybe cut back on premium services such as HBO or Showtime. These days, the behavior is more likely to be to cut back on the number of on-demand event buys.
People between 16 and 25 are more likely to either drop their fixed line altogether (10 percent of 16- to 25-year-olds) or keep a fixed connection but rely more on their mobile phone for calls (28 percent of 16- to 25-year-olds) than any other age group.
Older users are less likely to rely on their mobile and more likely to keep the landline, with only five percent of users over 55 saying they would cut their fixed line. Keeping both mobile and fixed voice services but cutting broadband access is not a popular option in any age groups. That finding points out how central broadband now is in the fixed line business.
In Korea 15 percent of respondents would cut their fixed line altogether, compared to roughly five percent in most Western European countries other than Italy, where 11 percent said they would drop their fixed services. Conversely, in Germany and France 11 percent of respondents said they would rather keep their fixed line and cut their mobile service.
The Ovum survey data is quite consistent with consumer behavior we have seen in past recessions. The big issue for most service providers will be in the average revenue per user area, more than the "cancelled subscription" area. The one service where that sort of pressure could be more acute, however, is wired voice service, which has been declining in popularity for some time.
With that exception, most service providers will find ARPU the bigger problem than lost subscribers, the salient exception being those service providers who had been facing market share erosion before the recession.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary's articles, please visit his columnist page.
Edited by Tim Gray