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July 03, 2014

Can Fixed Voice Providers Fend Off Mobile Substitution?


"By 2015 you're going see these peak speeds of 180 Mbps, where you're getting peak speeds of 60 Mbps today," says Jay Bluhm, Sprint VP. That naturally raises the question of whether mobile high speed access can be a reasonable substitute for fixed high speed access, and if so, under what conditions.

The flip side of the question is what fixed network service providers can do to add more value to a fixed connection. The thinking often includes content and apps.

In a broad sense, the effort to “revamp the product” is one major strategic approach for nearly any legacy communications service. High-definition voice, adding text messaging features to fixed line voice services or extending calling areas are some ways fixed network service providers attempt to add important new features in an effort to add more value to a fixed network voice service.

The other major strategic approach is to “harvest the product,” essentially undertaking only such measures as are feasible without investing significant new capital into the business. Dropping retail prices is one example of a tactic to harvest revenues.

That almost always is accompanied by investment in new lines of business that will replace lost legacy revenues.

The classic example is AT&T.

When confronted with a sustained drop in average revenue per minute of long distance usage, AT&T essentially decided to harvest the revenue stream rather than reinvent the product, turning its attention instead to measures that would create new lines of business.

AT&T bought NCR in 1991 as an effort to enter the computing business. NCR eventually was spun out as a separate company.

In 1993, AT&T entered the mobile business by buying McCaw Cellular.

AT&T bought the largest U.S. cable TV company in 1998, and MediaOne, in 2000, becoming the largest provider of cable TV services in the U.S. market, only to dismantle the strategy and sell those assets in 2001.

The strategy arguably failed.

In 2005, AT&T was acquired by SBC Corp. The point is, in essence, AT&T was never able to create new lines of business big enough to displace the older revenue sources.

Whether mobile substitution will prove a growth business for Sprint, and how big it could be, is the issue. The reverse also is true. It is unclear how successful fixed network service providers will be at creating more value for fixed network voice services.




Edited by Maurice Nagle


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