The depressed fixed-line market is in for a growth spurt, predicts research and analysis firm BMI-TechKnowledge. It expects a 3% compound annual growth rate (CAGR) over the period 2009 to 2014.
However, industry commentators are sceptical, especially in light of a conflicting report from Gartner, which predicts fixed-lines in service from all providers in SA will decrease slightly from 2009 to 2014, by a five-year CAGR of -0.7%.
Gartner's prediction is in line with reports from Telkom last month, indicating a 4.4% year-on-year decline in fixed-line penetration.
Fezekile Mashinini, BMI-T telecoms analyst and co-author of the “SA Voice Services Market Forecast” report, concedes the market has experienced negative growth over the past few years, but argues that it is set to stage a possible turnaround.
He attributes this to recent developments in declining mobile termination rates. Mashinini explains that the former public switched telephone network players - Telkom and Neotel - have the ability to benefit from this development by clawing back part of the traffic they lost to least-cost routing (LCR) providers.
On this point, Neotel agrees with Mashinini: "Neotel agrees with the view that the current mobile LCR market will shrink rapidly as mobile termination rates continue to fall below LCR discounted retail prices,” says Angus Hay, executive head of technology at Neotel.
“This will certainly move most fixed-to-mobile call traffic to fixed-line networks that are interconnected with mobile networks, and will lead to growth for fixed-line operators. The LCR market was well-established before Neotel's entry in the market and this, therefore, represents a new opportunity for Neotel,” he continues.
Another school of thought argues that lower termination rates will have little or no effect on the fixed-line market and, instead, LCR players stand to gain more.
Opposing arguments
“As termination rates fall, the cost of fixed-to-mobile will also fall, and this may make an LCR solution less cost-effective to business. The LCR market will increasingly use VOIP to continue offering value to their clients. So termination rates should have very little impact on the growth of the fixed-line market,” argues Steven Ambrose, MD of WWW Strategy.
“The lowering of mobile termination rates will have the most profound effect on the LCR market. Termination rates, in our opinion, will have little or no effect on the fixed-line market. Fixed termination rates are also being revised, but also will have little effect on the growth of fixed-lines.”
The continued weakness in fixed-line penetration will continue, insists Ambrose, until such time as Telkom revises its business practices and offers converged services such as video over high-speed ADSL, for example.
“Fixed-mobile substitution will definitely continue, especially in the consumer market, for at least the next five years. We do not foresee any resurgence in the fixed-line business model with the current incumbent, Telkom.
“BMI-T appear to have misunderstood LCR, which focuses on maintaining calls on the same mobile network, and not substituting fixed for mobile calls, as fixed-line calls to fixed-line calls were and are far lower in cost, than fixed-to-mobile calls,” contends Ambrose.
As more and more people go mobile with their businesses, and personal lives, for both Internet access and voice calls, they will continue to cancel their home fixed-lines. As a result, fixed-line penetration, and the associated revenue, will continue to fall, he concludes.
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