|Issue:||Europe I 2012|
|Topic:||Development of the Austrian mobile communications market|
|Author:||Dr Georg Serentschy|
|Organisation:||Austrian Broadcasting and Telecommunications Regulatory Authority|
Dr Georg Serentschy was appointed CEO Telecommunications of RTR-GmbH, the Austrian Broadcasting and Telecommunications Regulatory Authority, in 2002 and reappointed in 2007 and 2010. He is the Chair of BEREC (Body of European Regulators for Electronic Communications) for 2012. Before these assignments Dr Serentschy was Managing Director of Arthur D. Little’s operations in Austria and Central Eastern Europe.
Telecommunications markets are currently faced with a fundamental trend toward the substitution of fixed-line services with mobile services. While this trend is already quite visible in the voice telephony segment in most European countries, Austria is also in the midst of a phase in which mobile networks are overtaking fixed-line networks due to the rapid development of mobile broadband. In this article, we analyse time series in order to identify how competition and the regulatory framework have contributed to the economic development of the Austrian mobile sector and to demand for mobile services.
The original driving force behind the high level of competition among Austria’s mobile operators, which has even spilled over to the fixed-line networks due to fixed/mobile substitution in recent years, was certainly the allocation procedures for new 2G licences, which were awarded in the years 1996 to 1999. The background in Figure 1 shows the number of active operators in Austria (based on the launch of commercial operation), with the darker shades of blue representing an increasing number of operators. Thus, since the second-largest mobile operator took over the fourth-largest operator in mid-2004, a total of four mobile operators have been offering services via their own networks. It is also worth mentioning that Austria’s fourth 2G operator was able to roll out its network with a population coverage of approximately 90 per cent in just one year by using the existing masts and fibre optic cables of a power supplier and the Austrian Federal Railways.
Source: RTR operator surveys
Figure 1: Fixed-line and mobile networks (2G/3G): penetration, voice telephony and broadband
As mobile services were launched at an increasingly rapid pace, each new market entrant was forced to gain market share by offering innovative, reasonably priced products. 2G penetration (measured in terms of population) rose from approximately 28 per cent to 82 per cent in a period of three years (early 1999 to the end of 2001).
Austria’s UMTS (IMT-2000) licences were awarded on November 20, 2000, and the winning bidders included the four existing 2G operators as well as two newcomers. In 2002, growth reached a plateau, as the network operators were busy rolling out their 3G networks. In mid-2003, Austria’s fifth 3G operator (in this case exclusively 3G) launched its services. However, the considerable time lag between licensing and the launch of services via a self-operated 3G network was not the responsibility of the network operators. This delay affected all other network operators, both in Austria and abroad. One reason for the delay can be found in the increasingly difficult process of searching for suitable sites for transmission equipment due to citizens’ initiatives against the uncontrolled spread of antennas or due to fear of exposure to radiation. Another reason was the fact that equipment suppliers encountered development and delivery problems with the new 3G technology, and the number of marketable handsets available was excessively low. The latter factor has always been especially important in Austria because handsets are subsidised heavily by network operators.
The second newcomer on the market sold its frequency usage rights to the market leader in the 2G segment. After the launch of 3G networks in Austria, growth in the number of subscribers continued to increase rapidly. By the end of 2011, market penetration is expected to reach approximately 150 per cent.
Since 2005, this growth has been driven by mobile broadband services. It is also worth mentioning the year 2007, in which a highly innovative and reasonably priced mobile broadband product was launched which entered into direct competition with fixed-line products: Once the data transfer volume included in the contract was exceeded, the bandwidth available for the broadband connection was simply reduced until the end of the current billing period, or the subscriber was allowed to purchase a temporary additional data package.
Comparison of the fixed-line and mobile sectors
Figure 1 also compares the development in the number of mobile subscribers to the corresponding development in the fixed-line sector. In this context, a sharp decline in the number of fixed lines can be observed; this development can be attributed to the high degree of mobile/fixed-line substitution in Austria. Thus the percentage of residential households which completely replaced their fixed lines with a mobile phone rose from 27 per cent in 2005 to 49 per cent in 2011. Among business customers substitution increased from 2 per cent to 12 per cent over the same period.
This substitution effect applies to voice telephony but has also been observed in the field of broadband access in recent years. In the mobile sector, this kind of substitution was not technically feasible until UMTS and especially HSDPA(+) were introduced. In 2011, growth has weakened considerably, with combined broadband penetration approaching 100 per cent (in terms of households). Future growth will predominantly be driven by those subscribers who decide to use mobile broadband as a complement to fixed broadband access. If smartphones (approximately 1.2 million additional lines) were included in these figures, then the mobile broadband penetration rate would come to 76 per cent at the end of 2011.
In order to show the importance of Austria’s mobile sector over the last ten years, Figure 2 compares a number of indicators for the mobile and fixed-line sectors. As early as 1998, the number of mobile subscribers had already overtaken that of fixed-line subscribers.
Source: RTR operator surveys
Figure 2: Comparison of mobile/fixed-line networks: subscribers, minutes, revenues and implicit prices
As of late 2011, more than 80 per cent of all subscribers in Austria are mobile network subscribers, and over 80 per cent of all call minutes are handled by mobile networks. The share of revenues is slightly lower (68 per cent). On this basis, it is possible to derive the price development for an abstract, average call minute as depicted by the broken line in the figure above. As early as 2007, the implicit price level in the mobile sector fell to a lower level than that of the fixed-line network. In the fixed-line network, there has apparently been a slight increase in the implicit price. However, this increase cannot be attributed directly to changes in the price of fixed-line products. Instead, it has arisen from changes in the distribution of traffic, as the relative share of more expensive call minutes to international destinations and mobile networks (compared to national call minutes) is higher than it was in the past (fixed/mobile substitution). At the same time, the rapidly growing impact of the monthly base fee has become a more significant factor in these calculations due to the sharp decline in call minutes.
In summary, we can state that the mobile sector has taken on a highly significant role in the voice telephony market in terms of the number of subscribers, call minutes as well as revenues. In broadband services, a similar trend has also emerged in recent years, although the share of mobile broadband seems to have levelled off at just over 40 per cent in the last three years. However, this figure does not include smartphones, which would raise the mobile sector’s share to approximately 57 per cent (at the end of 2011).
However, the commercial launch of LTE (long term evolution), which will at first concentrate on areas of high population density in late 2012, could bring about additional gains in market share compared to the fixed-line network. One decisive factor in this context could be the subscribers’ nearly identical usage behaviour regardless of the broadband access technology used, as shown in Figure 3.
Usage behaviour and subscriber satisfaction in broadband access
Source: Demand-side survey commissioned by RTR
Figure 3: Broadband usage
Figure 3 shows an excerpt from the results of a periodic demand-side survey on behalf of the regulatory authority (last conducted in January 2011). The statistically representative survey sample consisted of 2,036 households in the residential segment and 1,000 businesses in the business segment. As in previous surveys, the results demonstrate that from the users’ perspective, the most important uses of broadband access are e-mail and searching for information on the Internet. This applies to all users, regardless of whether they use mobile or fixed-line broadband access exclusively or as complements to one another. Other frequently indicated applications were the use of social networks and online banking. The more frequent use of streaming video via mobile broadband connections appears to be a unique characteristic of Austrian subscribers. This might be attributed to the fact that a number of Austrian mobile network operators promote their television content quite heavily. This content has also met with high acceptance among subscribers.
In addition to usage, the broadband survey also explored the reasons for choosing mobile broadband access. As expected, the respondents mentioned mobility as the most frequent motivation in this context (54 per cent). At the same time, the following reasons were also mentioned: low costs (50 per cent), easy installation (38 per cent) and the purchase of a new notebook/netbook/tablet (30 per cent).
94 per cent of respondents in the residential segment indicated that they were satisfied with their mobile access; of the remaining respondents, half would like to switch to fixed-line access and half would like to use fixed-line access as a complement to mobile broadband. 81 per cent of business subscribers were satisfied with their mobile broadband connection. Due to the mobility requirements, the dissatisfied business subscribers did not consider it sensible to switch to fixed-line access.
In summary, the Austrian mobile sector has taken on as significant a role in broadband services as it has in voice telephony. However, we believe that this represents a general trend which will also arise in other European countries in the coming years, especially with the widespread introduction of LTE.