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SP360: Service Provider

By Gaetano Pellegrino, Senior Manager, IBSG Service Provider (Western Europe)

According to new research from the Cisco Internet Business Solutions Group (IBSG), fixed broadband Internet access is the highest priority service in consumers’ entertainment and communication portfolio. Despite the advent of smartphones, they view mobile data as more expendable.

Cisco IBSG regularly tracks such issues in its Connected Life Market Watch research platform. In the fall 2011 edition, it surveyed some 3,900 broadband consumers in North America (including Canada) and France, Germany, Italy, and the United Kingdom.

Consumers Love Their Smartphones—but Rely on Fixed Access

According to British regulator Ofcom, two in five U.K. adults and three in five teens admit they are “highly addicted” to their smartphones. But Cisco IBSG found that despite consumers’ smartphone addiction, they do not prioritize their mobile data spending accordingly. Most consumers in all countries surveyed would cut mobile data services first or second if they needed to reduce their household communication and entertainment expenditures.

Why haven’t consumers adapted their spending priorities to favor mobile data? First, consumers use their mobile phones for a lot more than Internet connectivity—voice calls, music, photos, and many other things. And when consumers do use their smartphones for data access, the research shows that about 80 percent of mobile Internet activity is not truly mobile, but nomadic—that is, it takes place in various fixed locations such as home, work, school, or an airport terminal. With the advent of tiered pricing, consumers are limiting their use of expensive cellular data in favor of Wi-Fi networks that provide unlimited, convenient, and high-performance access. Mobile data is seen as an extension and complement to fixed Internet offerings.

Consequently, as shown in Figure 1, broadband services have become and remain the anchor service in all countries we surveyed; more than 64 percent of broadband consumers will keep their broadband subscriptions as long as possible, and only 16 to 21 percent would cut broadband first or second from their household communication and entertainment budget.

Figure 1.   Consumer Spending Priorities: Which Services Would You Cut First from Your Monthly Communications Budget if You Had To Reduce Expenses?

Respondents dropping a service last or second to last are shown above the line, and those dropping a service first or second are below the line.
Source: Cisco IBSG Connected Life Market Watch, 2011. Base: 3,900 broadband consumers.

Italians Love to Talk Mobile

Consumers are also addicted to their mobile phone services—especially in Italy, where 60 percent of consumers would keep their mobile service as long as possible if forced to reduce expenses. Only 18 percent of Italian broadband consumers would drop their mobile voice subscriptions first or second, showing the high relative value of mobile voice services to Italians. By comparison, consumers in Canada, the United Kingdom, and Germany would be more likely to drop their mobile phone service than most other services. Not surprisingly, countries that are the most protective of mobile voice are least protective of landline.

Americans Hooked on Pay TV—for Now

Spending on pay TV services has a different priority in each country. For example, only 30 percent of U.S. broadband consumers would drop pay TV first or second, compared with 53 percent and 65 percent of their French and Italian counterparts, respectively. Given the availability of high-quality free TV and the relatively low penetration of pay-TV service in Europe, this is hardly surprising. But as it becomes easier for consumers everywhere to watch TV programming over the Internet, industry stakeholders are carefully watching how consumer spending on pay TV could shift.

Opportunities for Service Providers

Cisco IBSG sees interesting opportunities for telecom operators to translate consumer behavior into revenue:

  1. While consumers are more protective of fixed broadband than mobile broadband, they have become addicted to Internet access. Their underlying behavior could give SPs an anchor in fixed broadband to pull in mobile broadband as part of a bundling strategy.
  2. Consumers are depending more on Wi-Fi for mobile Internet access. By leveraging Wi-Fi, SPs could explore ways to price mobile data at compelling price points.
  3. Spending on pay TV is evolving. As TV-over-Internet availability grows, SPs need to closely monitor how consumers’ spending priorities change. Tying TV service to broadband services and providing multiscreen access could help SPs retain TV revenue.

For a more complete comparative analysis of Cisco’s recent Connected Life Market Watch research, please visit http://www.cisco.com/web/about/ac79/docs/clmw/CLMW-Service-Delivery_CrossCountryComparison.pdf

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5 Comments.


  1. Thanks for the info. it helped me a lot.

       0 likes

  2. Dr. Jose A. Wong - Perez

    …I agree that those become addicted to Internet will play an important role in the game of full mobility and BYOD is one of these components in the game…and I’ll look forward in the improvement of the capabilities, and versatility of new devices to come, to engage at full any application, in real time with better and cost effective broadband access…

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  3. Hello Chris – Thanks for your note.

    I liked your analysis and agree with a lot of points you make. I understand that is relevant mostly to the developed world only as the dynamic in the developing nations is a bit different.

    Even within the mature markets from a telecom perspective – such as the Middle East where I belong, there are some Key Questions I’d like to add.

    So, although I agree with most of what you have said, if I may, would like to add my two cents:

    I completely agree with your analysis and second the nomadic / mobile theory. Also, agree with the potential of WiFi (fixed BB) as an anchor for future growth – and was in fact also speaking to Stuart Taylor (@STaylorCisco) on the same (his South Korea post – on LinkedIn).

    But where I feel a gap has been left open is for mobile only players. How do mobile-only as opposed to converged players address this situation. WiFi is widely available these days – and free – and this is primarily an offload over Fixed BB. So, how does WiFi (and that too paid WiFi) fit in the scheme of affairs for Mobile-only players? Do you feel there is a business case around WiFi for them as well.

    I my self am quite passionate about this topic and am increasingly focusing a lot of my work with my clients on “How does the SP of 2015 look like and where does it make money from?” – more so, especially in the wake of dipping data ARPU’s and increasing data usage (primarily over all-you-can-eat mobile plans OR over Fixed BB powered Free WiFi).

    Cheers, Abhinav

       0 likes

  4. Gaetano Pellegrino

    Dr. Jose A. Wong-Perez,

    Thank you for reading this blog and taking the time to comment. We agree with you. As we see more broadband connected devices proliferate, consumers demand for broadband will only increase. One consequence of this demand for mobility and for broadband is consumers’ increasing usage of WiFi. If you’re interested, I suggest you review our related papers on what consumers want from WiFi (US study and Brazil) for a deeper look at consumers’ current WiFi demands.

       0 likes

  5. Gaetano Pellegrino

    Hi Abhinav,

    We agree strategies will differ among Service Providers . A Mobile SP will have very different business considerations than a Wireline SP or an Integrated SPs . Mobile SPs absolutely have to consider how WiFi can dilute mobile broadband spend. However, WiFi could also provide an important complement to a mobile network, offering SPs an opportunity to gain cost-efficiency in high-use areas. So, the first step for mobile operators is to evaluate when to view Wi-Fi as a complement and when to view WiFi as a threat to their existing licensed cellular services. Mobile SPs then need to consider how WiFi impacts their overall strategy (eg., network build-out plans and mobile data pricing plans).

    You may be interested in a White Paper Cisco IBSG published in March, “Profiting from the Rise of WiFi.” In this paper, we more fully evaluated a number of WiFI opportunities from the perspective of three types of SPs (mobile, wireline, integrated) to help SPs determine the value they can receive from the Wi-Fi business models.
    Thank you for your insightful comments.

    Best regards,
    Gaetano

       0 likes

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