Tuesday, 8 January 2013

What does the Center for Disease Control have to tell us about broadband?

It turns out that the US's Center for Disease Control publishes statistics about the portion of households that do not have fixed phones (I'll leave it to them to explain why).

The figures for June 2012 are now out, and they're quite striking. In the US 34% of adults live in a house with wireless phones only. Amongst those aged 18-34, the figure is around 54%. Those number cutting the telephony cord is also rising fast - around 4% per year.

While the speed of this transition may be surprising, the underlying reasons are not. The ease of use for outbound calls, large bundles of inclusive minutes and improving voice signal quality all mean that the mobile is a preferable way to make calls, and of course calling someone's mobile is the best way to reach them. Also, mobile phones are (in the developed world) increasingly seen as a necessity. The fixed phone has become an incremental, and optional expense - one that represents increasingly poor value for money as usage switches to mobile.

So what's this got to do with superfast? Actually, it's more of an issue for fixed broadband in general.

Firstly, the underlying costs of a fixed connection (either copper or fibre) are virtually the same, whether it's being used for voice, internet or both. Consequently, the margin on adding an extra service can be high - hence the popularity amongst operators of bundles. However, the telephony cord-cutting trend suggests that there's going to be diminishing contribution to that cost of a fixed connection from voice. Any Next Generation Access business plan would do well to be cautious about expecting voice revenues to make a meaningful contribution.

Secondly, the dynamics of fixed and mobile voice discussed above could also play out with fixed and mobile broadband. Mobile data usage is likely to become very widespread, and seen as necessary in just the way mobile voice is today. This sets up the decision to also have fixed home broadband as an incremental choice - an extra spend that must be justified by the extra benefits brought over and above just using wireless broadband at home.

The extra benefits are real - fixed broadband will bring greater speeds to most consumers, and for those using material amounts of data, the higher data allowances on fixed broadband will be valuable. However, for many consumers (perhaps those on somewhat tighter budgets), they may decide that the extra cost of these benefits is not worth paying. It is in this sense that mobile broadband is potentially a substitute for fixed broadband - not because it is technically as capable (it isn't), but because some consumers may choose to buy wireless broadband instead of fixed.


  1. As a market researcher with an Australian national research company for over 15 years, I have witnessed first hand the changing trends towards mobile telephony and wireless broadband. Nevertheless, for anyone with serious amounts of data to download (ie. academic researchers like myself) or businesses with massive amounts of transactional data going to central servers and data storage warehouses, fixed broadband is without parallel for transfer rate speeds. Notwithstanding this point, Australia's mobile coverage is still fairly patchy. For example, we have direct line-of-sight to a mobile tower (set atop a mountain) 5Kms away, and the different signal strengths range from no signal to full signal over a 4m radius. As you can guess, there is considerable frustration of having a voice call drop out, or a data download having to reload, because of lost signal while moving about the house. Moreover, we still have a fixed line for our wireless router, and I can't see this ever really changing if you want decent download speeds and uninterrupted coverage. Mobile might be useful, but it will never fully surpass fixed-line broadband for quality service.

  2. David -

    I agree with you that technically fixed line will always be superior to mobile. The question is whether there will be a group of people for whom that extra technical capability will not be worth the extra cost - I suspect this will be a growing group, though certainly for the foreseeable future still a minority