Mobile stands alone

Will mobile networks one day replace the public network, or will wireline and wireless networks somehow converge? There are no simple answers to these questions.

We can view the future in terms of three possible scenarios: a substitution model, in which the wireless network largely supplants the wireline network; a convergence model; and a model in which mobile continues as a distinct sector. We believe that the third scenario will predominate during the next five years.

The recent acquisition of AirTouch by Vodafone is a bet for continued growth of mobile along a separate evolutionary track-a bet premised on the idea that there is discrete, growing demand for mobile communications.

Following are examples of each of the three scenarios in the context of demand:

Substitution. In this model, widespread abandonment of fixed network services would occur in favor of mobile network services. For this to happen, mobile providers would have to deliver the same or better quality and reliability as the wired incumbents at the same or better prices.

And therein lies the problem with this view of the future. Despite progress by mobile operators, they fare poorly compared with wireline in terms of service quality and bandwidth. The continued deployment of fiber in business centers and of high-speed data options for homes and small businesses demonstrates the continued relevance and capability of wireline connections.

Nevertheless, the consumer segment-especially younger consumers-will increasingly shift their voice traffic to mobile networks, a trend already apparent in Western Europe.

Convergence. In this example, a hybrid fixed/mobile network would evolve. Dual-mode devices would be used, and call-management intelligence would be built into networks.

Fixed network operators would have considerable costs, and mobile operators would demand equal opportunity and conditions to offer such services. That regulatory uncertainty seems certain to delay significant investments.

Initially, broadband mobile networks would be deployed only in major business centers. To serve these customers, consortia will emerge that will buy fixed and mobile capacity and create the software platforms required for converged offers, or companies that own both networks will create separate business units to address the needs of these users.

Stand-alone mobile. Although increased substitution and eventually some level of convergence will occur, mobile providers will remain a sector in their own right for at least the next five years. Third generation mobile technologies will conquer today's network interoperability challenges and thus allow terrestrial mobile network operators to serve the globe-traveling mobile user. Planned spectrum auctions in the European Union will result in improved mobile data capability, growth of mobile revenues and the rise of several new horizontal and vertical markets.

Dramatic growth has already been sparked in several markets by the sale of prepaid mobile phones and prepaid calling cards for mobile use. This allows providers to collect from customers up front and for customers to get service without credit checks. Prepaid mobile accounts for the vast majority of new subscribers across Europe, and recently the same trend has been apparent in Asia.

In markets that have already achieved high mobile penetration rates, more mobile growth is predicted.

The U.K. mobile market saw 25% market growth in the fourth quarter of 1998, and analysts confidently predict 50% penetration in five to six years. In Scandinavia, mobile networked device penetration is predicted to approach 100%.

Increased penetration begets greater mobile-to-mobile traffic. For most providers, interconnection fees paid to wireline networks have eaten away at profitability. Mobile-to-mobile traffic would allow operators to bypass those fees and keep substantially more of their revenues.

Mobile is never going to be a business of shipping phones in boxes to people you hope will talk a great deal. Rather, it is becoming a more complex industry, with fragmenting and diverse customer demands.