Most of this subscriber churn has taken place in the residential segment. However, with high-margin enterprise customers increasingly demanding advanced fixed line voice services, this segment is emerging as a key area of focus for operators. Further, the suitability of fixed line networks for providing high speed broadband services has made it a valuable asset for operators who were until recently hesitant to make additional investments in these networks. Service providers are now tapping these business opportunities in the fixed line service market due to the saturation of the mobile voice market in urban areas, which has been experiencing modest revenue growth.

Growing demand from enterprise customers

Although enterprises have been using traditional voice telephony technologies such as PSTN and leased lines, there is an increasing preference for new technologies including voice VPN and IP/MPLS networks. These new technologies are expected to help enterprises establish more secure and efficient communication connections among their various branches. Besides,  they will ensure higher quality of service (QoS) at relatively low costs, thereby enhancing productivity.

Meanwhile, enterprises are also recognising the need for augmenting broadband connectivity through the deployment of optic fibre technology. Corporate customers have started demanding high speed broadband services as they increasingly use bandwidth-intensive software and applications. Several organisations are also shifting to cloud architecture for storing their data and using third-party software and applications in a bid to reduce opex and capex. To ensure seamless connectivity to cloud services offered by third-party companies, enterprises are gearing up to deploy new wireline broadband technologies.

Given these business opportunities, many operators are now improving their fixed line service offerings for enterprise customers to boost revenues and profitability. For instance, Vodafone India, which has primarily been a wireless operator, is now aiming to offer video conferencing, email and security services to corporate customers, who generate higher revenues. The operator is targeting 20 per cent of its service revenues from the enterprise business by 2015. Further, Vodafone is expecting to leverage the enterprise customer base of Cable & Wireless, which it acquired in 2012.

Similarly, Bharti Airtel is betting big on the enterprise segment for the growth of its fixed line services business. At present, the segment contributes about 10 per cent to the operator’s overall service revenues. Bharat Sanchar Nigam Limited (BSNL), Reliance Communications, Tata Teleservices Limited and Mahanagar Telephone Nigam Limited (MTNL) are other operators that are targeting the enterprise segment for fixed line services.

Leveraging fixed line networks for high speed broadband

In contrast to fixed line voice services, wireline broadband continues to attract consumer interest, although limited. This is evident from the 4.32 per cent increase in the wireline broadband subscriber base from 14.57 million in June 2012 to 15.2 million in June 2013. Wireline broadband services, as against fixed line voice, continues to witness growth because while mobile voice services have been a good alternative to fixed line voice services, this has not been the case with broadband and customers still prefer wireline broadband at their premises.

The preference for wireline over wireless broadband can be attributed to several reasons. First, broadband speeds offered by wireless technologies are significantly lower than those provided by fixed line technologies. While the latter offer downstream speeds of up to 10 Mbps currently, the maximum speed attained by wireless HSPA networks is about 1 Mbps. The low downstream speed affects the quality of bandwidth-intensive services such as videoconferencing, VoIP and internet gaming, thereby deteriorating the end-user experience. Even though the launch of 4G services will provide high speed broadband connectivity, it will not be able to achieve the speeds supported by future wireline technologies.

Second, data network coverage remains limited at various locations across the country. This is because operators hold only 5 MHz of spectrum in the 2100 MHz band, which constrains their ability to offer optimum broadband connectivity at all locations. Further, the availability of 3G spectrum will remain limited as the defence forces are not expected to surrender spectrum in the 1900-2100 MHz band in the near term. With no availability of additional spectrum, 3G network coverage and capacity are expected to remain inadequate in the near term.

Limited smartphone affordability is another impediment to the mass adoption of mobile broadband services. The majority of subscribers continue to use sub-Rs 5,000 phones, while 3G-enabled smartphones are still priced at over Rs 6,000. As a result, these subscribers have access to low speed internet services (2G data) but are not equipped to access mobile broadband services.

These factors will continue to drive the demand for fixed line broadband services in the near future. As wireline technology can provide high downstream speed, operators can offer bundled services such as voice, broadband and cable TV, a popular business model in mature telecom markets. Several pure-play telecom operators such as AT&T and Verizon Communications have been offering these services for the past few years. Meanwhile, other service providers are also entering the cable TV market through acquisitions to enhance their offerings and improve their profit margins. For instance, Vodafone Plc recently bought Kable Deutschland to provide unified communication services and achieve its objective of becoming an integrated service provider. Similarly, NTT DOCOMO acquired Marianas Cable Vision Broadband to offer bundled services.

Having already deployed fibre in the access network in some areas, operators need to capitalise on the growing demand for bandwidth-intensive services. Bharti Airtel, BSNL and MTNL are already offering fibre-to-the-home services to their fixed line users. If these operators can encourage more broadband customers to opt for bundled services, it will augment their revenues significantly.

The way forward – fixed-mobile Convergence

While mobile services will continue to grow at a rapid pace, service providers can stem the decline in the fixed line segment by offering converged services. Under this model, an operator can provide both mobile and fixed line services to customers, thereby minimising the issues (complex billing process, operation and maintenance challenges) faced while availing of services from multiple operators. Also, converged offerings would ensure round-the-clock connectivity for users.

Offering converged services would benefit telecom operators as well. They will be able to leverage their existing fixed line infrastructure to deliver both fixed and wireless voice and data services, thereby easing network deployment challenges. Further, the total cost of offering these services (including customer acquisition expense) will reduce significantly for operators, which will enable them to realise higher returns on investments and reduce tariffs. Moreover, converged offerings will enable seamless handover of voice and data services between wireline and wireless networks, besides ensuring customer retention.

These services will further allow offloading of mobile traffic on to fixed line networks in high-density urban areas through the installation of femtocells at customers’ premises. With a significant rise in data traffic, the existing mobile networks are increasingly facing QoS issues. Offloading data traffic to femtocells, which are backhauled through fixed line broadband, will ease the pressure on mobile networks and also lead to improved QoS.

Thus, through converged services, operators will be able to deliver the best of both wireline (higher security and bandwidth) and wireless technologies (mobility) at competitive prices. Going forward, operators that are able to capitalise on this opportunity will have a competitive edge in the Indian market, where voice service revenues have almost stagnated and mobile data services are yet to witness mass adoption.