CONVERGING ON THE CUSTOMER

Mobile phone companies are going to have to change. Their core business is under threat: competition is fierce, markets are saturated, regulators here and in Brussels are demanding more price cuts on behalf of the consumer. So where’s the money to be made? Fixed-mobile convergence seems to be the answer.
 
The short-term solution for the mobile network is to grab subscribers from other networks (step forward, T-Mobile and FlexT) and/or to sell them more high-value services – MMS, video downloads, mobile TV, Java-based apps like location services.
But planning for churn isn’t a comfortable option, and the mobile data option will quickly become commoditised – the internet has taught customers to expect to access such services quickly, easily and cheaply.

So the networks are looking to fixed-line broadband to provide their middle-term future. The buzzword is convergence – data plus cheap VoIP calls over the fixed-line network, TV piped over the same wires, seamless switching to mobile telephony when out of range of a connection.
Research by ORC International in April 2006 suggests that consumers are ready and willing to change mobile network provider and/or their internet service provider (ISP) to move to a fixed-mobile convergence service. More than 40% of the 500 people interviewed would be prepared to change their broadband provider in order to take up a FMC service, the same proportion would be happy to move to a new mobile provider to do so.

Routes to convergence
There are two ways for the mobile networks to get converged. One is the DIY option, by building or buying it yourself.
Deutsche Telekom already has T-Mobile aboard. So T-Mobile is able to plan converged services in Germany with the fixed network of DT. But it has no plans for a similar strategy in the UK, and MD Jim Hyde has been quoted as saying “a purely mobile solution is one that is realistic and best for us”. T-Mobile is pinning its hopes on HDSPA, broadband speeds with wireless connectivity.
O2 has just bought a smallish but hyperactive British broadband supplier called Be. It is giving no details of its plans, but O2 UK CEO Matthew Key observed: “This acquisition will enable us to take advantage of technology innovations to offer a wider range of joined up mobile, internet and content services for our consumer and business customers in the future.”
Orange had already bought out its other partners in Wanadoo (which had already acquired Freeserve in the UK) and so had a broadband ISP inhouse.
“We are the only company in the UK to combine broadband, fixed-line and mobile communications under a single brand,” said Orange CEO Sanjiv Ahuja. “Customers want a seamless experience. They don’t care about the technology.”
Ntl has just done it the other way around, adding Virgin Mobile to its voice-and-TV cable services.
The word in the City is that a couple more internet service providers are up for grabs, with Tiscali and Cable & Wireless’s Bulldog mentioned most frequently. Hutchinson’s 3 is sometimes cited as a candidate among their suitors.
Vodafone definitely isn’t, not at least for those two. Instead Vodafone is taking the other route to convergence, building partnerships with broadband who can sell
it wholesale; BT broadband is the obvious candidate.
In the longer term Vodafone might look for its own infrastructure. For now, a close relationship with BT would make a lot of sense for both parties. And Vodafone does of course provide the mobile infrastructure for BT’s own MVNO service.
Vodafone CEO Arun Sarin says he wants to build a £3bn business in three years, based both on its ‘Mobile Plus’ converged services and from new advertising propositions (for instance, a free mobile TV feed if the user agrees to receive advertising messages – a model Sarin describes as “Google-like”).

TV over broadband
And then there’s TV, delivered over broadband connections via a set-top box. All the major players are keen on this, seeing an additional source of revenue from the TV channels.
But maybe they should be a little wary here. A report last month by Forrester Research warns that low revenue opportunities and the high investments needed to add TV services to data and VoIP voice calls could result in “significant” losses for Europe’s telecoms operators.
The major problems, says Forrester, start with the high cost of the infrastructure – for instance, “it’s hard to see how Deutsche Telekom ‘s planned E3bn investment in fibre and VDSL networks can ever return a profit in a country where consumers enjoy up to 48 free-to-air TV channels and are used to paying very little for TV services”.
Add in factors like the distractions of ongoing mergers and acquisition activity, restructuring, and consolidation which characterise the telecoms business, and Forrester asks the question: “Will operators be able to make money from their push into IPTV? At the moment, the answer is no.”

Opportunities
There are a couple of interesting issues with fixed/mobile convergence. Seamless switching requires good wi-fi connections, and not just within a few metres of the handover box: it will be a few more months before a decent selection of attractive, efficient FMC handsets is available; it’s not at all clear what level of technical support will have to be provided; and it’s not clear how FMC will actually
be sold.
On that last point, the initial round of promotions will almost certainly exclude the mainstream independent dealer. Orange for one has said that its free-broadband offer to mobile users on a monthly contract of £30 or more will only be available through Orange stores and its website.
There may well be real opportunities beyond the early installations, though. As the networks push for a mass market they’ll need the sheer volume of sales effort that the distributors can provide. And, crucially, the retailer can become the first line of support, easing the pressure on those Indian call centres and keeping the customers happy.

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