FMC Isn't the Only Game in Town

Summary

Issue

A mobility strategy is this year's must-have item for incumbent fixed-line operators, and a rash of recent announcements have seen mobility solutions integrated into existing portfolios. Where once there was a trend for divesting mobile assets, these have once again been tightly integrated into the mainstream telecoms offering. Mobile operators, on the other hand, have been singing the praises of a mobile-only (fixed-mobile substitution) future for some time. Recently, this song has been muted, with increasing attention placed on the integration or bundling of fixed and mobile services and more emphasis put on providing a portfolio (fixed-mobile convergence) of solutions and meeting the needs of triple play services. With the mobility-at-all-costs mantra now dead and buried, how are fixed and mobile operators positioning themselves to exploit this brave new integrated world?

Current Perspective

The battle of convergence versus substitution is a dream match for the telecoms industry. Not only is this a battle of technologies, it goes to the roots of an industry sector and commands the interest of a wide range of industry players, from service providers, equipment vendors, content providers, sales/marketing and advertising organisations right through to technology and trade PR and consumer marketing organisations. There is nothing more consuming than two opposing camps - both with considerable financial backing - to fuel a spending spree throughout a market sector on equipment, services, development, marketing and advertising. In the final analysis, both convergence and substitution boil down to the simple concept of locking-in the end user, be it business or consumer, to a range of services from a single vendor, thus increasing longer-term loyalty, driving margins from reduced CRM activities and gaining a larger proportion of the individuals spending on telecoms services.

Convergence is essentially the leveraging of legacy infrastructure with new mobility and content services to offer customers the holy grail of triple play. Convergence is, not surprisingly, touted by players either with their own local-loop connectivity or a vested interested in broadband or content services. Substitution services, on the other hand, are usually touted by newer players without a legacy (local loop) network and a need to churn additional customers from the fixed line. Substitution touts the flexibility of mobility as its unique selling point, and as a longer-term vision, it clearly finds supporters in an increasingly wireless world. Cutting the cord is becoming commonplace to many consumers as they purchase wireless devices; handsets, home networking, security and home automation all increase awareness for the convenience of mobility in daily lives. As a vision, fixed-to-mobile substitution is a longer-term goal for many products and services.

However, whilst the debate on convergence or substitution continues unabated, operators are executing on their chosen strategy. For some, notably France Telecom, the convergence strategy is consuming all of its operating divisions in a thorough upheaval of all of the company's business operations. Telefonica has purchased O2 to increase its mobility options, notably in Germany, and Virgin and ntl have finally tied the knot in the UK market. Recent mergers and acquisitions have given the convergence players a head start, but as the following table shows, mobile operators also have the potential to compete and offer both convergence and substitution services as required in specific markets.

Fixed & Mobile Players

	UK	France	Germany	Spain
Orange	Orange has partnered with Cable & Wireless to allow it to provision SMEs with fixed telephony services. Cable and Wireless will provide Orange with fixed infrastructure links for wholesale line rental and carrier pre-selection with BT.	France Telecom’s NeXT strategy seeks to position the company as an ‘integrated operator’ offering seamless fixed/ Internet/ mobile services through multi-access devices and shared access. The carrier will roll out UMA-enabled Homezone for SOHOs/consumers in France and extend the product to other Orange markets.	Orange partners with FreeMove Alliance member T-Mobile Germany to manage MNC customers.	Amena will rebrand to Orange, as will France Telecom Spain. Orange Spain will launch HomeZone this year (which is UMA, not a German 'homezone' service)
Vodafone	BT has an agreement with Vodafone UK in a bid to offer fully-converged fixed-mobile services; BT also has an MVNO agreement and it has launched BT Fusion. Vodafone also uses BT Openzone hotspots for its own WLAN/UMTS Mobile Connect service.	neuf cegetel has an MVNO agreement with SFR for mobile services. neuf cegetel offers quadruple play services to consumers as well as all-IP business solutions.	Arcor offers fixed-line and DSL services, but it is separate from Vodafone Germany.	Vodafone Spain has agreements to collaborate with both Jazztel and COLT to provide integrated fixed and mobile services.
O2/ Telefónica	Mobile player via O2 only. Telefonica withdrew from the UK market, but it could still consider the acquisition of a UK or pan-Euro fixed player where they are weak on IP VPN; COLT, Interoute or THUS (UK) could be candidates.	Non-participant	Telefónica Deutschland now forms part of the O2 Group. This allows O2 to offer fixed DSL connections as well as a single source and one monthly bill for mobile telephone, fixed line and Internet.	Telefónica announced management restructuring in December 2005, to address the transformation of the Group into an integrated company. Re-merger or Telefonica and Moviles agreed in Q1 2006.
T-Mobile	No published plans as yet, but could do a pan-European deal with COLT or possibly ntl/Telewest, since T-Mobile already supplies the network for Virgin Mobile	T-Mobile partners with FreeMove Alliance member Orange to manage MNC customers.	Deutsche Telecom has integrated its consumer and Internet businesses to offer triple play services, and it will offer a dual-phone service to complement T-Mobile’s mobile@home (homezone) service.	Non-participant
Virgin	ntl has purchased Virgin Mobile, in a bid to offer quad-play services: TV, broadband, fixed and mobile services.	Virgin and Carphone Warehouse have launched an MVNO on the Orange network.	Non-participant	Non-participant

For some operators, such as France Telecom, convergence is the only option that the company is considering; this represents a considerable gamble. The case for one bill (but avoiding 'bill shock' when the cost of all the services appear on one bill) and a single service provider (thus reducing competition or service innovation) is hotly debated. In addition, the reliance on convergence - and the channelling of all business focus into this solution - arguably limits a company's ability to react to changing market conditions and could lead to the re-creation of monolithic operators incapable or unwilling to react to customer needs. Longer-term, a substitution strategy also remains a threat, since as technology (and more importantly, battery life) advances, then 'wireless-ness' will play a more leading role and perhaps not suffer from the current technology gap, where speeds and availability trail the fixed-line network. Once wireless can take the lead, then perhaps convergence will have had its day.

Recommended Actions

Vendor Actions

. Fixed-line operators with easy access to mobile assets in specific countries should consider offering triple play solutions to customers to ride the current FMC wave. However, operators should consider carefully how they commit to FMC, since this is only one of the options for driving additional revenues from end users.

. Mobile-only operators should consider supplementing their FMS strategies by partnering with a fixed-line player to offer 'convergent' one-bill services to end users. As with the fixed-line operators above, mobile operators should hedge their bets and offer a range of converged, substitution and bundled services to end users.

. Content providers should realise that they hold the key to successful triple play services and they should ensure that they maintain an open approach to all operators attempting to offer services in this market. Whilst the fixed, cable or mobile operator might control the delivery technology, each needs content in equal measure to ensure success.

. Device manufacturers should consider ways of enhancing the viewing experience to accommodate future content services that operators will make available over a range of delivery technologies (i.e., fixed terminal or PC, mobile handset, WiFi-enabled PC, etc.). With triple play effectively offering end users content purchased once and delivered over the device of choice, a consistent user experience will be important to drive the uptake of such services.

User Actions

. By adopting an FMC or FMS approach, operators hope to lock-in customers to their own services and exclude competition. Therefore, end users should carefully evaluate such services to ensure value for money and suitability.

. 'One bill from one provider' is the current mantra from operators offering converged services. End users should therefore decide if they want to go with the flow or make their own choices over elements of their voice, data and content services.

. End users should evaluate the value-for-money argument to see if it means more for their money or less money for a combination of existing services. End users should be aware of added features, which they potentially will not use, being added to their package to justify new pricing levels.

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