Homezone + DSL = FMC Killer?
Type: Advisory Report
Analyst: E. Mohr-McClune
Report Date: April 3, 2007
Module: Wireless Services - Europe
ID: CIR24415 |
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Summary
Issue
Bundling an all-mobile FMS homezone solution with DSL is a far simpler way to achieve a home-based 'total communications solution' than a UMA-enabled FMC alternative such as BT's Fusion or Orange's Unik, and we believe this formula will start to become a more widespread feature of the bundled service landscape in the coming months. Vodafone Germany was one of the first mobile operators to introduce a bundle of an all-mobile zonal tariff and DSL to strengthen its FMS proposition, but the same model has also emerged in Italy, France and Belgium. We anticipate that this formula will start appearing in other European markets currently hosting all-mobile 'homezone' mobile tariffs, notably the Netherlands and the UK. For the purposes of this report, we will look at some early examples of this practice and point out features and value-added opportunities this service formula grants mobile operators keen to establish a profile as a new broadband player.
Current Analysis Perspective
Mobile operators are getting aggressive in the service bundling space, and one of the first models to appear leverages the highly-successful all-mobile 'homezone' zone-based tariff, bundled together with DSL for a 'total communications' solution within the home.
Homezone + DSL = FMC Killer
As the building block of the 'homezone + DSL' formula, it is worth reminding ourselves of what homezone tariffs are and how they have been deployed to date. Although O2 UK was, in fact, the first European mobile operator to innovate on zone-based tariffs, the real homeland of homezone is Germany. The 'homezone' service is a zone-based tariff that leverages SIM-based caller ID to award end users cheaper calling rates within a specified 'zone,' generally determined as a one to two-kilometre radius distance from the end user's nearest GSM antenna, as designated to the customer's postal code address. Back in 1990s, a large German car manufacturer asked O2 Germany to custom design a tariff to allow its factory workers cheap mobile calling rates within the factory premises, and the resultant service became the template for a later consumer offering, entitled 'Genion.' Despite O2 UK's relative failure with the homezone service in the UK, Genion quickly became a success in Germany, and today the zonal tariff represents a significant share of the service provider's total postpaid customer base. Competitors Vodafone and T-Mobile responded, and the resultant services, Vodafone's Zuhause and T-Mobile@home - both modelled on the same home-based zonal tariff structure - have become key areas of FMS (fixed-mobile substitution) service development for the two operators.
Simplicity is the key selling point of the homezone service. Unlike a FMC solution such as Orange's Unik or BT Fusion, a homezone service awards cheap calling rates for users physically 'at home,' but it can be used in conjunction with any mobile handset, without the need for additional WiFi hub equipment or handset-hub configuration. Secondly, the tariff advantages of a homezone tariff generally stretch far further than the home location, as determined by WiFi hub reach for FMC services. In Germany, most homezone service providers have enhanced their service with a homezone visual indicator, to alert customers to their homezone location, and many are awarded fixed numbering, to remove the high-cost association for third-party callers dialling the homezone number. Certainly, the first generation of homezone services in Germany does appear to attract a higher take-up than existing FMC services. In the UK, BT has struggled to attract 40,000 customers to its FMC service (BT Fusion) within the first 18 months of launch. In France, Orange has reported a faster take-up rate, with 107,000 customers in the first six months of service. However, these numbers pale alongside the take-up of German homezone services of 80,000-120,000 new option subscriptions per month.
In recent months, the German homezone service has spread abroad. Vodafone has now taken the consumer service concept to Italy and Portugal. T-Mobile and KPN Mobile have launched similar services in the Netherlands. Mobistar has recently done the same in Belgium, as has SFR in France. For more information on these services, please see the following related intelligence reports.
- Vodafone Italy Says Ciao to Homezone Services
- T-Mobile Introduces Homezone Concept to Dutch Market
- KPN Mobile Launches 'HomeZone' Service, Unconvincingly
- Mobistar Brings HomeZone to Belgian Consumers: Mobistar at AtHome
- O2 Makes Home Zones into a Favourite Place
That, of course, is just the start of the journey. A key development to watch is the way some of these mobile operators have started to bundle a homezone tariff with DSL, to better imitate the full 'total communications package' offered by a FMC alternative. This bundling practice was first innovated by Vodafone Germany, in the launch of 3Flat, and then repeated in Italy, in the guise of Vodafone Italy's Casa Fastweb. More recently, Mobistar in Belgium has done the same with AtHome (albeit with a less distinct service wrap), and SFR plans to bundle its newly launched Happy Zones with Cegetel's ADSL product beginning at the end of April 2007. The result, we believe, is a potent bundled proposition that will allow mobile operators to strengthen their FMS argument for voice, establish themselves as 'total communications providers' and, ultimately, steal more business from fixed players.
The Vodafone Blueprint
Vodafone Germany was the first mobile operator in Europe to pioneer the 'homezone + DSL' formula, and the resulting service ('Vodafone Zuhause DSL') is a key component of the German operator's 'At Home' strategy, an integral 'Mobile Plus' prerogative. In essence, this service encourages end users to cancel their fixed and broadband contract with their current provider in favour of a bundle of all-mobile homezone and Vodafone's DSL, as provisioned through Arcor. Perhaps the most promising variant of this service is the 'Vodafone DSL Family' offer. This service has three components. First is the 'Zuhause' option for the mobile handset, which allows unlimited calling to fixed-line numbers when the caller is within the designated home zone. Second is a SIM-based 'fixed' telephone for family use, complete with a 'fixed' geographical number. Third is the 'DSL Pur' broadband element, without the standard monthly charge for fixed-line rental. At the moment, Vodafone Germany is marketing the all-in-one service for EUR 34.99 for the first six months, and EUR 54.95 thereafter. To be sure, any comparison of Vodafone Zuhause DSL against a FMC product is now academic. Germany has yet to launch a UMA-enabled one-phone solution such as Orange's Unik or BT Fusion, and the only competing solution in this field, Deutsche Telekom's SIP-over-WiFi T-One, has now been shelved, after disappointing take-up. The first test case of 'homezone + DSL' versus true FMC is currently waging in Italy.
The Italian Case Study: Casa Fastweb versus Unica
Casa Fastweb is Vodafone's first transplantation of the 'homezone + DSL' formula from Germany to another key European market. It is also one of the first to compete directly with a UMA service: Telecom Italia's Unica. To recap, both services market a strikingly similar service proposition to the end user: a one-phone device for all voice communications, bundled DSL and cheaper calling rates for users when placing a call from the home location. The Casa Fastweb offer replicates the German 'homezone + DSL' offer in all the important ways, with one significant exception.
In recent months, Vodafone Italy has experienced problems in achieving fixed geographical numbering (see Vodafone Italy Takes on Telecom Italia for HomeZone Fixed-Numbering Rights, November 30, 2006), but the latest word on this is that the Italian competition authority is expected to force Telecom Italia to allow its customers to port a fixed-line number to Vodafone's network, to allow Vodafone to start marketing the Casa Numero Fisso option in earnest, in line with the German model. From the outset, Vodafone has demonstrated a high level of marketing aggression with Casa Numero Fisso, pre-launching the option several months in advance of an anticipated launch and even providing a EUR 30 credit incentive, to cover the requisite two-month contract cancellation period for customers churning away from Telecom Italia. Vodafone even offers a 100 SMS daily quota for up to a week for those taking a new Vodafone 'fixed number' to communicate their new telephone number to friends and family.
Marketing aggression aside, the FMS solution (Casa Fastweb) exhibits several key advantages over its FMC competitor (Unica). Critically, the initial cost of ownership for Unica is substantially higher. At its September launch, Unica included a EUR 369 'Start Pack' of Unica hub and dual-mode handset, with a handset choice of just one model (Samsung SGH P200). The accompanying subscription-only tariff was pitched at the mid-to-high end of the market, with a set of inclusive minute bundles to fixed and off-network numbers whilst at the home. In comparison, Casa Fastweb is applicable with 'any handset,' it is aimed at prepaid as well as contract customers (Italy is a prepaid-dominated market) and its calling tariff represents the far simpler Casa mobile-only options. To be fair, the regulatory environment for Unica has limited the operator's ability to position its first FMC service competitively. A regulatory brake in mid-2006 resulted in a three-month launch delay, and Telecom Italia was obliged to respect a take-up ceiling of just 30,000 subscribers in the service's first six months, with a bar on a prepaid offering. However, we anticipate that Telecom Italia will 're-launch' Unica soon, potentially correcting many of its former weaknesses to play more competitively with Casa Fastweb.
Mobistar and SFR Adopt 'Homezone + DSL' Formula
Although Vodafone is a key innovator of the 'homezone + DSL' formula, other non-Vodafone branded operators have started to pick up on it, and two new services in Belgium and France could help raise the profile of this FMS alternative to zone-based 'all-in-one' communications. In mid-March 2007, Mobistar launched the first consumer homezone service in Belgium, AtHome, an all-mobile, zonal-based service broadly in line with the German model. However, unlike Vodafone Germany, Mobistar decided to market the potential of this service with an ADSL accompaniment from the outset, to encourage users to cancel their Belgacom fixed and broadband contract in favour of AtHome with Mobistar ADSL Connect. To be clear, Mobistar has not yet created a clear 'bundle' of these two services. It is merely deploying suggestive marketing to encourage users to consider taking both services together. It is likely that Mobistar will evolve a clearer, more obviously cost-effective 'bundled' option, complete with attractive incentives, to leverage the full FMS effect from this 'homezone + DSL' formula. Unlike the Vodafone Germany service, Mobistar is not yet able to provide AtHome with fixed geographical numbering, but this is also in the service development pipeline.
The latest mobile operator to talk about deploying this formula is Vodafone's French partner network, SFR. In March 2007, SFR launched its 'Happy Zone' homezone service with two tariff options, deploying the same 'unlimited calling to fixed-line numbers' tariff model as German 'homezone' services. However, at the same time, SFR announced that it will also launch a bundle of Happy Zone with DSL (courtesy of Cegetel) in late April, offering 20 Mbps ADSL, TV and unlimited fixed-line VoIP to French fixed and international numbers for EUR 29.90 or EUR 37.90 per month in unbundled areas. As a simple 'homezone + DSL' formula, the Happy Zone bundle exhibits all the usual hardware-free and handset-agnostic advantages over a FMC service, but, more to the point, it will go head-to-head with arguably the most successful FMC service in Europe to date: Orange Unik. Despite the slow progression of UMA services in Europe to date, Orange France has recently flagged up a (comparatively) sturdy take-up rate for its Unik service in France, of 103,000 subscribers in the first six months. In addition, the operator has talked aggressively about expanding its Unik handset portfolio and rolling the service out to other Orange European markets, including the UK, Poland and Spain, in the coming months. We believe SFR's new Happy Zone with DSL offer is a direct competitive response to the challenge of Unik, and the two offers will take the ensuing FMC versus FMS war to a new, bundled level.
Others To Follow?
It is likely that the 'homezone + DSL' formula will appear in other markets, both as a competitive response to new UMA services and as a tool for nurturing recurring revenues from bundled, multi-service subscriptions. Back in February 2007, KPN surprised the market with a Dutch homezone service, MobielThuis. Until now, KPN's German mobile subsidiary E-Plus has been the only mobile competitor to have abstained from launching a homezone service, and the arrival of the service concept within KPN's home market was seen as an oddity. However, MobielThuis makes sense in the context of a potential 'homezone + DSL' formula, an initiative that would now be particularly fitting for the newly minted 'integrated operator.'
Likewise, O2's persistent refusal to resurrect its original homezone service, and give it the same marketing push as its German Genion product, was formerly explained by inappropriate market conditions, notably high termination rates and an incompatible competitive landscape. Still, O2's recent (re)launch of the homezone concept under the name 'Favourite Places' has upped the stakes for competitors, and it is quite likely that O2 will look to deploy the same 'homezone + DSL' formula together with its Be DSL assets, to replicate services such as Vodafone Germany Zuhause DSL or Mobistar's AtHome with Mobistar ADSL Connect in Belgium. Like Vodafone Germany and Mobistar, O2 does indeed have its own ADSL profile to raise, and the marketing power of homezone - a proven success in its German incubator market - may provide the right vehicle. Furthermore, O2 UK has arguably more incentive to launch the 'homezone + DSL' formula as a FMC killer than either Vodafone Germany or Mobistar. Neither Vodafone Germany nor Mobistar currently compete in the same market as a UMA-enabled FMC service. However, in the UK, BT is currently fleshing out its BT Fusion vision with Openzone hotspot applicability, improved tariffs and a broader handset portfolio. Whatever marketing problems BT Fusion experienced in its first 18 months of service, BT has clearly refused to give up, and BT Fusion take-up is anticipated to pick up substantially this year. Added to that, Orange UK is likely to launch Unique in the coming weeks. In short, O2 UK will be defending its market position from no fewer than two UMA-based FMC services this year - an unparalleled competitive situation in Europe. O2 UK has yet to leverage its Be acquisition, and it will be looking for a speedy marketing vehicle to enhance public awareness of its broadband capabilities. Favourite Places could be that vehicle.
Conclusions
However, we do not believe that 'homezone + DSL' will be the only bundled service model going forward. Mobile operators will all be pursing a number of different permutations of mobile plus broadband, 'pure broadband' and cross-incentive loyalty programs to target consumers across a number of various 'at home' scenarios. For, despite promising homezone take-up rates in Germany, the all-GSM homezone service technology is far from 'perfect.' To start with, in-building GSM coverage and voice quality tends to be poor in steel-enhanced buildings - a concern that WiFi-based UMA services are particularly adept at addressing. Current homezone caller ID-based service technology, furthermore, is unable to create tight, home-based zonal locations; in Germany and other markets, the geography of a 'homezone' can stretch up to some kilometres in a rural area, a service side effect that squeezes service margins as users take advantage of the preferential rates outside of the home. Once again, tight 'zonal' definition is something that WiFi UMA service technology is particularly good at addressing. The real benefit for mobile operators, however, is the way the 'homezone + DSL' formula may be leveraged as a defence against the slow onset of UMA-enabled FMC, as a 'FMC killer.' However, equally importantly, this formula could also be used by a mobile operator to enhance public recognition of its new DSL capabilities, and this all warrants notice from current and would-be UMA service providers.
Recommended Actions
Vendor Actions
. KPN should bundle MobielThuis with a residential broadband product going forward. KPN should, however, be sure to include a 'family' version of this service, preferably with 'free' calling between family members. KPN should look to the existing Telecom Italia Unica service for ideas of how to build such a benefit into its basic tariff.
. Telecom Italia must ensure that its anticipated 'new' Unica service is able to target prepaid customers, too. Telecom Italia must argue that such a regulator-imposed restriction could be the 'make or break' of Unica in Italy, effectively closing down a key area of service competition before it was allowed to get started properly.
. Vodafone Germany should argue that all 'family calls' made by Zuhause DSL Flat Family customers are 'free,' as this is an element of the inclusive 'mobile flat-rate,' which allows unlimited calls to on-net mobile numbers. At present, this family communication benefit is indistinct, and it needs playing up.
. Orange NL should look into deploying the same 'homezone + DSL' service model as an alternative to its Unique UMA service, which is currently experiencing poor take-up. Although the end-goal is to get a Livebox into every home, Orange NL should realize that its Unique proposition does not benefit from the same natural market advantages (existing DSL and Livebox customer penetration) as Unik in France.
. Mobistar should do a better job of providing a clearer 'bundled' cost incentive for AtHome customers who decide to take the Mobistar ADSL Connect broadband accompaniment. Mobistar could even think about positioning such as bundled service as an 'all-in-one' solution for home-based communication.
. All competitors launching a homezone service should weigh the pros and cons of a 'visual indicator,' as universally deployed in Germany, against a 'audible tone' indicator or homezone location, as recently deployed by operators such as Mobistar, KPN, T-Mobile NL and O2 UK. The 'visual indicator' is clearly the most direct information vehicle, but the tone indication may help compensate for the fact that homezone geographies are often far broader than service margins require.
User Actions
. Customers interested in a home-based zone tariff, without the fuss and additional expense of a new handset upgrade and WiFi hub deployment, should watch out for new 'homezone + DSL' bundles as they start appearing across Europe. Like competing UMA-enabled FMC services, this bundle formula offers the same 'one-bill' and 'one-phone' proposition, often with a lower total cost of ownership.
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