Does convergence mean that the days of the pure mobile operator are numbered? Priscilla Awde examines the steps operators have taken so far to offer converged services, and finds out that not everyone agrees on where the industry is headed.
Convergence is both an old and new story. At the service level, cable operators introduced triple play bundles of voice, video and data running over hybrid fibre coaxial (HFC), cables with a telephony overlay years ago. Mobile operators began bundling voice with text messages, adding high-speed data cards and then advanced 3G services. However each service was supported by separate systems with convergence happening at the final bill.
What is new is that convergence is now about integrating, automating, streamlining the entire operation from networks to terminals and everything in between. But merging IT with telecoms is a slow evolution requiring significant investment and a complete restructuring of internal business processes/cultures and expertsise.
Economics, competition and market demand for anytime, anywhere access to multimedia content from any device are driving operators to build the next generation networks (NGNs), and service oriented architectures designed to make it faster, easier and cheaper to create, market, launch and tear down complex services.
At the device level convergence will give users a consistent experience allowing them to access, mange, send/receive content and applications interchangeably from any terminal. Mobile phones will communicate with desktop PCs, televisions and home networks and be used in a range of commercial transactions. “The technology exists to tailor and start delivering any content to any device anywhere, anytime,” says Gavin Duckett, industry consultant, at HP. “The technical challenge for operators is how to integrate billing and customer care.”
At the application level convergence combines telephony with video and high-speed data applications into competitively priced bundles for which users receive one bill. “In the last year nearly all operators have been rethinking their content strategy in direct response to consumer experiences with PCs which has forced every mobile player, vendors, operators and manufacturers, to focus on the consumer experience,” says Andrew Connell, group business director, multimedia at Nokia. “Internet players like Google, Yahoo and Apple playing in the old telecoms model have forced huge changes in operators’ businesses.”
Achieving device agnostic access, one log-in and address book across systems and for any content requires co-operation/partnerships between all players, open standards/regulatory environments and significant time and financial investment. In this nascent market, operators are still running bundled services over numerous separate platforms but are investing in NGNs and forging relationships with content owners.
“Competition is driving convergence,” believes Gordon Rawling, marketing director for Amdocs. “All operators want to simplify their environments, reduce platforms to a common core, reduce costs and deliver richer experience. In mature, saturated markets, the battle is to increase wallet share.”
As yet there are few truly converged operators; most transmit/manage separate services over hybrid systems of legacy and next generation systems.
Converged or not, the days of pure mobile telcos may be numbered. A few years ago Vodafone and Orange proclaimed the future to be wireless but both now offer DSL broadband. Windsor Holden, principal analyst at Juniper Research says: “The future of pure mobile players depends on their size and clout and whether they can acquire fixed operators, partner with them or buy wholesale capacity for bandwidth. At the Tier 1 level, the pure mobile telco is on its way out.”
Ovum’s principal analyst John Delaney agrees pure mobile operators will be at an increasing disadvantage and risk losing customers altogether. “If they only offer mobile they will be locked out of markets. However, they have a large potential advantage in future convergence because they can offer home zone tariffs without cannibalisation,” – a problem affecting operators with fixed and mobile arms.
Many Tier 1 mobile operators are adding DSL either by partnerships, acquiring broadband companies or buying wholesale capacity. “Wholesale is an asset light, relatively low risk approach to adding broadband without having to invest in infrastructure,” suggests Declan Lonergan, director of consumer mobile research at the Yankee Group who believes talk of converged operators is premature.
“Integration has yet to happen; currently it is a bundling game with a technology roadmap. Some operators are more aggressively building integrated networks, converging architecture and devices – a big undertaking for a market still very much in its infancy. The technologies are there to deliver services in a convergent manner; the missing piece is consumer demand,” concludes Lonergan.
Yet the industry is banking on people wanting converged, easy to use, competitively priced applications combined with excellent customer service. Mobile operators are launching new bundles, adding mobility to triple play and introducing flat rate tariffs.
“Operators must look at what customers want,” says Mike Short, VP for R&D at O2 Group. “Mobile operators have never done everything but integrating services into networks requires partnerships – content delivered via partners is growing fast. Convergence means different things to different people but the core is converging into IP networks. Voice is moving to wireless and data will follow with HSPA and 3G.”
In the Czech Republic O2 is a quad play operator having launched IPTV last year and in Germany it offers advanced location based mobile services, broadband and low priced home zone tariffs. In Britain O2 recently acquired the ISP Be for its broadband infrastructure over which it plans to offer DSL services this summer. “Mobile and broadband are the two leading legs of quad play but it is very early days to say how many and what converged services will be successful; video streaming is more likely than live television,” concludes Short.
Vodafone introduced DSL broadband via wholesale agreements with BT in Britain and unbundled local loops in Germany. It is meeting enterprise demands for integrated fixed/mobile solutions in Britain, Italy and Spain by partnering with incumbents. “People are buying telephony and broadband access and in some markets, integrated television; few are bundling mobile into the mix. Customers still buy mobile discretely from fixed services although the two will merge over time,” suggests Alan Harper, group strategy director at Vodafone. “We are not providing quadruple service as there is no money in Europe for it – neither are there many offering it.”
Harper believes convergence at the core makes sense: “In reality all operators will have core NGNs and mobile telcos will hang radio access networks off the end. Vodafone will sell a range of access solutions and connect into the IP core.
“There is lots of vendor push to sell equipment for convergence but this is not just a technology push: there are cost issues/efficiencies associated with IP network build and operators are looking for services to
add on.”
Believing if you can’t beat them join them, Vodafone recently announced a series of partnership agreements with YouTube, MySpace, EBay and Google bringing their applications into the mobile world and is rolling out services across Europe.
“Users are looking for a richer, more open mobile internet environment. They want the same facilities on mobiles they have on fixed PCs. We are interested in service convergence/integration as well as access bundling,” Harper says.
In the price sensitive consumer market the success of mobile high-speed data services depends on lowering barriers by allowing customers to browse without worrying about cost. Operators are introducing ‘all you can eat’ flat rate tariffs which, says Connell at Nokia, allows users to play and explore: “There’s lots of latent demand inhibited by fear of high costs which are reduced by flat rate billing and universal access.”
Capturing more of the broadband market and accelerating fixed/mobile substitution is a challenge for mobile operators especially in the residential sector dominated by fixed providers. Picocells in the enterprise world and femtocells for SMEs/consumers move 3G networks inside.
Backhauling traffic via low cost DSL or cable, reduces prices and wireless network load and eliminates expensive infrastructure build. Both are a pure mobile response to Fixed/Mobile Convergence (FMC), which allows operators to play in each others markets.
“The FMC approach is associated with free SIMs, bundles, minutes and home zone applications – there are real opportunities there,” believes Marc Overton, VP strategy/business performance at Orange UK. Orange soft launched its FMC Unique phone to existing customers in selected European markets in September 2006. Mobile calls made at home are transmitted to the Orange Livebox via WiFi but over GSM outside. Subscribers still need a relationship with incumbents to connect PSTN phones to the home hub.
Orange has over 600,000 IPTV subscribers in France, Spain and Poland and will launch in Britain late 2007. “The market is about bundling; capturing consumers’ total spend and preparing to offer new services over integrated platforms,” explains Overton. “It is about delivering the same services to all devices with one log in and one account which means having a single billing engine, content aggregation platform and common user interface. Now operators have separate businesses; the next step is integration and joined up services at the network level with one view of customers.”
Although united under one brand, Orange has yet fully to converge its fixed and mobile arms across Europe and must resolve customer service issues.
Despite a roller coaster ride cable operators have attracted subscribers to triple play voice, video and data bundles and built up relationships with big studios/content owners. Unavailable for comment, the newly formed British operator Virgin Media is bundling mobile applications into triple play. Having recently integrated Telewest, ntl must now merge Virgin Mobile into the company – until then, it offers quad play services over multiple platforms.
“The challenge,” says Amit Nagpal, head of mobile at Analysys, “is to interest people in all elements of the triple/quad play bundle. Can operators put together all the content people are interested in? Triple play is a logical cable offering but for quad play it is more difficult to add mobility into the mix of household purchases.
Buying mobile is more of a fashion statement. Operators are offering services independently, taking a multi-platform rather than a converged approach.”
Until now convergence was about bundling existing services but now operators are interested in a broader range of services and consumer electronic devices. “If you can connect whatever users have in premises you have more power and are more attractive,” believes Peter Linder, director, end-to-end network solutions for Ericsson.
“People have more powerful equipment at home and work and demand similar features on the move. Service innovation will happen but this is a new game for everyone.”