Telecom Superstore

Fixed/mobile convergence is going to be big

September 30, 2004

5 Min Read
Telecom Superstore

In this industry, there can be a fine line between a trickle and a flood. Is fixed/mobile convergence just a set of trite buzzwords or the start of something big?

I say it's no faux trend: It's real, it's big, and it will get bigger in the next 12 months.

For those wondering what fixed/mobile convergence means, it means that service providers are moving toward one infrastructure to support both fixed and mobile telecom services, with integrated billing and management systems. But what it really means is that they have complete services flexibility.

The data world has proven that packet-based technology can yield an exciting new service almost overnight. Take IM, for example. Or VOIP. Where did they come from? In a flash, they were there and the world was using them. That's the beauty of IP. If these services were based on more proprietary stovepipe networks that service providers had to build individually – as was initially done with circuit-switched voice and Frame Relay networks – they would have taken years (or decades) to roll out.

This is why the largest service providers are excited about a single, converged packet infrastructure with both fixed and mobile communications capabilities. It gives them quicker "service velocity," as they like to say in the biz. They don't know where the next hotspot will pop up, so they need to be everywhere, able to pounce on new services quickly.

Nearly every service provider executive at Light Reading's recent Links 2004 Executive Summit mentioned fixed/mobile convergence as the industry's next priority (see Executives Converge on Convergence). It's clear there are serious engineering investments underway to build a core infrastructure based on IP. Service providers cite the added benefits of reducing costs and streamlining operations. This is the most important engineering project since the initial deployment of the circuit-based phone system a century ago. It's so crucial because it will determine their ability to survive in a new generation of fast-moving packet services.

What will it all look like in the end? I believe it will result in a new wave of partnerships, mergers, and co-marketing arrangements that allow service providers to roll out large bundles of new packet-based services that include various combinations of broadband, fixed and mobile voice, and data services.

For example, natural pairing puts the large RBOCs in cahoots with the Internet portals, Yahoo Inc. (Nasdaq: YHOO), Google (Nasdaq: GOOG), and Microsoft Corp.'s (Nasdaq: MSFT) MSN. Why's that? Well, the Internet portals have the marketing muscle and the consumers. The incumbent phone providers have the telecom plumbing, and thanks to deregulation they are now free to reach out and offer services outside their incumbent regions. Think of SBC reaching out to consumers in New York – or even France – to offer VOIP and managed security services.

More importantly for the customer, it means that any telecom service one needs – be it mobile telephone, fixed telephone, VOIP, or data – could come from the same service provider. In many cases, the customer will be able to use the same phone number on multiple devices – or even manage their own phone number and messaging systems over the Internet. All of the networks would be integrated.

There is evidence that the consumer actually wants bundled services, and industries have traditionally moved in this direction. Think of all the features and applications that have been bundled into Microsoft's operating system over time.

At the Links 2004 Executive Summit, Heavy Reading Chief Analyst Scott Clavenna pointed out that the consumer likes bundles, particularly if they mean cost savings. The consumer has grown accustomed to a communications industry that perpetually delivers more for less. "It's not just a challenge for the service provider to create a bundle that works," said Clavenna. "They have to deliver discounts that are cheap.

A major example of this lightning-quick services development is VOIP. Every major service provider appears to have made a hard right-hand turn into the voice-over-packet space. After all, VOIP – the geekiest of acronyms just two years ago – is now mainstream, as demonstrated by its appearance in publications such as USA Today.Already, even the most incumbent of incumbents are taking VOIP seriously, and they are actively retrofitting their infrastructures to carry voice over a packet network. AT&T Corp. (NYSE: T) has made a splash with its CallVantage VOIP services, which it is marketing through (Nasdaq: AMZN). Even Verizon Communications Inc. (NYSE: VZ) has a new VOIP service (see AT&T Sets Aggressive VOIP Target).

VOIP services are also being deployed over cable, as covered comprehensively in a recent Heavy Reading report, Cable Triple Play: The VOIP Card.

Expect an explosion of VOIP services in the next 12 months: SBC Communications Inc. (NYSE: SBC) certainly has something in the works. And Yahoo and Google are expected to get in the game by either reselling services from incumbents or building their own VOIP services from scratch.

Then, of course, there are the VOIP pioneers such as Vonage and Skype, which are growing like the Internet weeds of the late 1990s. They're likely to get in the act partnering with larger service providers, as well.

As the incumbents and insurgents team up with the Internet portals and offer major packages that include services such as broadband with secure email and IM, remote storage, virus protection, and integrated VOIP and mobile services, you will be able to manage all manner of communications from one provider.

To jump to a different metaphor, consider the food business. If you think about it, this is a lot like what happened to supermarkets in the mid 90s. Suddenly, everybody was shopping at Costco and Wal-Mart, rather than cherry-picking items from local supermarkets and drug stores. While investors fretted that the mass-market approach by Costco would result in low margins, Costco was able to demonstrate that by streamlining the infrastructure, it could achieve new economies of scale. It was buying so much in bulk, it could squeeze its suppliers. Wal-Mart, today, has one of the largest market caps of any company in the world.

Be on the watch for the Costco of Communications. Think Costco over broadband. Load up the cart. Will it hurt? If you're the local supermarket, yes. But not if you're Costco.

— R. Scott Raynovich, US Editor, Light Reading

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