‘Switchers’ Drive Convergence

Consumers looking to swap mobile carriers could be the prime drivers of fixed/mobile convergence services as wireline substitution accelerates worldwide, say industry leaders from (NYSE: S) and T-Mobile International AG.

The view is echoed by the latest Unstrung Insider report Fixed/Mobile Convergence, UMA, and IMS: An Unstrung Reality Check, which analyzes the myriad convergence technologies being pitched at mobile network operators.

Speaking at last week’s UBS Investment Bank Global Communications Conference in New York (webcast), Sprint/Nextel chief operating officer, Len Lauer, identified convergence as a key marketing tool for attracting “Switchers” from other networks to his firm’s services.

According to Lauer, a timely launch of converged fixed/mobile services using dual-mode 802.11 cell phones could pay big dividends in the battle for mobile market share. With the market increasingly saturated, “Switchers” have become vital to growing a wireless subscriber base, said Lauer, against the back drop of Sprint’s quad-play tie-up with four cable operators, announced earlier this month. See Cable Firms, Sprint In FMC Deal.

“We believe if we have a differentiated play around convergence, bring in new services, and especially solve [the] home coverage issue through this combo phone concept, we can attract a lot of ‘Switchers’ coming in from Verizon Wireless, Cingular Wireless LLC, and T-Mobile,” said Lauer

“If we get the right products and services out there in the right time frame it [convergence] has good upside for us.”

At the same event, T-Mobile International chief financial officer, Thomas G. Winkler, said fixed/mobile substitution is happening more rapidly than anticipated. This is especially the case in Europe, where the price differential between fixed and mobile is coming down much faster than anyone had expected, he said.

Fixed/mobile substitution is the process whereby individuals gradually shift their calls from landline to mobile, eventually cancelling their landline subscription altogether.

To combat steep declines in price per mobile minute and grow top line revenues, operators have to look at ways to increase call volumes per user. T-Mobile’s Winkler, for example, said they need a 14 percent increase in usage across Europe in next two years just to offset price declines.

One way to capture extra minutes at theoretically lower cost is to introduce some kind of converged service based on technologies such as Unlicensed Mobile Access or one of the SIP/SS7 convergence gateways promoted by start ups such as BridgePort Networks Inc., Convergin, or Outsmart Ltd., and ultimately promised by IMS, says the Unstrung Insider report.

The idea is that the mobile subscriber can make calls across the cellular network, or across the Internet from their home or office WiFi, yet retain a single phone number and voice mail, and possibly access new services (being able to program your video recorder from your cell, for example).

In this scenario the mobile phone becomes the subscriber’s primary communication device, and minutes that would have gone across the landline are now captured by mobile. In a more advanced scenario, the subscriber may also have a SIP-based “landline phone” that plugs into their home router, is able to access the same services and address book, and which rings simultaneously with the mobile. Such a service preserves the warm, fuzzy feeling of a “home” phone beloved of the nuclear family, while combining the price benefits of VOIP and convenience of mobility.

Just how and when such services will be rolled out is still open to question. Easy money is on the so-called “integrated operators” that have both wireline and wireless properties. But in some markets, at least, this vision of convergence nirvana is challenged by pure-play mobile operators that have the 3G network economics in place to offer ultra competitive voice pricing. See, for example, Vodafone Takes on VOIP.

Also in favor of the 3G play is that you don’t need broadband, a router, WiFi, a computer, or proficiency in home networking. Working against it is the issue of indoor coverage (and 3G coverage in general), which is not always adequate.

Whatever the technical and economic arguments, the key point today, finds the Insider, is that “convergence” is cool once again. Fifteen years of history have shown that cool brands, as well as price, pull in the mobile "Switchers".

— Gabriel Brown, Chief Analyst, Unstrung Insider

The report, Fixed/Mobile Convergence, UMA, and IMS: An Unstrung Reality Check, is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,350. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.

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