Full of Promise

Fixed mobile convergence (FMC), one of the several iterations of the
convergence trend, has been a much hyped concept. Today, FMC is a global
phenomenon for the telecom business, and is currently being pushed forward by
both fixed line and full service operators. FMC is still at its infancy, and
progress on convergence of the FMC terminal and network is just beginning to be
seen.

FMC provides a powerful business platform to develop new
revenue-generating services and to transform user experiences. It is not just
about unified communications or seamless data communications. Many analysts'
forecasts, however, tend to be based upon a single existing application-unified
communications. These single-product forecasts underestimate the opportunities
for the creation of new FMC services. According to ABI Research, the FMC market
is set to expand to 250 mn users by 2012 and as per the Strategy Analytics
research, enterprise FMC market is expected to reach $50 bn by 2012.

Prototypical services for enterprise and home users (which
is in place in the developed markets of Europe, Asia, and North America); the
launch of bundled services and VoIP over WLAN, as well as industry consolidation
and integration of networks and platforms around IP-are all pointing towards
convergence. This is driving the trend in the form of fixed and mobile telephony
convergence. The objective is to provide both the services with a single phone,
which could switch between networks ad hoc. Several industry standardization
activities have been completed in this area such as voice call continuity (VCC)
specifications defined by the 3GPP.

Dominating Trends

Different service providers (fixed-line, mobile, integrated) are likely to
exploit FMC in different ways in order to improve their competitive position.
However, certain trends that will be common amongst all are:

FMC demand forces heterogeneous network carriers to
partner or expand their capabilities: Most fixed and cable operators will
add a mobile service component to their offerings to match integrated service
providers. All service providers' strategies will move in the direction of
supporting heterogeneous fixed and cellular networks for voice, data, content,
applications, and niche video applications.

Cable companies pursuing an FMC strategy will find it
easier to sell to business users: Consumers are strongly motivated by video
content and the cost advantages of bundling, business buyers-a relatively new
market for cable operators-are motivated by FMC's ability to increase
productivity for key employees. FMC products such as unified communications,
seamless data access across multiple networks, mobilizing of applications for
seamless use across multiple networks, and seamless videoconferencing and voice
sessions are all emerging as important new services.

Video is important for triple and quad plays: Video
connection in the home represents a competitive advantage for service providers
such as cable or fixed providers with a broadband/IPTV/satellite-based video
offering. As users view more video on their broadband connection, it's likely
that providers of video services will tier their broadband offerings to protect
their video services, effectively forcing integration of video and broadband as
bundled video offerings.

VoIP will transform traditional telephony purchase
priorities: Given the adequate quality and convenience, consumers may
perceive mobile and VoIP services as more valuable than a traditional dedicated
phone line. Thus, it is likely that the revenue from fixed phone service will
decline because of the increasing price pressure from cable companies, and
specialty Internet based VoIP solutions offering fixed voice service at close to
free pricing.

Video will drive the need for more capacity and
partnering: Companies with fixed-line infrastructure are busy expanding
their fixed bandwidth delivery capabilities to support new services and HDTV.
Mobile service providers are not well positioned for the emerging world of 'long
content' HDTV. In the near future, HDTV cannot be delivered on a large scale by
the current or proposed mobile standards, so it is likely that ownership of
video/broadband pipe will give video-capable vendors an advantage over mobile
vendors that fail to pair up with a video/fixed-line partner. This advantage,
when combined with FMC, gives cable companies an opportunity for significant
gain in market share with a quad play plus strategy (a strategy that includes
FMC based services).

FMC's greater integration will encourage service
consolidation: FMC provides an additional reason for a customer to
consolidate services with a single company. Benefits are easier to obtain from
one vendor. Support for a more complex product is easier to obtain. The more
competitive a market, the more likely it is that competitors will be forced to
change their value-added profile.

For integrated-service providers that offer both fixed and
cellular mobile services, FMC from a short term perspective may be a dilemma.
Integrated service providers may experience erosion in minutes of cellular usage
by making it easy for customers to move on-premises or at-home phone calls to a
'free' or lower-cost, on-premises Wi-Fi connection (but with a compensating FMC
fee). However, in addition to the FMC fees and new mobile revenue, there is a
significant multi-billion dollar upside for integrated service providers. FMC
can reduce the capacity that operators need to purchase, or alternatively FMC
can increase the productivity of their purchased spectrum. In some FMC
deployment scenarios, not only can an integrated service provider experience an
increase in average revenue per user (ARPU) from charging for FMC features, it
can also experience an increase in ARPUS/kilometer-a particularly important
issue in areas where spectrum productivity is a concern.

Growth Drivers

In today's office environment, the majority of employees still have to
switch between a desk phone and their mobile. This is not only inconvenient but
costly for a business as it has to support and cover the costs of these two
phones. As mobility increases, and more people work outside the office,
employees are still forced to give out multiple phone numbers. FMC promotes a
single handset that can be used anywhere, anytime, therefore presenting a good
solution to the problem.

Challenges

The FMC business model requires that operators invest in and modify their
network infrastructures to cost-effectively move to converged core architecture
and be able to deploy services that can generate new revenue as quickly as
possible.

For integrated service operators, the major challenge is
that consumers now have more choice in how they access content-both in terms of
technology and of pricing model. Over the time, integrated service operators had
to compete with terrestrial over-the-air broadcasters, satellite broadcasters,
movie rental operations, and now Internet based competition.

From a business model perspective, increase in the variety
of download and transmission approaches has also led to an ever increasing
number of business models. Content can be acquired by purchase, by rental, by
purchased download, by rental download, by advertising supported media, by
subscription, financed by a sponsor, or by product placement. There is pressure
on traditional bundled content approaches to permit a-la-carte purchase of
channels and content.

In this new competitive landscape, mobile cellular vendors
will aggressively pursue fixed line business with broadband wireless offerings
(3G, mobile WiMax, LTE). They will use femtocells or broadband routers to
compete with traditional fixed-line voice services from integrated companies and
traditional telephone offerings.

Fixed and cable operators will add mobile capabilities
through partnering or spectrum acquisition. Disruptive new service providers
will offer services supported by an advertising business model.
Integrated-service operators can pursue a first-mover advantage if they can
integrate their fixed and (owned or rented) mobile business processes.

FMC brings a lot of promise to the telecom industry. It
seeks to enable the delivery of user-centric ubiquitous services, improve
customer loyalty, and ensure capex and opex cost reduction through a migration
to IP. However, FMC also brings with it some challenges. Service providers stand
to exploit new revenue streams and increase their share of the subscriber
wallet. But they can also lose customers if they do not take action, and they
possibly stand to lose revenue if they move to convergent packages.

Archana Singh

archanasi@cybermedia.co.in