Executive Brief 

The current climate of confusion

Internally, there’s never been so much upheaval and corporate distraction. Well-established teams are now being dismembered and re-formed into new converged units, forcing colleagues from entirely different areas of the business to forge a new, common working culture. Formerly service-specific telco marketing and sales executives are required to take on new service disciplines, and get to grips with new network topologies and service technologies. Sales retail point representatives are now required to understand entire portfolios of fixed, mobile and Internet products and services and service providers consolidate their existing, service-specific retail distribution network. The entire industry is having to scratch everything it knows and start again in a multi-play, converged services landscape.

More often than not, these internal changes are being performed in the name of the customer. In the last year, more than one European service provider has justified such an internal re-organizational exercise with the promise that the changes will transform its business into a ‘more customer-centric organization’. However, the benefits to the end-user are, as yet, indistinct.  

This realization has driven service providers to look for a new business model with which to compete in the twenty-first century, and the single most popular idea to emerge envisages an aggregation of service propositions, multi-services, or ‘multi-play’. Today, service providers are looking to bundle and up-sell customer bases to take multiple services in order to increase ARPUs, lengthen the contractual relationship and reduce churn by putting more service hooks into formerly disparate fixed, mobile and Internet customer sets. Successfully selling a package of two or more services into the same household, tied together under a single contract, helps make customers more sticky, over a longer time-frame. The prerogatives of multi-play and convergence are realigning and re-defining virtually every aspect of a telco’s business, from the integration of networks, to the integration of formerly disparate marketing and support teams.

Although much has been made of the potential for fixed-mobile converged (FMC) services in the consumer space, the evidence in the market suggests that ‘true convergence’ is still very much a future service evolution. The more immediate opportunity for telcos and multi-discipline service providers lies in the multi-play arena of bundled services and up-sell incentives.

Early attempts to bring FMC to market in the shape of UMA-enabled dual-mode FMC services such as BT Fusion, Orange Unik or Telecom Italia’s Unico, have all come up against serious hurdles, not all of which have been marketing-related. In Italy, the Italian competition authority placed serious limitations on the launch of Unico, to the extent that Telecom Italia was barred from provisioning the prepaid-dominated Italian consumer market with a prepaid Unico offering, and sales were limited by an artificial sales ceiling in the first six months. In the UK, BT started early with a UMA service, but has been unable to report strong uptake, largely due to the immaturity of the product, handset choice restrictions and non-intuitive marketing.

But for the most part, the largest hurdles in bringing converged services have all been marketing-related. In first launching BT Fusion, UK customers stubbornly refused to ‘get it’, and BT’s early Fusion marketing literature failed to communicate the value and benefits of pushing mobile voice minutes over a broadband IP link in the home in a simple, convincing manner. Early services in the SIP-over-WiFi domain have also experienced teething difficulties. In Germany, Deutsche Telekom’s first ‘converged’ service, the SIP-over-WIFI T-One offer, was dropped in early 2007 after just seven months of service. Despite intense marketing, T-One failed to attract more than 10,000 customers to its one-device proposition, and Deutsche Telekom admitted that it had seriously underestimated the marketing challenges implicit in promoting and provisioning a true FMC service.

Given the inherent problems of ‘true FMC’, service providers are now opting for a simpler bundling approach to multi-servicing an aggregated customer base of fixed, mobile and Internet users, and service bundling is likely to prevail as the dominant model into the mid term. As a starting point, multi-play and bundled service business models are less technically challenging for the end-user, attract fewer regulator-imposed restrictions and are unencumbered by proprietary handset supply problems. But most importantly, bundling and multi-play initiatives can be brought to market today. Given the near-term imperatives of convergence, the immediacy of the bundled service model is a strong advantage over more complex ‘true FMC’ alternatives.