Telecommunications operators could benefit from embracing fixed mobile convergence, according to a new report released by Ovum, an independent research and consulting company.
The convergence market is expected to reach $35 billion by 2005, up from $2 billion this year, said the report, “Fixed Mobile Convergence: Service Integration and Substitution.” Voice is rapidly becoming a commodity product and the large profit margins once made on voice services are falling, said the report.
“Fixed operators in developed countries are suffering from relatively slow traffic growth for their voice services,” said John Davison, an Ovum principal analyst, who specializes in mobile communications issues. “The recent liberalization of their traditional local service markets means that they are also seeing their customer base being reduced.
“Mobile operators have found it difficult to differentiate their services, and have been forced to compete on price,” he said. “In some markets, however, subscriber growth rates are starting to slow as mobile penetration rates approach the top of the traditional `S’-shaped adoption curve. In these markets, mobile operators’ focus is switching from signing up new subscribers to retaining their base of customers and encouraging them to generate more traffic.”
Convergence, said Davison, provides for infrastructure and operational cost savings in areas including sales channels and customer support. Convergence also provides several opportunities for carriers, including breaking into new markets, thus increasing an operator’s overall target market; becoming a one-stop shop; and controlling the interface to the customer.
Examples of convergent services include single voice-mail box, single number and unified messaging across fixed and mobile networks.
In addition to embracing fixed and mobile convergence, the report also calls on mobile operators to focus on substitution as a means to differentiate, reduce churn and retain high-value customers.
“The increasing use of mobile communications is blurring the boundaries between fixed and mobile services,” said Davison. “More people are adopting mobile. More voice traffic is being substituted from fixed to mobile networks as technological advancements such as improvements in speech quality and increases in network capacity make mobile a realistic substitute for fixed.
“Users want to be able to use services seamlessly over fixed and mobile networks,” said Davison. “Therefore all operators must address the issue of convergence; but how they approach the market will depend on their existing networks and customer base.”
New entrants are driving the convergence market, and the number of players is expected to grow, said the report. New entrants have an immediate advantage in convergence because they have a single organization for mobile and fixed services and can deploy the latest technologies that operate within both fixed and mobile environments, such as single billing platforms and integrated switches, said Davison. Incumbent operators, on the other hand, have regulatory barriers that restrict their ability to integrate services and operations, he said.
The report also cautions operators the lines are blurring between business and personal usage.
“Convergence is not only about offering services that work seamlessly over fixed and mobile networks, but also services that work seamlessly across a subscriber’s business and personal usage profiles,” said Davison. “Operators must recognize this and offer dual-subscription services.”
Carriers, however, may be hesitant to adopt a convergence strategy, said Davison.
“The market for convergence services is uncertain,” he said. “Services such as personal numbering have failed in the past, and some mobile operators take the view that convergence is not worth all the effort. Many mobile operators believe that encouraging substitution of traffic from fixed to mobile networks is less risky, since it is a matter of shifting existing traffic from one network type to another.”
While revenues from substituted traffic are expected to be higher than those from converged services, a substitution-only strategy would cause operators to struggle with managing churn and lead to their most valuable customers seeking out converged services, said Davison.
“In the future, substitution and convergence will live side by side,” he said.
