Bundle of Joy

Fixed/Mobile Convergence Changes the Face of the Quad Play

Finally, there’s real hope for new revenue generation via residential service packages. And it’s being fueled by fixed/mobile convergence.

While bundling to date primarily has been about portfolio parity, churn control and upping ARPU, bringing wireless into the mix, as so many telcos and cablecos now are doing, goes beyond just adding mobility. It enables a whole new world of blended wireless/wireline services.

The Apple iPhone: Gateway to seamless content services?

When Apple earlier this year introduced its iPhone, which goes commercial in June, grand predictions about a new generation of fixed/mobile content porting were endemic. However, AT&T Inc. (which will be the exclusive distributor of the iPhone initially), EMBARQ and Verizon Communications Inc. already have introduced the first generation of FMC services. But that’s just the start.

“Mobility is having an indelible impact on fixed-line carriers, and VoIP is impacting the mobile market through toll bypass,” says Jean-Pierre Aubertine, an analyst at research firm Visiongain. “So everyone is looking at what happens to the revenue, and there’s been a wave of reinvestment. While five or six years ago everyone spun off their wireless arms, now we’re seeing the opposite happen because it’s apparent one cannot live without the other.”

However, interestingly, it was Sprint Nextel Corp. spinoff EMBARQ, which doesn’t own its own wireless network but uses Sprint’s, that came out with one of the first U.S.-based commercial blended wireless/wireline services. EMBARQ has been marketing an integrated mobile home voice mail service for about a year. “We have wireline voice and data, and an MVNO deal,” explains Kenny Wyatt, vice president of product and marketing at EMBARQ. “Being able to bundle all those products together is interesting, but true FMC, the focus on technology consolidation, will accelerate the marketplace.”

Craig Gosselin, chief marketing officer at NewStep Networks Inc., which provides FMC platforms for EMBARQ, adds: “What everyone’s struggling for is something unique that will have a positive impact on churn, cost per gross add, and all those key metrics that get reported to [Wall] Street. If you can do that with integrated features that can be leveraged across the bundle, that is the most important guiding principle in making the quad play work.”

The two former RBOCs this March jumped on the FMC bandwagon with services that give subscribers the ability to program home DVRs via their mobile phones.

AT&T’s service is part of its hybrid DSL/DBS Homezone service. “As we roll out advanced television services, there will be even more opportunities,” says Tyler Wallis, assistant vice president of wireless convergence at AT&T, which recently combined its wireless and wireline sales forces to sell the entire portfolio. “The three-screen strategy is a major part of our overall strategy going forward, to allow customers to access content across the PC, mobile and TV. We’re in the process of pulling everything together now. The technology is getting there, but the bigger hurdle is working with the studios on digital rights.”

Subscribers of Homezone also now can opt for integrated home/mobile voice mail , and the Unity calling plan, which allows free calling between AT&T customers — regardless of whether they’re on the mobile or fixed networks. “Our road map is to drive everything to the mass market,” says Wallis. “The quad play is about the ability to deliver overall value, but it also makes the home phone more relevant, ultimately.”

As for Verizon Wireless, the company offers discounted services via quad-play bundles in 24 of the 28 states (plus Washington, D.C.) where Verizon offers landline service, and now lets its customers use their cell phones to program DVRs remotely.

“The paid TV penetration in this country is one of the highest in the world,” says John Barrett, an analyst at Parks Associates. “The telcos know they have to be there, but it’s a losing proposition if you take the three services you already have and charge 10 percent less because consumers expect a discount. And the single bill is nice and all, but it doesn’t get the customer all fired up.

“By offering an experience beyond the invisible commodity of bandwidth and dial tone, with some Jetsons-like, whiz-bang features, you can charge a premium for it,” he continues. “The cellular arm is the key to the whole strategy of selling the experience, because it’s not enough to just one-up the cableco on TV.”

Of course, despite their lack of in-house wireless networks, the cable companies are not sitting still on FMC either.

Major cablecos Advance/Newhouse Communications’ Bright House Networks, Comcast Corp., Cox Communications Inc. and Time Warner Cable formed a highly publicized joint venture with Sprint Nextel a couple years ago, which has given them access to Sprint’s wireless services since late 2005. But rather than going the standard MVNO route, Kevin Packingham, vice president of marketing and product development at Sprint, says the joint venture plans “to give customers a new set of experiences beyond the bundle, which takes the products, services and content a consumer has inside the house and makes them available wherever they are, via either type of network.”

The joint venture, whose portfolio is branded as “Pivot,” later this year expects to offer such FMC capabilities as the ability to view local cable TV programming guides on a handheld, in case users want to double-check whether “Desperate Housewives” is a rerun, or who will be on Letterman, for example. The interface will look and feel the same as the one on the set at home, just optimized for the smaller screen. Pivot also is expected to deliver the ability to program a DVR from the mobile handset, a single voice mail service so users can get mobile and home voice mail in one spot, a package offering unlimited calls between VoIP-over-cable home numbers and mobile users, and mobile access to home e-mail and a large variety of content.

Sprint also plans to bring its WiMAX services and other advanced network technologies to bear on the partnership when the time comes, and mobile video is at the forefront of the portfolio going forward. “We have a superior technology in our networks,” says Sprint’s Packingham. “We believe this partnership will be successful, because we don’t have to go out and learn how to do video, which is hard to do well. We can do video right now, and across the country, because we can leverage both types of networks that are the top in the respective fields.”

Pivot services — which will offer single billing, be co-branded, and sold both in Sprint retail stores and through the MSO call centers — are expected to be available in 40 markets by the end of the year. The partners already have connected their networks, worked out back-office bonding and laid the general bedrock for a new level of integration. The cablecos will handle customer support, but can do a hot transfer to Sprint if there’s a deep wireless issue.

Although some consider the term fixed/mobile convergence (FMC) to be synonymous with dual-mode Wi-Fi-cellular service, none of the big operators have yet launched a dual-mode service for the residential market, with the notable exception of T-Mobile USA LLC.

Business offers abound, but consumers are so far out of luck unless they want to cobble such home networks together themselves.

Wi-Fi Alliance Managing Director Frank Hanzlik expects all that to change in the not-too-distant future.

“We’re excited about the number of phones with Wi-Fi capability,” he notes. “The majority are dual-mode, so that’s a good trend line.”

As Wi-Fi becomes a checkbox item on handsets, like Bluetooth, Hanzlik says, volumes for dual-mode phones will ramp up and costs will drop. In addition to economies of scale, new, smaller and less expensive Wi-Fi and Bluetooth chipsets from Broadcom, CSR and Texas Instruments are expected to further bring down costs, he says.

ABI Research data indicates the market will be ready once that happens. According to the firm, one in four U.S. wireless subscribers would switch cellular carriers for access to dual-mode services, and nearly one in three subscribers would discontinue their traditional home phone service to access two of the key benefits of convergence: strong in-home signal coverage and reduced pricing for calls made from home.

However, analyst John Barrett at Parks Associates says dual-mode may not make sense for the consumer market. “The phones themselves for now are very expensive, so unless the provider gives you the phone, which would make the service unprofitable, you’re paying just for the privilege of making flat-rate calls from your home, which you can do today,” he explains. “Plus, for a family of four, you’re talking about four devices and rate plans to take advantage of the service. It’s a neat piece of engineering wizardry, but is it feasible? Perhaps not.”

In any case, T-Mobile is giving it a shot. T-Mobile’s UMA-based service, Hotspot@home, launched last fall in Seattle. The carrier is offering the Nokia 6136 and Samsung T709 for $50 each with a standard two-year contract at $40 per month per user, or $100 each for a one-year contract. A Wi-Fi router is included, and to get unlimited voice over Wi-Fi calling at any T-Mobile HotSpot costs an additional $20 per person, per month. Calls at home via voice over Wi-Fi are free. The company has been mum on the take rates or profitability of the service.

Meanwhile, other carriers in the United States are looking into dual-mode. “The technology is still evolving for dual-mode,” says Tyler Wallis assistant vice president of wireless convergence at AT&T Inc. “It hasn’t hit the mass market, and there are battery issues left to solve. But we’re testing the technology for use if and when it makes sense.”

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