By Anne Morris
Deutsche Telekom revealed its new "quadruple-play" strategy earlier this month at the recent IFA trade show in Berlin, as the German incumbent firmly placed its bet on fixed-mobile convergence (FMC) with the launch of its MagentaEins ("MagentaOne") service portfolio that combines fixed voice, broadband and TV services with its mobile plans.
By making this move, the company equally firmly threw down the gauntlet to rival operators in its home market, particularly Vodafone Germany, which recently started selling cable broadband services based on the assets it acquired from Kabel Deutschland last year.
Indeed, mobile operators such as Vodafone, Telekom Austria and Orange have been buying up or eyeing up cable and fixed network assets in markets across Europe as they seek to bolster their existing mobile businesses to better compete in individual markets--especially where incumbent operators such as Belgacom or Telefónica's Movistar already offer strong multi-play propositions.
On the flipside, cable and fixed operators are also adding mobile and wireless services to their existing triple-play offerings of voice, TV and broadband services. Further, the shift comes as the IBC 2014 conference is underway in Amsterdam, where broadcasters, content providers, operators and vendors are debating the fixed-mobile convergence trend.
"Certainly the landscape has changed in the last 12-18 months," said Ernst & Young analyst Adrian Baschnonga. "The barriers between [fixed and mobile] are breaking down."
The shift to convergence
Operators are increasingly embracing FMC to improve customer loyalty and reduce churn. Current Analysis analyst Natasha Rybak noted that Belgacom and Swisscom are two of just a few companies to date to have developed quad-play portfolios that have stood the test of time. According to Current Analysis, both companies also found that as customers buy more services that leads to lower churn, with overall quad-play package subscribers demonstrating 2.6 times less churn than single-play customers.
Figures such as these will be music to the ears of companies pursuing a similar strategy. Yet the challenges of developing the capabilities for FMC are manifold. They include deciding whether to buy, build or lease fixed assets, for how much and where; integrating different networks; and deciding on pricing strategies for bundles of four or more services. All of those decisions require careful thought and planning on a country-by-country basis.
Yet despite these challenges, some say mobile operators have little choice but to follow this trend in most developed markets in Western Europe: "A legacy mobile-only play is not a comfortable place to be," Analysys Mason analyst Rupert Wood, said. "It's an unenviable position."
Wood also noted that fixed and cable operators may have established MVNOs in order to be able to offer mobile services, but he believes MVNOs are an interim measure. Of more long-term interest is what Wood calls an "inside out" model that makes use of indoor femtocells and Wi-Fi access points, playing on the idea that a large proportion of calls originate and end inside homes.
"The approach offers real savings over classic MVNO models, and as such we believe it could be successful, profitable, and disruptive to legacy mobile operators," Wood noted in a research report. Wood cited BT and TalkTalk as two operators that are already pursuing this strategy.
Orange takes a country-by-country approach
Pierrick Hamon, executive vice president responsible for convergence strategy at Orange, agreed that in Western European countries it is "not a credible option to be a mobile-only player."
Orange has followed a strong convergence play in both France and Spain, and intends to pursue this strategy in other Western European markets.
In Belgium, for example, Orange operates a mobile business called Mobistar that was forced to give up selling fixed-line services last year due to the high cost of doing so. Now, the operator is seeking to rectify this situation through regulatory changes that will enable it to resell cable services.
In other markets, Orange could seek to buy or partner in order to secure fixed assets. In Spain, for example, the operator has made no secret of its interest in Jazztel should the operator be available for sale.
However, Hamon said the decision whether to buy, build or partner is not based on the business case, as many might think. In fact, he said the decision depends on whether a company can execute the chosen strategy well. If a company has experience in fixed services, then the option to build is more attractive. A lack of experience would make buying an existing player a more logical option.
Hamon also emphasised that FMC is not suitable for all markets in Europe, and said Orange decides on its strategy on a country-by country basis: "It is better where customers do not fear being locked in," he said. "This was possible in France and in other richer countries."
In markets where consumers are more price sensitive, on the other hand, retaining separate services makes more sense. "The battlefield for convergence is the high-end market," Hamon added. "The challenge is to be excellent at cross selling the services…and the quality of each service has to be excellent."
Vodafone, Telekom Austria embraces convergence
Vodafone is one operator that has been reinventing itself over recent years. After its earlier "mobile only" strategy, the operator has more recently been pursuing convergence with a vengeance, buying cable and fixed operators in Germany (Kabel Deutschland), Spain (Ono) and Greece (Hellas Online) and building up its fixed network in markets such as Italy and Portugal.
"As customer demand for ubiquitous data and content grows rapidly over the coming years, the most successful communications providers will be the ones who can provide seamless high-speed connectivity at home and at work and anywhere in between," a Vodafone spokesperson said.
Like Orange, Vodafone said it also adopts a market-by-market approach based on the cost of building its own fibre, the openness of the incumbent provider to "reasonable wholesale terms," the speed of market development, and the availability of good-quality businesses to acquire.
"Of our markets, Spain and Portugal are the most advanced, but we expect it to become prevalent in major European markets," the spokesperson added, also noting that the types of service that can be offered will be depend on the ability of service providers to access next-generation fixed networks, principally cable or fibre, to support increased speed and capacity demands.
Telekom Austria also agreed that every company has to decide whether or not to remain mobile-only according to its individual strategy. "In our markets we are strongly focused on convergence because we think it provides the best customer experience," Telekom Austria CEO Hannes Ametsreiter said.
Telekom Austria has already built up a strong convergence story under the A1 brand in its domestic market, and is now pursuing a similar strategy in its other markets in Central and Eastern Europe.
"We have acquired one of the leading cable providers in the Macedonian market and have launched a strategic partnership with Telecom Liechtenstein. That means five out of eight markets of the Telekom Austria group are already convergent--A1 in Austria being the biggest," Ametsreiter added.
Creating value now—and in the future
Ametsreiter stressed that FMC is a long-term strategy that aims to create higher value, greater customer loyalty, more flexibility in the product management and optimised capacity management in the network infrastructure. "At the end of the day the result has to be an ideal customer experience both at home and on the [go]," he added.
FMC and quad-play clearly represent a firm strategy for a number of operators, but not all industry observers think that mobile-only operators face an entirely bleak future: Wood from Analysys Mason, for example, noted that 5G networks could present some interesting opportunities. "Fixed and cable operators have a real current cost advantage over mobile operators working 'outside-in,' but 5G may come to challenge the view that it is always best to get mobile data onto fibre as quickly as possible," he observed.
Mika Uusitalo, CTO for Europe and Latin America at Nokia Networks, also said LTE might develop in a direction where it can be used to replace fixed DSL services. "For example, already in many countries students prefer mobile broadband rather than fixed broadband access to Internet," Uusitalo pointed out.
Whatever the chosen strategy, Rybak of Current Analysis said the examples of Belgacom and Swisscom also provide some useful lessons in how to approach multi-service bundling once an operator is ready to take that route.
"Noteworthy is that these two operators are not focused singularly on the take-up of 'quad-play' bundles, per se, but rather on take-up of multiple services across both fixed and mobile, whether in bundled packages or incentivised via discounting," Rybak said. "Providers should ensure that they do not become preoccupied with the pursuit of a quad-play holy grail, but recognise that there are parallel, complementary ways to encourage multi-service sales."