Analysts call on operators to embrace fixed mobile convergence

New research released today by respected independent research and consulting company, Ovum, reveals that voice is rapidly becoming a commodity product. The large profit margins once made on voice services by telecommunications operators are falling rapidly as competition intensifies.

Ovum`s report, Fixed Mobile Convergence:

Service Integration and Substitution, recommends that operators embrace the convergence of fixed and mobile networks. It also calls on mobile operators to focus on substitution in order to differentiate their services, reduce churn and retain high revenue generating subscribers. Ovum forecasts the convergence market to grow from around US$2 billion in 1999 to reach over US$35 billion in 2005.

"The increasing use of mobile communications is blurring the boundaries between fixed and mobile services," says John Davison, a principal analyst at Ovum and specialist on mobile communications issues. "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. Therefore all operators must address the issue of convergence; but how they approach the market will depend on their existing networks and customer base."

Ovum finds that the market for convergence is being driven by new entrants and that the number of players is set to grow rapidly. "The new entrants are in a position to gear themselves up for convergence immediately in terms of having a single organisation for mobile and fixed services and deploying the latest technologies that operate with mobile and fixed services (such as single billing platforms, integrated switches etc). In contrast, incumbent operators have regulatory barriers that restrict their capability to integrate services and operations," explains Davison.

"Convergence services also provide the customer with control over their communications, whether over fixed or mobile networks, at work or at home," says Davison. "The integration of enhanced telecommunications services such as voicemail, personal numbering, unified messaging and intelligent call waiting will provide customers with this control. Recognising this, operators are beginning to install the necessary platforms to offer a broad range of convergence services and taking the first step towards truly personalised services."

Ovum believes the convergence of fixed and mobile services provides a number of opportunities for operators to: break into a new market. This increases operators` overall target market and represents opportunities to leverage their existing support systems to offer new services become a one-stop shop. Bundling services together is shown to help reduce churn rates control the interface to the customer. Having customers use operators` messaging boxes and interfaces into the telecoms network means that operators will be in a good position, as regulators force a shift in power from owning the network to owning the customer.

The report also warns operators to be aware that there is a blurring of business and personal usage. Davison adds, "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. Operators must recognise this and offer dual-subscription services."

"Although revenues from substituted traffic are expected to be higher than those from convergence services, a substitution only strategy will leave operators struggling to manage churn and will lead to their most valuable customers switching to operators offering convergence services," concludes Davison. "In the future, substitution and convergence will live side by side."

Ovum forecasts that substitution service revenues will start to have a big impact on the mainstream fixed telephony market from 2001, reaching US$162 billion globally by 2005, and will be poised to overtake fixed service revenues in the second half of the next decade. In comparison, the range of convergence services will fuel revenue growth from US$2.4 billion in 1999 (dominated by mobile VPN revenue) to US$35 billion in 2005. The convergence market in 2005 will have three services providing US$30 billion plus of total revenues: mobile VPN, personal numbering and advanced personal communications.

Fixed Mobile Convergence:

Service Integration and Substitution Fixed Mobile Convergence: Service Integration and Substitution is available immediately from Ovum and costs lb1695, EUR2695, A$4095 or US$3150. The report offers in depth analysis of fixed mobile convergence market developments by region including: United States, Canada, South and Central America, Caribbean, Western Europe, Central and Eastern Europe, Central Asia, Asia Pacific, Middle East and Africa. The report also details fixed mobile convergence market scenarios covering the strategies of vendors such as Nokia, Motorola and Ericsson. For further product information please visit http://www.ovum.com