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O2 eyes UK shores for fixed-mobile convergence

Looks to piggyback on Genion success

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Fixed/mobile convergence (FMC) was long considered primarily of benefit to the wireline carriers, enabling them to bundle wireless services and devices in order to improve customer retention and generate greater value from their expensive wireline networks.

However, predominantly wireless companies such as Sprint Nextel, Vodafone and O2 have all been running serious pilots of fixed access technologies, either wired or wireless, that could enable them to move into convergence too, often at lower cost than those operators with hefty legacy wired infrastructure to support.

O2, now a unit of Spain’s Telefonica, has claimed strong success for its first commercial converged service, Genion in Germany, and is now looking to extend it to its home territory, the UK, where British Telecom is also pushing enthusiastically into FMC with its Fusion platform.

"Clearly the converged market is a very interesting one," O2 said last week. "We're looking at whether that model can work in other markets."

Such statements stimulate speculation that O2 will soon acquire an internet service provider to accelerate its FMC activities – a move also widely expected of Vodafone in its home UK territory and elsewhere. Tiscali has been linked to Vodafone but O2 denied interest in any specific ISP at this stage.

If the German experience is anything to go by, O2 could gain significant adoption for a converged service. Genion has helped O2 achieve the highest ARPU of any cellco in Germany and in June 2005 had 3.2m customers. The cellco attributes the turnaround of its formerly stagnating German subsidiary mainly to enthusiastic uptake of Genion.

However, Germany is a different market to the UK, partly because of its very high voice call costs, which have encouraged the uptake of VoIP and other alternatives. And while O2 launched very early there, offering Genion from 1999, it would be following BT in the UK and likely to be trailed closely by Vodafone.

The Telefonica unit is, however, taking a creative approach to combining different technologies to create converged services and maximise ARPU and overall value. At the start of the year, it enhanced Genion when its German arm teamed up with Deutsche Breitband Dienste (DBD) to launch SmartDuo, which combines fixed broadband services using WiMAX with mobile phone and home phone connections.

This is designed to challenge incumbent Deutsche Telekom, allowing customers to gain broadband without having to subscribe to a Telekom line for €23.95 per month. Customers choosing to completely cut off their fixed line connections get a credit of €100 with their WiMAX connection, and a free mobile phone.

Copyright © 2006, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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