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T-Mobile eyes hotspots and Sprint femtocells

As Alltel scores points

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The large cellcos continue to wrestle with the thorny issue of how to turn the mobile internet trend to their advantage, even as it chips away at their walled gardens and therefore their margins.

The US carriers are currently leading the way in creative thinking, even if the Korean and Japanese cellcos have the most receptive consumer audiences, and between them Alltel, Sprint Nextel and T-Mobile represent the main approaches to mobile internet models.

Pricing, content, user interfaces and devices, and how to keep customers within the operator environment - all these are critical to success, and the US second rung of cellcos (after AT&T and Verizon) are pushing most of the hot buttons. Something that cannot yet be said for many of their European counterparts, which, with notable exceptions like recent open internet convert 3, are still clinging hard to their old closed business models.

One of the most urgent decisions, on both sides of the Atlantic, will be how to bring the trend towards flat rate, use-anywhere internet and VoIP services under operator control, and to outdo the wireless ISPs in terms of portability and coverage. Here we are seeing Sprint and TMobile taking different routes, the former aiming to deliver a full mobile internet and converged experience on its own wireless networks; the latter looking to exploit unlicensed spectrum by building on its strengths in Wi-Fi, an option more commonly adopted by wireline players. Both approaches will only work with creative pricing and marketing strategies, and in this respect, Alltel is leading the way.

One of the ways that European operators have been rising to the challenge of the internet has been adoption of the 'home zone' approach, which offers users a low cost, usually flat rate for voice and even data, within a certain range of their home or office. This can be achieved by handing off calls to Wi-Fi within the zone, as with BT's Fusion, or by creating a small 3G or GSM cell using a femtocell device. The home zone tariffs serve to increase customer loyalty and reduce the appeal of VoIP providers, and when 3G is used, take advantage of that technology's lower cost of delivery for voice.

The latest move comes from O2, which has brought such a scheme to its native UK under the 'Favourite Place' pay-and-go tariff. Customers can make 500 minutes per month of free calls to UK landlines and other O2 cellphones from within their home or office postcode. O2 has a similar scheme, Genion, in Germany, where high telephone bills have stimulated a particularly aggressive move towards VoIP, and a fightback by the cellcos in the shape of home zones.

It now seems likely that Vodafone and T-Mobile will also import their German offerings; Vodafone ZuHause and T-Mobile@home, to the UK to respond to O2's move. Vodafone would do well to bundle this with its existing AtHome DSL tariff to accelerate its move towards fixed/mobile convergence in its home market.

However, they will need to avoid repeating the crucial mistake of the German experiment - making the zones so large that the cellco is often left with very few minutes at the old premium rate (a problem O2 may also encounter with its postcode scheme. The use of postcode appears to make things simple for consumers, but in fact, the actual service relies on the coverage of the local cells site to define this zone). O2's service will really take off when it implements, as it has already hinted it will do in 2008, indoor femtocells in low power spectrum, to create tightly defined, short range, DSL backhauled home zones.

Another option in use by some operators is using location-based software, from companies like Seeker Wireless, which is installed on the user's SIM card to identify when they are within the predefined zone. Whichever the technology used, such techniques better define the location and so reduce revenue leakage from calls made within the home macrocell, but outside the smaller home zone.

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