Friday, January 05, 2007

Why Fusion Hasn't Fused

A comment I hear a lot in the analyst community is “the way of BT Fusion, so goes the fortunes of all UMA service offers”. BT has been the yardstick by which many in the industry measure the success of UMA.

It’s true that BT pioneered UMA and mobile/Wi-Fi convergence. But understanding why Fusion didn’t fuse fixed and mobile services together for BT offers some important lessons for other fixed operators getting into the market.

As one of the few incumbent fixed operators without a mobile play, BT needed to do something to stem the loss of revenues vis a vis fixed VoIP providers as well as the inevitable migration to mobile services.

Launching a full year before subsequent UMA offers, Fusion did set the stage for dual mode services. But the nagging question remains: if FMC is so hot, why does BT have just 30,000 – 50,000 subscribers?

Fusion is Mobile, BT is Fixed

A fixed operator trying to sell mobile services...just the phrase makes one shake their head. Yet this was the challenge BT was presented with when rolling out Fusion. While well known (perhaps even “infamous”) in the UK, BT does not present itself as a leader in mobile communication services. The UK mobile market is fiercely competitive with O2, T-Mobile, Orange and Vodafone each splitting roughly 20% of the market. Enter BT with Fusion and there is a lot of work to be done to win over skeptical consumers that BT is a player in the mobile world.

What about a channel?

Then there is the trouble of retail outlets. Consumers like to go to mobile phone stores to check out the handsets. But BT, as a fixed service provider and not in the consumer electronics distribution business, was lacking any retail presense. With limited handsets in the Fusion offer and limited retail presence, the service also had to convince subscribers to take on a new device with no first hand experience.

Mobile/Wi-Fi convergence is about FMS, not MFS

Fundamentally mobile/Wi-Fi convergence is deployed to accelerate fixed-to-mobile substitution (FMS). Yet BT was using UMA as the exact opposite, to retain minutes of use on the fixed network.

This was borne out in the pricing packages. The pricing was designed to preserve fixed line rates rather than undercut them to drive traffic onto the mobile network. Calls to fixed line numbers on Fusion are billed at the same rate as calls made from land lines. Thus there is no incentive to move traffic from the fixed network.

This point was made clear in the slide below from Peter Erskin, CEO of O2/Telephonica, who presented the content below in Nov, 2005.

The slide shows BT Fusion under the heading "fixed operators are trying to win minutes back from mobile operators". That says it all.

Where’s UMA?

The point of all this is Fusion faced a lot of challenges coming to market. But none of these burdens were based on UMA as a technology. BT’s challenges were based on business, market and channel realities.

How does this bode for other fixed operators in the mobile/Wi-Fi convergence market? Two notable services are up and running today. First is Deutsche Telecom’s T-One service . The other is Embarq’s ( Smart Connect service. Not much has been published on the success of these services to date, so it’s hard to tell if they are suffering the same fate as Fusion.

However, like Fusion, both are offered by the fixed operator and focus on extending fixed line voice services to the mobile network. And like BT, both are hampered not so much with technology issues, but market, business and channel realities.

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