Fusion fizzles

[UPDATE] As they say, the rumors of Fusion's demise were exaggerated, prompting a story titled "BT Forced to Defend Fusion" from Total Telcoms. I do believe that BT has some challenges related to Fusion, but I'm glad BT continues to work through them.

Two years ago I wrote a post called “Why Fusion hasn’t fused”.

Here we are, two years on, and it looks like BT is coming to a similar conclusion. As reported in the Daily Mail, BT will stop marketing Fusion to consumers.

Many will want to jump to the conclusion that this signals the demise of dual-mode handset (DMH) services in general. Absolutely not, DMH is on fire and continues to expand. I happen to think that this action simply confirms what we’ve all known, that DMH services which focus on the fixed network are doomed from the start.

Let me explain.

Fundamentally DMH is about fixed-to-mobile substitution (FMS). But as a fixed operator, what you really want is MFS, or to pull minutes *off* the mobile network and on to the fixed network. It's fighting the tide.

In the case of BT, any voice minute that moved onto the mobile network cost them more because it was carried through their Vodafone MVNO rather than their own discounted fixed line network.

The value proposition and the service objectives of DMH are completely mis-aligned for fixed operators. Another reason why VCC, primarily for fixed operators, will never get off the ground.

After that, there are several reasons why fixed operators in general will always have a very tough time with DMH:

- No retail presence. Who buys a phone today without first picking it up and touching it (I guess about 45,000 people in the UK!). Last year I think BT did develop a retail push with a UK outfit, but if you're not 'retail savvy' already, the mobile market is extremely competitive place to learn.

- Because they have 0% mobile market share, none of the handset manufacturers would do any custom/special work for them. Again a problem for all fixed operators (I'm thinking cable companies now, not so much a problem for an integrated operator like AT&T). Therefore, they never got leading edge handsets. Orange can push Nokia or Samsung to develop DMH product, but BT, no way.

- BT is not considered a 'mobile' company. But DMH is a mobile phone service. So they had a giant market perception problem to work through, trying to convince consumers that given the choice of getting mobile service from Vodafone, T-Mobile, Orange, O2 and BT, that good 'ole BT was the right choice. This is going against the grain of years of existing market perception, it's a billion $$ public relations campaign, not a couple of bill inserts and some print advertising.

I think these are all the same reasons why DT's T-One flopped. I think this is why we don't hear a word about Embarq's service in the US.

Notice none of the problems are attributed to technology. I think we all know UMA works.

I think any DMH service which caters to the fixed side of the house is doomed from the start. This is about FMS.

Unfortunate, but not surprising.

Deutsche Telekom Cancels T-One FMC Service

As reported on Light Reading today, it is certainly a shame that DT cancelled its T-One service (well, not really), I think the announcement warrants a bit “UMA commentary”.

First, as stated, this is a DT (fixed operator) service. Given that dual mode handset (DMH) services are for FMS, it’s always challenging for the fixed operator to reconcile internally a product that fundamentally is about moving minutes off their network.

This is doubly challenging in Germany, as illustrated by the commentary from Current Analysis researcher Emma Morh-McClune, who points out that T-Mobile has a wildly successful FMS cellular home zone” product.

Of course, DT’s service was plagued with all the same challenges of other fixed line operators with DMH services. While there are many other challenges for fixed operators deploying a FMS solution, the fact that T-One only supported a single handset was highlighted as a cause of failure for the service. This is for a couple reasons.

First, the main handset vendors won’t touch the technology until there is some type of standard. The only standard on the horizon for fixed line operators, VCC, still has a ways to go.

Second, fixed line operators really don’t have any pull with the mobile device manufacturers. The cold hard facts are that the vast majority of handsets are sold through the mobile channels. As an operator, if you aren’t moving 10m units or more (I’m guessing) of handsets a year, you don’t have much pull with getting a unique application or service installed on a device.

Such was the case with T-One. This “pre-VCC” solution was based on a non-standard network controller (from Siemens?) and presumably required some heavy pull to get the “special” code loaded onto a single handset from Foxconn. Because the protocol isn’t a standard, it works with that one network controller (Siemens?) and it doesn’t work with Alca-Lu, or Nortel or any other of the other “pre-VCC” vendors.

Even if the standardization/handset availability issues are to be overcome, we haven’t even come to the challenges of providing “mobile services” when the subscriber is indoors and connected to the SIP/VCC controller.

Can the user download a ringtone? Upload an MMS? No.

VCC supports “voice call” continuity, it doesn’t support “MMS” continuity or “Ringtone” continuity or any other application you’re thinking of...

If DT and T-Mobile acted cooperatively rather than competitively, perhaps things would have been different. Arguably it’s a cooperative relationship between BT and Vodafone that has kept the Fusion service going (and the fact that it’s based on UMA, a real standard with real mainstream support).

But I have a feeling this situation is about to be repeated at incumbent providers around the world. The world wants mobile for voice. Investing in fixed line voice services going forward is a losing battle.

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 http://www.t-one.de/flash/index.php . The other is Embarq’s (http://www.unstrung.com/document.asp?doc_id=109055) 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.