Convergence benefits operators more

While operators benefit from lower cost of operating a converged network, the benefits to consumers remain unclear.

SINGAPORE--Convergence may be helping telecoms operators lower their operating cost, but it remains to be seen if consumers are just as taken to the benefits of converged services.

Speaking to ZDNet Asia during the 3GSM World Congress Asia conference this week, Ericsson CTO Hakan Eriksson noted that convergence takes place at three levels--network, terminal and service.

In network convergence, Eriksson explained, operators make use of a single IP (Internet protocol) network to provide multiple services such as voice, data, mobile and television. Terminal convergence allows users to access all these services via a single device such as a cellphone. With service convergence, a single service--such as e-mail--can be accessed from various devices, such as PCs, handhelds and cellphones.

The benefit of convergence to telecoms operators is clear, he said. For instance, it can help to create customer "stickiness" or loyalty with users who subscribe to "triple" or "quadruple play" services from a single service provider--and at a cheaper cost too. This lowers the chances of a telco's customers defecting to rival operators.

A single network also reduces cost for operators, since they no longer need to build different networks to offer multiple services.

Eriksson noted that while triple-play operators had to cut prices of bundled services to attract customers, the reduced operating costs in running a converged network is worth the effort.

However, triple-play services have not struck a chord with consumers because cable TV operators and telecoms service providers have found it hard to invade each other's turfs with existing technology, he said.

"For example, if you are a fixed-telephony operator, you may not have the bandwidth to operate a TV service," he explained. "No [single] technology has been successful for operating triple play services in a very good way."

Abdul Wahid Omar, global head of Malaysian mobile operator Celcom, noted that convergence carries risks. For instance, it requires a high level of technology investment but has uncertain returns. "There's always the issue of bundled services destroying the value of individual services, since customers expect to pay much less," he said.

Rising star in VoIP
Whether consumers warm up to network convergence, the convergence of voice and data--in the form of voice over IP (VoIP)--clearly poses a threat to traditional telcos.

Net telephony services have been gaining momentum around the world. According to the Yankee Group, the consumer market for VoIP grew by 250 percent last year.

Eriksson said: "On the fixed-line side, the proportion of voice traffic will be so [low] in a few years' time. If everything goes according to what people predict, about 60 percent of [telco] network traffic will be IPTV; almost 40 percent will be Internet traffic and the rest will be voice."

However, he conceded that voice will continue to make up a large proportion of traffic on mobile networks because people are more willing to pay for the convenience of making phone calls on the move.

But, he added that as more high-speed mobile technologies such as HSDPA (high speed downlink packet access) become popular, voice revenues of mobile operators could be cannibalized by Net telephony services, which subscribers with unlimited data plans are more inclined to use.

Eriksson said VoIP will negatively impact mobile operators in the short term because Internet calls are cheaper than cellular voice. In addition, operators will have to throw in more resources to support VoIP services than they do with pure-voice traffic.

"In the long term, operators may have to set tariffs for data," Eriksson suggested. "Like what some operators have done, they could offer $30 per month for unlimited data, and an extra $5 for [subscribers to receive] guarantee of good VoIP service."

Apart from voice-data convergence, lines are also blurring between fixed and mobile lines through fixed-mobile convergence (FMC). This technology allows cellphone users to seamlessly switch between mobile networks and fixed telephone or broadband lines at home.

Eriksson said FMC helps operators discourage customers from terminating their residential fixed lines, which offer cheaper calls than cellphones. Through a technology called Femtocell, a base station can easily connect a cellphone to a fixed line.

This is likely to spearhead FMC adoption since dual-mode phones are not widely available yet, he said. Even so, such phones typically support both cellular and Wi-Fi radios--a feature that drains battery life.

FMC's promises also mean fixed-line operators such as Japan's NTT and Verizon in the United States, may need to reabsorb their mobile divisions so they can offer FMC services. However, mobile operators without a bigger fixed-line parent could team up with other fixed-line operators to offer similar services, Eriksson noted.

"To some extent, they can get hold of someone else's ADSL connections and offer home base stations to [deploy] FMC," he said.

Zhao Ming, director of Huawei Technologies' Shanghai Research Institute, told ZDNet Asia that FMC is the way forward in the telecoms industry.

"From our perspective, we have products that span across fixed and wireless technologies, which gives us an advantage over others," he said. "Right now, we are in the process of coming up with a new product that will marry mobile and ADSL networks though 3G base stations in residential homes."

Although some operators in Europe have downplayed the benefits of FMC, industry experts continue to give the thumbs-up for the technology. According to Informa Telecoms & Media, the global FMC market will be worth US$28 billion by 2011.