The Quest for Best of Two Worlds

Hybrid Cell/Fixed-Line
Phones Make Headway,
But Hurdles Remain

February 13, 2007
By Mary Lisbeth D'Amico
Wall Street Journal

Becky Whitcombe has given up her fixed-line phone. The 51-year-old Herefordshire, U.K., resident, who sells high-end horse saddles, was tired of the bother and expense of diverting phone calls as she moved between her home office and customer sites in Wales and southern England. She also wanted to keep her contact list in one place. On top of that, her home gets no cellular reception.

So Ms. Whitcombe recently signed up for BT Fusion, a product from British Telecom PLC that lets her use one mobile phone wherever she goes. The phone uses a wireless link at home to connect to her broadband network. Fusion users also get free Internet surfing on their handset, at home and at BT's Openzone hot spots.

Vendors such as BT are betting that more people like Ms. Whitcombe will be attracted to offers that combine the advantages of the fixed and mobile worlds. "People want the mobility to access information wherever they go," says Steve Andrews, BT's group chief of mobility and convergence.

Few people would disagree with that. But fixed and mobile operators still have a ways to go not only to offer seamlessly integrated voice and data networks, but to find the right way to market their offerings to consumers and businesses.

Analysts say that achieving a world where consumers can seamlessly watch videos, listen to music, talk on the phone or access data both in and outside the home could be years away. "It will take a full three to five years before we see true network convergence," says Lars Godell, an analyst with Forrester Research Inc.

For now, fixed-mobile convergence looks to be of more interest to carriers and equipment vendors than consumers. The companies are fighting for a piece of the action, so as not to lose business. BT, for example, faces competition from mobile carriers, and wants a way to drive traffic back onto its fixed-line network. Nor do mobile carriers want to be left in the cold as new competitors emerge seeking to encroach on their territory.

Allowing fixed and mobile networks to talk with one another involves migrating more parts of the network to components based on IP -- the Internet protocol, where data is sent in packets. Carriers would like networks based solely on IP, but that is considered impractical in a world where many fixed-line communications networks still use older circuit-switched technology.

However, a set of specifications called the Internet Protocol Multimedia Subsystems, or IMS, is being developed by industry bodies to help foster migration. France Télécom SA already has committed to putting IMS-based components in place over the next decade, aiming for 5% to 10% of total revenues to come from converged services by the end of 2008, according to a company spokeswoman.

Some vendors have a stop-gap solution: UMA, or Unlicensed Mobile Access, a relatively new specification for sending traffic from a cellular network to an IP-based broadband network.

UMA is designed to help fix one glaring oversight of mobile 3G networks, says Dean Bubley, founder of Disruptive Analysis, a London-based technology advisory firm: lousy indoor coverage. UMA lets mobile operators take advantage of indoor Wi-Fi or Bluetooth networks to route these calls over users' already installed broadband networks -- also cutting their own costs, since they don't use up expensive cellphone network capacity.

European carriers have been the first off the mark to take advantage of UMA, partly because it is based on the European-wide GSM cellphone-technology standard. Asian operators aren't far behind: Korea Telecom already has a proprietary dual-mode phone service, and operators in Hong Kong, Taiwan and Singapore are running trials of UMA-based products.

In the U.S., only Deutsche Telekom AG's T-Mobile subsidiary has launched a UMA trial thus far. Roger Entner, an analyst with consultancy Ovum Holdings Ltd., says that generous mobile packages of free weekend minutes give U.S. consumers little incentive to switch to this kind of deal.

France Télécom's Orange unit last September launched a fixed-mobile product called Unique (Unik in some markets). The company offers the product in the United Kingdom, Spain, France and the Netherlands, and it expects to launch in Poland by year's end.

Nordic mobile operator TeliaSonera AB in November launched Home Free in Denmark, and is eyeing other markets. Telecom Italia SpA and Deutsche Telekom also have launched fixed-mobile products. Deutsche Telekom's uses a rival protocol to UMA called SIP, or Session Internet Protocol, as does an offering from French telecom operator Neuf Cegetel.

Skeptics say the offerings have drawbacks. As is often the case with a new technology, there are only a handful of UMA/Wi-Fi-enabled handsets available. For now, consumer choice is limited to about three lower-end handsets.

"These are not cool and sexy phones," Mr. Bubley says. He says a dozen should come out by year's end, including models from LG Electronics Inc. and BenQCorp.

Naysayers also question whether the user-coverage experience will be hugely improved. Unlicensed Wi-Fi spectrum is also subject to interference depending on the number of users, and can even face interference from microwave ovens, which operate on the same frequency.

Ms. Whitcombe, for one, reports that she experiences about the same coverage gaps with BT Fusion as she did with her old cellular provider.

"Users shouldn't expect this to solve all their coverage problems," says Martin Geddes, an analyst with London-based telecommunications consultancy STL Partners.

Both Orange and BT say that users are satisfied.

Still, it isn't yet clear how consumers are taking to the offerings. Rune Hansen, a spokesman for TeliaSonera, says that, although several thousand users signed up when Home Free was announced in November, that has slowed somewhat. He wouldn't elaborate on the current number of subscribers.

"Users here are conservative about giving up their fixed-line phones," he says. When consumers realize the cost savings -- he estimates they can save between €260 and €400 a year by adopting a "Home Free Zone" package -- the numbers will pick up, he says.

BT has signed up 40,000 users for its service after more than a year. It recently revamped its offering, selling BT Fusion phones at High Street retail outlets and upgrading to Wi-Fi technology from Bluetooth, so that it can offer users access via wireless hot spots across the U.K. It also has simplified its price structure, offering four talk minutes for the price of one.

Orange says its customer numbers are "meeting expectations" but it declines to comment further.

"All this really revolves around the battle for the home," says Steven Shaw, marketing manager with Kineto Wireless Inc., a company in Milpetas, California, that provides software and networking equipment for mobile operators to put UMA-based services in place. "When you're at home, you can use a traditional fixed line, mobile phone, or new Voice Over IP provider to make a call. Everyone is battling for those minutes."

Indeed, one threat comes from upstart companies offering mobile Voice Over IP applications that users can download on their phones for free, cutting out mobile operators altogether.

Edinbridge, U.K.,-based Software Cellular Network Ltd.'s Truphone service, for example, lets owners of Nokia Corp.'s E-series phones download a piece of free software onto their phone that lets them make cheap or even free phone calls. The software, using the SIP protocol, locates the nearest Wi-Fi access point to route the call over the Internet. Right now, several thousand users in the U.K. and U.S. are testing the service, according to Truphone founder James Tagg.

Ubiquisys Ltd., of Swindon, U.K., is working on what's called femtocell technology, which some analysts see as preferable because it doesn't depend on Wi-Fi or Bluetooth to hook up to the Internet.

Instead, users plug tiny base stations into their PCs, which then make the switch right from the mobile network to the users' broadband network. This technology promises better home coverage than Wi-Fi and won't require a special handset, its adherents say. But it is still a long way from hitting the market.

Some mobile operators have chosen not to wait for true convergence: Instead, they simply eat the costs of providing users with a cheap "home zone." Vodafone Group PLC and Telefónica SA's O2 have put in place in Germany popular services that allow subscribers to use one mobile phone for all their needs, setting up a predefined home zone where they can make cheap fixed-line calls.

However, analysts don't see this as viable over the long run, as it costs the vendors too much.

Beyond technology issues, there are legal disputes. A Rome administrative court, upholding a complaint filed by giant Telecom Italia, earlier this month ordered that a test of a Vodafone hybrid service, under which subscribers would receive calls made to a fixed-line number on their mobile phones, should be suspended. Vodafone said its shortened test had "fully satisfying results" and that consultation with Italy's telecoms regulator on integration of fixed and mobile services is continuing.

Whichever technology or companies come out ahead, the industry will have to make sure that what it offers is something users want. A recent survey of 144 mobile-phone users by STL Partners found that 74% of respondents simply want a common address book across both fixed and mobile phones. Many said they would keep their landline phone if they could synchronize it with their mobile.

"If you're going to narrow down the choice of handsets, you better have a darn good reason," Mr. Geddes says. Agrees Mr. Entner: "People don't want to compromise. It has to be something better than what you have now, for less money."

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