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By Martin Brampton, 21 June 2005 07:00

COMMENT Despite criticisms, BT's new Bluephone could do quite well in the long run, says Martin Brampton. Never underestimate the power of a familiar brand.

It is about a year late but BT has finally unveiled its Bluephone. Despite the delay, it is a significant announcement. Just as I argued last December, while VoIP may be a coming technology, many consumers still want to buy a service, not a technology. How will Bluephone work out?

BT's new device may well have a much brighter future than most pundits are saying. The obvious comparison made by the knowledgeable is with Skype. But that is not a comparison that will mean anything to the average consumer.

The factor that is most interesting in the longer term is one that has had next to no coverage. The most important thing about Bluephone is its potential for providing what seems to the user just like a traditional mobile phone service while taking advantage of a vast range of local hotspots.

BT's deal currently places all the emphasis on savings when the Bluephone is at home. There is no offer of savings anywhere else, as mobile tariffs apply. Yet in the long run, BT is highly likely to take advantage of hubs that are especially common in places where people often gather, such as railway stations. Will the customer get a reduction in this case? That will depend entirely on what BT thinks the market can stand.

At first sight, the mobile operators had little interest in co-operating with this kind of scheme. And that is a factor that has held back Bluephone. Already, though, mobile operators have considerations that may well impel them to consider working with BT. Vodafone obviously thinks so.

The future revenues for the mobile operators still depend on selling consumers new services, especially digital services. High speed digital connections are difficult to provide over GSM and 3G still needs a good deal more investment to be fully effective. By contrast, local Bluetooth and Wi-Fi connections can provide relatively high speeds at low cost. BT owns a vast network of locations that could house hubs. Mobile operators may well have more to gain than lose through collaboration with BT.

The comparison with Skype is misleading; there are important factors that even up the contest. A major one is BT's ability to factor out calls via a broadband connection at the local exchange, evading all the problems of running voice traffic reliably over the general internet. Another is BT's financial muscle which allows it to offer everything on monthly terms with no upfront cost.

Beyond those powerful factors is the general issue that most businesses and a majority of consumers simply want to buy a reliable phone service, not piece together a system out of parts. You can build your own PC (I do) but most people buy them from the big makers. That is not likely to change.

Comments that the Bluephone tariff is expensive are premature. At the moment, it is likely that BT wants to move into a real life trial with a relatively limited number of consumers. If it were to introduce highly competitive pricing, it would be inundated with demand it could not effectively meet.

In any case, BT will not want to reduce its fixed line revenues faster than it has to. It does not need to be the cheapest operator in order to retain or even win customers. BT Broadband illustrates that clearly enough. It is not the cheapest service but it has attracted large numbers of users. Over time, the company will have plenty of scope to cut prices as the revenue contribution from the mobile side of Bluephone increases.

While we can carp at the lateness of the project and even question whether it would suit us as individuals, there is still a reasonable prospect of success for BT. The Focus service, as BT is calling it, may indeed be based on VoIP but that term is unlikely to appear on any of the sales literature. Nor need it.