Analysis: Is convergence unstoppable?

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Telecoms providers are falling over themselves to expand into hitherto unexplored areas of business, seeking to capitalise on double-, triple- and quadruple-play. Here Jo Best examines why not everyone is jumping on the convergence bandwagon.

Acquisitions, bundling, unbundling. Every week seems to bring news of one mobile or telecoms company or another branching out in new directions - whether it's companies such as Sky offering consumer broadband, BT offering fixed-mobile convergence (FMC), mobile networks buying DSL offerings or behemoths like NTL merging with others in an effort to sell every type of communications service under one roof.

The sentiment in the telecoms camp is very much 'convergence is happening'. But is big business setting itself up for a fall?

That, of course, depends on who you ask. Orange - until recently, a brand better known for its pure-play mobile offering - is one of the players that has already started on the convergence path, offering mobile, broadband, FMC and soon IPTV.

UK CEO Bernard Ghillebaert believes consumers are crying out for a 'one operator fits all' approach. "What commentators are overlooking is the inevitability of convergence. There's a strong appetite for consumers on convergence... and the convenience of billing and customer service that brings."

Not all industry pundits are convinced that mobile operators are best placed to try and expand their offerings, though. According to David Tansley, technology partner at Deloitte, most customers' relationships with their mobile operators are merely receiving bills and making complaints - a difficult springboard from which to begin a deeper commercial involvement.

"Offering multiplay solutions has its challenges - as customers are more dependent and attached, customer service has to be flawless. Telecoms is not really known for it," he said.

Jeremy Darroch, CFO at pay-TV company Sky, also acknowledged that as companies diversify into new areas of business - Sky itself has recently launched consumer broadband and VoIP services - they encounter customer-services challenges.

"With increasing bundling, it means increasing complexity... Support becomes more complex," he said.

Cheat Sheets

♦ Mobile location-based services
♦ FMC
♦ 3G

According to speakers at the recent FT World Communications conference in London, the raft of companies repositioning themselves as consumer broadband bundlers - and local loop unbundlers - are those likely to have the hardest time in the converged world.

Jim Marsh, UK CEO of Cable and Wireless, said: "There's the potential for a lot of people to go out of business. Having looked at the cost of unbundling, I've got grey hairs as a result."

As BT's largest rival in the wholesale access space, C&W clearly has a vested interest in persuading smaller ISPs to leave unbundling alone and, presumably, buy from C&W instead. Still, other telecoms providers echoed Marsh's sentiments.

Lucy Wood, CEO at telco Viatel, said: "Our step into consumer broadband was so painful, I don't know how companies manage to stay there and make money."

Nevertheless, ISPs are falling over themselves to get involved. Sky recently bought unbundler Easynet while Wanadoo, now Orange Broadband, plans to invest €1bn in unbundling.

Convergence has also seen companies traditionally associated with access moving into the service world, in an effort to shore up their average revenue per user (ARPU) even as the cost of the average broadband subscription plummets. The telecoms operators' fear is being reduced to a transport pipe - a utility - left out in the cold while others cream off the profits from services and content.

The utility option is not to be sniffed at, though, according to the consultants. Deloitte's Tansley said: "In the utility world, prices go up as well as down. It's a luxury telcos don't enjoy today."

Could the convergence kickback already have started? According to Andy Green, CEO of BT Global Services: "The overall feeling is that because the pieces are moving around, you have to have all the pieces. I personally reject that."