TCS Daily

Keeping Up with the Phones

By Benedikt Koehler - November 23, 2004 12:00 AM

Britain's telecom regulator OFCOM has just published its strategic review, its road map for where the industry is heading. The telecom community will be scouring the document for pointers whether rules of engagement will be changing.

OFCOM is a new institution. Previously Britain had separate overseers for telephones and cable, broadcasting and advertisement. This set up became obsolete once you could start watching movies on your PC and advertisements on your mobile. Innovation blurred demarcation lines between sectors. Regulators had to respond and so at the beginning of the year they moved under one roof.

OFCOM is a one-size-fits-all telecom regulator. Intuitively this sounds the right way forward for an industry where the mantra is convergence. Take a second look, though, and the industry's configuration changes like a kaleidoscope at the flick of a wrist. OFCOM staff on their first day of work might have thumbed through the European Commission's recommendation to regulators. According to the EC, telecommunications comprise more than one business sector. Most people would go along with that. Few people have gone to the trouble of adding them all up, though. The final tally, according to the EC, stands at 18.

Most people might assume the taxonomy of telecom sectors is to regulators what choice of ring tones is to teenagers. Fun to those who care, but hard to see why it matters to anyone else. In fact, where and how regulators demarcate boundaries between one market and another is critical to the future of telecoms. For example, think of the telephone sector. Is telephony one market or two?

Few people exercise their minds deliberating the one-or-two-markets-issue. To most consumers, a phone is a phone is a phone. Some stay at home, some can go on trips. But to all intents and purposes, mobile and fixed phones serve the same purpose. Same purpose, same market. It follows that once consumers get used to mobiles and charges drop, fixed line phones will go the way of vinyl records. Telecom giants think so, too, and have been budgeting accordingly.

There's the rub. Conventional wisdom has been that mobile and fixed phones are in one and the same market. A lot of money in the telephone sector is riding on this assumption. If you believe there is a single market, mobiles will displace fixed once prices are level. It follows regulators ought to press for lower mobile charges. If, on the other hand, the two markets are distinct, regulators are comparing apples with oranges. If so, then the case for enforcing price convergence between fixed and mobile phones looks shaky.

So, one market or two? The jury is out. Popular opinion is in the one market camp, but the two markets camp is backed by facts. The percentage of mobile-only households across the EU ranges from a high of 33 percent (in Portugal and Finland) to as low as 5 to 7 percent (Sweden and the UK). More importantly, the growth trend has been leveling off. Extrapolate these trends into the future, and you can expect border disputes to die down.

Unless, that is, new technology emerges, and with it new business models and cost structures. In that case, consumers might change their minds and all bets are off. This might be happening now. At a time when mobile operators have been making inroads into the preserve of fixed line incumbents, their own claim to technological lead is under attack.

The new technology is WISPs, Wireless Internet Service Providers. In California, Indian reservations which are too remote and sparsely populated to merit the attention of major telcos, have built their DIY telephones network, with broadband as an added extra. In Grand Haven, Michigan, citizens can install a WISP and receive calls on their cordless phone all over town. Plus, in case they go sailing and there happens to be a lull, up to 15 miles from the shore they can check emails on their laptop. WISP installation can be cheap ($299) and operators break even with 30 subscribers per square mile.

Mobile operators know from experience how fast market shares can wax and wane. Already T-Mobile and BT aim to graft WISP technology onto their product range. T-Mobile is reaping first mover advantage from rolling out WiFi access at 600 hotspots in the UK. BT has announced the 2005 rollout of Bluephone. Outdoors, Bluephone works like a conventional mobile. Indoors, it hitches up to WiFi.

In the telecom sector, defining a market is as easy as catching a piece of soap in a bathtub. Expect a big print run for OFCOM's strategic review, especially for its approach to market definition.


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