FCC Ruling Isn't End of Story For Cellular/Wi-Fi Hybrids
By Carlo Longino, Tue Nov 09 20:45:00 GMT 2004

An FCC decision freeing VOIP from local regulation makes the technology more attractive to mobile carriers, but will this alone isn't enough to drive fixed-mobile convergence.

The Federal Communications Commission said today that VOIP services aren't subject to certain state regulations, giving them a significant boost, with some observers speculating the ruling will push forward mobile operators' plans to integrate the technology with their cellular networks. But just as the FCC action answers but one of the many regulatory questions surrounding net-based VOIP systems, plenty of other questions must be answered before convergence can be pursued.

The first Wi-Fi/cellular voice equipment is rolling out, and carriers like Cingular have said they're interested in utilizing Wi-Fi for voice. The early efforts aren't nearly as simple as many people think, requiring special equipment and unable to operate on any run-of-the-mill hotspot. Of course, equipment vendors don't mind, but the main question for carriers is just how they can monetize these converged networks, and do so in a way that will drive usage.

The main consumer attraction to wireline VOIP services is that they're cheap -- cheap enough to outweigh their shortcomings, and cheap enough to keep some people from abandoning landlines all together. It's questionable if carriers will be able to offer a VoWi-Fi service that's cheap enough to compete with wired offerings, but operates at acceptable margins. The falling cost of mobiles is driving people to use them more -- the average per-minute cost in the US is half of what it was in 2001, says the Yankee Group, while average monthly usage has doubled -- and carriers will have to pass along significant savings to end users to make up for the inevitable technical snafus and general confusion that will initially surround converged networks.

Operators see a benefit in shifting as many calls as possible to fixed access points that use their own backhaul, like home Wi-Fi routers or the Bluetooth equipment being used by BT's Bluephone product, lowering cost and freeing up their spectrum, while also building out coverage in areas like homes and offices that are frequently cited as black holes by users. But it will become an issue of convenience for users: how are these "Wi-Fi minutes" billed and integrated into their calling plans?

Mobile calling tariffs in the US have generally become simpler over the last several years. Most don't levy fees for usage outside a home area, and all calls are billed at a single rate. It was frustrating for users to have to keep an eye on where and how they used their phones, and rolling in Wi-Fi could cause plenty of headaches, creating somewhat nebulous zones where calls are billed differently, or don't come out of standard minutes, with seamless handoffs serving to potentially change rates mid-call. And with users already on edge about call quality, carriers will have to figure out a way to guarantee acceptable quality on calls made from hotspots they have absolutely no control over.

The thought seems to be that any reduction in paid cellular minutes will be offset by reduced churn and operating costs, though of course they'll have to cover the capital expenditures required to create and maintain these new converged networks. There are other alternatives if operators want to stimulate landline replacement -- O2 in Germany, for example, has its Genion plan, which lets users set a "home zone", a 500-meter diameter area where their calls are charged at significantly reduced rates. While the plan may cause some confusion for users on the fringes of their home zones, it's simple enough, and very successful: three-fourths of O2's postpaid users are on the plan, and Genion users have the highest ARPU in Germany. Businesses, too, are using it, setting their offices and campuses as employee's home zones. Keeping things simple like this makes a lot more sense than thinking people will be interested in tying themselves to public hotspots just to get cheap rates, and it's much easier to implement.

Genion appears to strike the cost/convenience balance that operators must strive for with their converged networks. Price the service low enough, and make it easy enough to use, to drive usage. But can they fulfill both these aims and make enough profits?