FMC

UK mobile consolidation points to economic trend

All of a sudden, the UK mobile market is getting hot, at the same time it may also be that mobile itself is cooling off. DT and FT have formed a UK joint venture, creating the largest UK operator. But that in itself is an indicator that the mobile market, at least in the EU, is likely consolidating.

When a market commands significant margins and ROI, nobody is anxious to do joint ventures like this one. Economies of scale are important when margins are thin and gaining the best capital and operations economies are critical to survival.

We think that mobile is now under much the same pressure as wireline and largely for the same reason. Mobile data means Internet access, over-the-top competition, and eroding revenue per bit. It also appears that service-layer pushes by operators will start in the mobile space, however, and will then spill over into wireline via FMC.

BT sends signal on future voice services

A securities analyst has reported that BT may be slow-rolling 21CN and may in particular be rethinking its notion of migrating from TDM/PSTN voice to VoIP, at least in the near term. The information came out as it related to the impact that a VoIP cutback might have on Sonus. Obviously it could be significant.

What could be more significant is why this might happen. On one hand, the TDM plant is more depreciated than ever, and so barriers to replacement are falling. Yet there’s nothing as cheap as something you own that has no residual value to write off against your top line. Balanced against this is that operating costs for aging equipment typically grow. So at some point, you must assume BT would have to change.

The most logical starting point here is that it makes no sense to do something that involves TDM-to-IP conversion; you are forced to invest in the gateways. But if you have any TDM circuits, you can’t avoid that. Thus, we think that the likely issue here is a migration to packet voice for wireline and wireless, eliminating circuit technology in one sweep.

That would imply, in our view, that BT might synchronize three things before moving forward: 4G/LTE, FMC/femtocells and wireline migration to VoIP in some form. The question is what form. There are indicators that a P2P voice model, or at any rate something other than a SIP model, might be cheaper to deploy. Given Skype would likely offer voice services on any OTT-ready smartphone and over all home broadband, it makes no sense to spend a lot on your own voice program; you will have to match the Skype price or lose.

Verizon and AT&T planning FMC transitions this year

Verizon has discontinued its Voicewing VoIP service, a move that some find contradictory to the earlier introduction of “the Hub” a VoIP phone, and Verizon’s femtocell announcement made this week. It’s actually the first logical step in the Verizon evolution.

Voicewing’s features and price points were wrong for the new service, and Verizon is getting out from under it now, as it prepares for the new positioning. We expect both AT&T and Verizon to launch similar “carrot” VoIP services to draw users from TDM as the end-of-life problem for switches approaches.

The big move will be the FMC transition, which both companies expect to make by mid-year, possibly as early as March. This shift will create significant changes for the market, but the biggest changes relating to content delivery network(CDN) and cloud deployment are yet to come.

On Verizon’s and Tier One revenue…concerns beyond the economy

Verizon wasn’t able to match analyst estimates for growth in Q1, but the company’s wireless unit increased revenues by 12%, even while subscriber growth slowed and losses increased slightly.

In the wireline area, Verizon continued to lose both business and residential fixed lines to mobile, to cable and (relatively few) to VoIP. FiOS reported strong numbers and good growth, but there are concerns that even this most successful of the telco TV offerings may not grow fast enough to generate the revenue and profits to offset wireline declines.

Verizon has been bringing out VoIP and femtocell add-ons, as other reports on this blog show, and we believe the company is preparing to make a more elaborate VoIP and FMC offering available. Its Voicewing product apparently has been withdrawn.

While revenues for Verizon and other Tier One providers are up, which would not put direct pressure on capex, we believe service providers, including Verizon, are very concerned about the declining voice margins, declining mobile growth, and the failure of their monetization strategies so far. These factors will have far more influence on spending in 2009 and beyond than the economic problems.