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Wednesday, March 14, 2007

FMC interconnect... something will have to be done

The more I think about it, the more I reckon that the differential between fixed and mobile interconnect rates is going to be a distortion, as FMC and related business models become more prevalent. Listening to a conference presentation this morning (credit
a very knowledgeable competitor of mine from Ovum) I realised that the whole thing hinges on the notion of interconnect being "cost based". Now obviously operators are going to fiddle around the edges to get the actual cost down a bit below the regulator-envisioned baseline, but it's not designed to be blown completely out of the water by VoIP.

Apparently there was a discussion a few years ago about the possibly differing cost structures on termination via 2G and 3G, although nothing much resulted.

This time around, though, I think things may be different. I'd suggest that mere numbering (07xxx and so on) should be considered an inappropriate basis for calculating fair interconnect prices. There should perhaps be an extra dimension for network/device type used for termination, or some other indicator of the real cost. Given the speed at which FMC and VoIP technologies are evolving, it would have to be a mechanism that could easily be updated. Perhaps something like:

type-1 interconnect = completed via cellular call
type-2 = via public wifi
type 3 = via private home/office wifi
type 4 = via wimax
type 5 = to a pc client over broadband
type 6 = to voicemail server & message downloaded over IP
type 7 = call forked & terminated in 2 places
type N = whatever's invented in 2009

Now I'm sure that any moves towards this sort of model would (a) be very complex, and (b) would induce screams of anger from companies with business models playing games with current termination fees. But given the legal basis for such fees is supposed to be "cost based" I reckon that there needs to be something a bit more sophisticated and granular than just mobile vs. fixed. It may even need to be multi-variable to account for differences in peering as well as transport.

I wonder if any of the interconnect billing & mediation vendors have thought about this.....


Anonymous said...

The interconnect regime - the major influencer on the termination fee charged to the caller in calling party pays markets - is one of the biggest factors in the success or failure of the value proposition for fixed mobile convergence for end users, and of the business case for operators.

Some mobile operators like the idea of retaining mobile termination rates for calls that connect using VoIP to a PC or dual mode phone. They see this as an essential part of the business case for FMC. They would argue that so many users are using the mobile number as the main identity that callers are coming to accept premium termination rates as the norm.

Others are pursuing a fixed mobile substitition play (Vodafone Zu Hause, T-Mobile @Home for example) where the proposition rests on having a separate fixed number with standard, low termination rate that rings the subscribers mobile handset when within several hundred metres of their home base station. In some countries it is rude to only give out a mobile number because of the cost of calling it.

These two models would seem to be in opposition to each other, but in fact there are many examples of operators trying to do both. However T-Com's recent cancelling of their FMC service reflects the fact that they did not have a suitable range of handsets to make the FMC offer as compelling as T-Mobile's FMS offer, and the resulting confusion to customers was not worth it, yet. This will change when the right handsets are out there.

The shorter term play seems to be co-opting the PC VoIP experience (180m Skype users are on to something, and about 10% of them are paying to call into the phone network), but using the number with that of an existing mobile phone: two devices (PC and mobile) with one number. This model could see substantial growth in the short term - it is a different use case than the dual mode handset and more complementary than cannabalistic. The attraction to operators rests on voice being the entry point to using a broadband connected PC to do more with mobile number services, from SMS and MMS, to music and photo album integration, and eventually to integrating PC based web and mobile advertising.

What should the termination rate be for these subscribers?

The caller of course has no idea whether the call will be terminated on a mobile phone or a PC or on WiFi. Its not reasonable that they should pay a random termination rate that they have no control over.

Some regulators (in Japan for example) have therefore decided that FMC services should have a new number range (050 numbers) and have an intermediate blended termination rate. Callers will know from the number that there is this intermediate termination rate. This has stalled the market in Japan because everyone already has a mobile number there and presumably doesn't want to change it and also the carriers do not want to encourage subscribers to change their number and possibly decide to take the opportnity to churn to another carrier at the same time. Only the new entrants (eAccess) and weaker players (Softbank was Vodafone was Jphone) think this is a good idea.

So, new number ranges are probably not the answer for broad market adoption.

I believe the answer is a blended and consistent termnation rate for all fixed and mobile numbers. This would mean a slight increase in termination rate for fixed numbers and a significant decrease for mobile numbers. This recognizes that fixed is in slow decline and a high percentage of all calls is mobile to mobile.

Competitive forces should then drive in-network flat rate deals. AT&T recently introduced its Unity plan where an AT&T fixed, wireless (and soon also VoIP) customer can call any other AT&T customer fixed or wireless at no incremental usage cost over the flat rate subscription. The US is not a calling party pays mobile market, but Telefonica, Deutsche Telekom, France Telecom and other integrated carriers worldwide would likely start to compete on this level if a consistent termination rate across all numbers was introduced by Ms. Reding. The US does have consistent (and low) termination rates for both fixed and mobile phones.

More debate on this topic is urgently needed. Dean - perhaps you might find a way to facilitate a meaningful moderated debate online on tihs topic.

Sanjay Jhawar
Senior Vice President
Marketing and Business Development
BridgePort Networks

sanjay at bridgeport-networks dot com

Unknown said...

There's a relevant paper by Professor Stephen Littlechild, "Mobile Termination Charges: Calling Party Pays versus Receiving Party Pays" in Telecommunications Policy, Vol 30/5-6 pp 242-277. A copy is online here:
I have some comments and other pointers here: http://blogs.nmss.com/communications/2006/05/yet_more_on_cal.html
but the key thing Littlechild does is propose a plausible migration path to 'wholesale bill and keep' -- one which could get EU regulators out of the business of setting settlement rates.