What’s taking fixed-mobile convergence so long?

FMC’s slow uptake due to carrier foot-dragging, cautious customers, some say

Fixed-mobile convergence, or FMC, has been much hyped, but has been slow to roll out because of carrier foot-dragging and cautious customers, industry watchers say.

Fixed-mobile convergence — the seamless switching between cellular and local networks for mobile users — has been hailed for more than three years as a potential boon for enterprise networks.

So, where is FMC already?

Despite the hype, heavy adoption isn’t expected until the next decade, analysts say. Dragging it down is carrier reluctance to market FMC services and tepid demand among cash-strapped U. S. companies still trialing products from established vendors and newcomers.

“Why would [carriers] want to do anything to disrupt the nature of the return that they’re getting in tariffed services?” asks Robert Rosenberg, president of Insight Research, referring to wireline and wireless carriers such as Verizon and AT&T, which continue to see growing wireless revenue and fat profit margins of 40% to 45% every quarter. “Naturally, they are much happier to take your minutes of use and apply them to cell phones. Same would [be true for] a tariffed voice service. There’s really no incentive for them to rock that boat.”

Diagram showing FMC

Both wireline service providers and cellular providers lose revenue when calls are moved off of their respective networks and onto the enterprise’s wireless LAN (WLAN). They lose additional revenue if the off-site traffic is routed to another enterprise network, Insight notes.

Other industry watchers agree.

“[FMC] is set to decimate incumbent telephone companies, reducing them to providers of broadband services only,” wrote Anton Wahlman of ThinkEquity Partners in a recent investment white paper. “FMC will have a dramatic impact on the service provider landscape, draining much of the profit from mobility services, and cutting deeply into fixed voice service revenues.”

Wireless carriers in particular have little incentive to promote FMC because they are already enjoying increased revenue as employees put more minutes on their cell phones. Any FMC solution offered by a wireless carrier would move this traffic to the enterprise WLAN, negating that revenue opportunity, Rosenberg says. That’s why some carriers are pushing FMC alternatives such as femtocells, which are indoor base stations designed to extend cellular service reach.

Carrier progress

That’s not to say, however, that carriers haven’t at least made some FMC progress. Cincinnati Bell earlier this year launched an FMC-based service called CB Home Run that lets customers initiate and terminate wireless calls on a fixed Wi-Fi network and hand them off to a mobile GSM network when beyond the range of the Wi-Fi cell.

Cincinnati Bell says it turned up the service to provide better reception in homes, offices and around its 300 Wi-Fi hotspots. But the carrier acknowledges that revenue might be lost by offering the service — calls originating from a Wi-Fi connection don't tap into the customer's bucket of minutes; they are essentially free.

Ostensibly, Cincinnati Bell can make up some of that lost revenue through customer loyalty and bundling on other services, such as a high-speed Internet and Wi-Fi hotspot service to fill out CB Home Run, analysts say.

Verizon Business, the large enterprise arm of Verizon, also offered three FMC services earlier this year. None of the three, however — Wireless Office, PBX Mobile Extension and Mobile Conference Connection — offload voice minutes to a Wi-Fi hotspot or premises WLAN. Verizon says support for voice over its managed WLAN services are on the carrier’s road map.

“That’s an absurd assertion” that carriers are dragging their feet with FMC, says Verizon spokesman Mark Marchand. “In our labs…more than half the products that we’re getting ready to roll out deal with fixed/mobile convergence.”

Marchand says these products will begin to emerge in early 2008. He did not know if any allow roaming of voice traffic from Verizon Wireless’s cellular network to and from a premises WLAN or Wi-Fi hotspot.

Verizon shuttered its Wi-Fi hotspot service two years ago.

Another obstacle to enterprise adoption of FMC may be the emergence of wireline VoIP in the enterprise using Power over Ethernet. Desktop IP phones are a relatively new phenomena — U.S. enterprises are at various stages in their IP telephony investments —so wireless substitution of these phones is a ways off.

“In North America, what has happened is you already have completely networked enterprises,” says Rachna Ahlawat, vice president of strategic marketing at Meru Networks, a WLAN vendor. “Until the time you replace the cabling or desk phone, you won’t replace the Ethernet cable. So if I have cable coming to every desk, I put in an Ethernet jack and that’s why wireless substitution is not happening.”

Investing in FMC

Nonetheless, Insight believes FMC will generate more than $35 billion in revenue worldwide for service providers and hardware vendors over the next five years. Product vendors include big names such as Cisco, Nokia and Siemens as well as newcomers such as Agito Networks and DiVitas Networks. Enterprises will continue to invest in Wi-Fi networks in offices and factory floors, and voice over WLAN (VoWLAN) to save money on cabling and mobile voice calls, and integrate mobile user functions with their fixed PBX systems.

“Enhancing coverage and cost savings are the two primary drivers” for FMC, says Pejman Roshan, founder and vice president of marketing at Agito, a start-up developing an enterprise router designed to pull company cellular phone traffic onto the corporate Wi-Fi network when employees are on premise. “It puts more phones in hands.”

These investments will form the foundation of enterprise FMC deployments. But Insight believes the carrier disincentive dilemma will continue to plague the enterprise for some time.

The only thing that might break it will be the proliferation of consumers’ cellular/VoWLAN handsets, the firm believes. Employees will use their handset at home and as they travel to work, and then want to continue to use it in the office to reduce internal telecom costs by setting up WLAN access points and servers that would provide IP Centrex-like services.

That proliferation is a foregone conclusion among market researchers, but worldwide FMC subscriber penetration varies dramatically among them. Infonetics has it climbing from 188,000 in 2006 to 38.2 million in 2010, a compound annual growth rate of 278%.

Another firm, iLocus, has the number of FMC subscribers rising at a 110% Compound Annual Growth Rate over the next four years, from 6.5 million in 2007 to 126 million in 2011. Two other firms have much lower forecasts for the number of subscribers — 65 million by 2012 from ABI Research, and 18 million by 2010 from Pyramid Research.

FMC early adopter

One large operational FMC implementation is at Japan’s Osaka Gas, which supplies gas to 25% of the country’s population.

Japan’s second largest utility has implemented an all-wireless enterprise of Meru WLANs, wireless VoIP, dual-mode cellular/Wi-Fi phones and NTT DoCoMo’s cellular/Wi-Fi service. Osaka Gas has mobile roaming VoIP among 6,000 wireless IP phones, accessibility as if all workers were at their desks, and an expected cost savings of $4 million per year.

But a more typical FMC subscriber may be Orrick, Herrington & Sutcliffe LLP, a Washington, D.C., law office. The firm is sizing up FMC as a way to blur the distinction as to where a lawyer is conducting business.

“We have 1,000-plus attorneys whose work environment is anywhere,” says CIO Patrick Tisdale. “We’ve been working for some time to give them any of the automation tools or capabilities they normally would have enjoyed within the office…to where there’s not really a definition of at the office or out of the office.”

Orrick, Herrington is also considering VoWi-Fi as a way to boost mobile phone reception in its office buildings, Tisdale says. The firm would also like to have its attorneys accessible via one phone number whether they are on a landline, cellular, Wi-Fi or VoIP phone.

“The one thing people tend to have with them at all times is their cell phone,” Tisdale says. “If you can somehow make their cell phone operate within the building in terms of the cellular services, and if you can somehow get it to be their office phone then you are probably going in the right direction. And rather than adding one more piece of unique infrastructure … if you can leverage your investment in your Wi-Fi network and blur cell meets VoIP wireless meets laptop — in a vendor agnostic way — we think at least you’ll be in a better place.”

To reach this plateau, Orrick, Herrington is trialing equipment from Agito. Tisdale reports that the trial is in its early stages and won’t be ready for a performance evaluation for three or four months.

And as analysts have been forecasting, Tisdale does not expect Orrick, Herrington to complete its FMC project until the next decade.

Learn more about this topic

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US cellular operator to lose billions to FMC, research firm says

02/05/07

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02/05/07

Fixed/mobile convergence: What’s in it for users

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