Radioactive: Do mobile operators covet broadband?

Long have industry observers wondered whether 3G mobile could become your broadband connection at home. Now that the services are arriving, Futurity Media's Anthony Plewes weighs their chances of success - and looks at mobile operators' motivations for moving in this direction.

When UMTS started to attract serious attention at the end of the nineties, many 'expert' commentators seriously mooted the possibility of the 3G mobile technology's potential as broadband replacement. Fast forward to 2005, however, and it looks like the stuttering start to 3G mobile services put paid to any broadband ambitions.

But no one, it appears, told mobile operators in Germany. Both Vodafone D2 and O2 Germany this month launched residential broadband offerings based on UMTS. Subscribers are given a discounted rate for internet access in their nominated 'home zone'. The package from both operators is tied into a phone and internet service that is designed to accelerate fixed-to-mobile substitution.

Vodafone's voice and internet package is called ZuHause Talk & Web. Internet access is priced at €17 for 60 hours or 5GB of data transfer, and the voice service includes a bucket of 1,000 minutes of calls a month for €20 made within the user's home zone.

The package comes with a modem which connects the fixed telephone and multiple PCs using WLAN or fixed LAN connections to the Vodafone 3G network. Alternatively, mobile Vodafone users can use the Mobile Connect 3G data card in their laptop and benefit from the same pricing in their pre-defined home cell.

O2's Surf@Home data service is very similar and also features a home-based modem for users to plug their PC into. It is priced slightly higher than Vodafone at €10 for 10 hours, €15 for 20 hours and €20 for 40 hours.

Both packages are clearly aimed as fixed line-based ADSL replacements. The pricing and speeds reveal they are designed to appeal to low-usage subscribers who are not that concerned about data transfer speeds and like the simplicity of using a mobile phone. The inclusion of the Mobile Connect 3G data card in Vodafone's solution could give it the edge over O2 as it will appeal to highly mobile users who do not want to maintain another internet connection.

Although these home-zone data services are opening up a new front in the fixed-mobile substitution war, it is only an evolution of a voice service that has been available in Germany since 1999. O2's Genion allows users to choose a 'home cell' and get tariffs comparable to fixed-line pricing. When they stray out of their home cell, it increases to standard mobile charges.

The success of O2's Genion service demonstrated there is an appetite for home-based mobile services but it is hard to see how the data package will compete with ADSL. The mobile operators will be better placed when HSDPA becomes available and speeds are ramped up to around 1Mbps - but ADSL speeds in Germany already reach up to 8Mbps.

No doubt the business analysts at O2 and Vodafone have decided that home-zone mobile data services will appeal to the seven per cent of households in Germany that are mobile-only. However this proportion is small compared to the 15 per cent average in the EU, and it remains to be proven that these mobile-only households are actually cash-rich and willing to fork out for broadband internet access. Many mobile-only households have not 'cut the cord' but are excluded from fixed-line services because they move homes more often, are unprepared or unable to pay connection charges and cannot afford to cough up for line rental for more than one phone.

Certainly there may be a few niche groups that would find the service attractive. Students, for example, frequently move around and would be able to take their subscription with them. Mobile workers will also be a key target but their subscription will be paid for by their work and hence wouldn't necessarily involve them ditching their fixed-line network at home.

Surprisingly, what may appeal most is the pricing. T-Com, the retail arm of the incumbent Deutsche Telekom, charges roughly twice the price for a 1Mbps DSL service. Granted there are a number of metered and unmetered options but Vodafone's Zu Hause offering is clearly cheaper.

But how long can Vodafone remain cheaper? Its pricing is predatory but as 3G spectrum gets used up, this level of pricing will be unsustainable. Also T-Com is sitting on a healthy monopoly. True competition will allow it do slash its fees. It's hard to see how the expensive technology (3G) can in the long run compete with the cheaper one (DSL) on cost alone.

Other factors undermining UMTS' claim on the home front are that it offers no reach advantage over DSL and mobile services inevitably suffer from poor network quality, such as unexpected drop outs and no dial-tone.

Quite aside from the dubious potential of the service, perhaps the most significant aspect of the broadband-replacement strategy is that it may undermine mobile operator's desperate attempts to position 3G as a value-added service rather than merely a bit-pipe. So perhaps it should be no surprise that both operators are remaining cautious about any Europe-wide launch. O2, for example, has said it is not planning on launching anything similar in the UK until it has assessed the success of the service in Germany.

Significantly, however, it yet again highlights the mobile operators' desire to get all of the communications pie. While fixed-line operators are desperately clinging to the hope of fixed-line convergence, Vodafone for one is doing its best to prevent it.

Anthony Plewes is a freelance journalist and director at Futurity Media.