Thursday, October 9, 2008

O2 has the right idea: fixed-mobile broadband combo

Combined fixed-mobile operators would do well to follow the example of O2 UK and bundle fixed broadband with a mobile broadband subscription, says Analysys Mason. As discussed in a report recently published by Analysys Mason, O2 UK is using DSL as a valuable addition to mobile broadband.

"For MNOs that are present in the local loop unbundling (LLUB) market, fixed costs are high and they need to achieve scale quickly," says Matt Hatton, Principal Analyst at Analysys Mason, "Combined fixed-mobile operators can build much-needed scale in their fixed businesses, which until now have been only modestly successful."

Since September 2008, O2 UK has been offering subscribers one year of free 8Mbit/s DSL when they sign up for their standard mobile broadband service. The package costs £20 per month and has a data usage limit of 3GB per month. Most mobile broadband contracts in the UK have a data limit of 3GB per month, but competing plans cost £15 per month. In effect, O2 UK is charging £5 per month for the fixed DSL connection, plus access to The Cloud's 7500 Wi-Fi hotspots.

"Before September's announcement, O2 UK was failing to sign up mobile broadband customers as quickly as its competitors, particularly 3 UK and Vodafone UK, and had to do something to take a share of the growing market" explains Hatton. "Unfortunately, O2 UK's 3G coverage and capacity are worse than its competitors, making it difficult to attract subscribers and support a large mobile-broadband subscriber base. Combining mobile broadband with DSL brings benefits in the form of reducing traffic load on the wide-area network."

Hatton adds, "Most MNOs - rightly - continue to be concerned that the traffic generated by the rapidly increasing numbers of mobile-broadband subscribers will make unsustainable demands on their network. MNOs should be considering ways to offload as much traffic from the wide-area network as possible. Furthermore, as we have seen with voice contracts, most bundling will encourage customer loyalty and reduce churn, albeit with a risk of cannibalising revenue."

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