insight Driving Adoption of Fixed-Mobile

Convergent Propositions
A Consumer Perspective

By Maria Pecorari and Milan Sallaba

The growing maturity of the telephone and telecom industry, the often
dramatically declining profitability of wireline, the growth of competition
and deregulation, and the consequent saturation of markets have
forced fixed and mobile operators to search for new sources of growth.
With the emergence of new technological innovations, there is renewed
enthusiasm for fixed-mobile convergence among beleaguered and
thin-profit operators. But will potential customers value convergent
propositions?
 introduction
table of contents
Testing Two Fixed-Mobile
Value Propositions . . . . . . . . . .3
Identifying Attractive Market Segments . .
About the Firm . . . . . . . . . . . . .
About the Authors . . . . . . . . . . 10
For more information contact:
Mark Keeley, Partner (US)
mark.keeley@diamondcluster.com
Milan Sallaba, Partner (Europe)
milan.sallaba@diamondcluster.com
2
Fixed-mobile convergence is back on the
strategic agenda of telecommunications
operators worldwide. After years of
hype and unfulfilled grand visions, recent
advances in technology and network
asset integration are finally providing
new opportunities for the development of
convergent value propositions. Operators
now are looking seriously at fixed-mobile
convergence as a new way to grow revenues
in mature telecom markets.
While the industry and technology
perspectives of convergence are much
debated, the crucial perspective of the
consumer is less explored and understood.
Do consumers value convergent offers
enough to buy? Which features are most
valued? What are the barriers to adoption?
Findings from a DiamondCluster quantitative
market survey of UK consumers1 shed
new light on these fundamental questions.
Although the research focuses on the UK
market, the key conclusions will be relevant
for a wide range of mature markets.
The message from consumers is clear: the
simple bundling of fixed and mobile services
as they exist today has limited potential,
7
and will be met with inertia and high
9 discount expectations. However, sceptical
consumers are coming round to the notion
of convergence. Pricing, integration of VoIP
and other feature innovations will be key
to driving uptake of convergent offerings.
That insight has powerful implications for
operators. They need innovative pricing
strategies to differentiate the convergent
propositions from their “unbundled” competition.
In addition, operators need to innovate in
the area of service quality, focusing on
simple features that improve the “basics”
of the user experience, such as providing
superior mobile reception indoors
and enabling seamless integration of
applications across devices.
Integration of Voice Over Internet Protocol
(VoIP) into convergent offerings is another
important feature to consider, particularly as
VoIP penetration grows and related services
become more user-friendly.
Convergent offerings need to meet
consumers’ high expectations for service
reliability and handset choices since they
appear unwilling to “downgrade” on these
purchase criteria.
Finally, these offerings need to be
targeted to discrete consumer segments
that show the greatest propensity to
purchase fixed-mobile offerings. The good
news for operators is that our research
has determined that the segments most
attracted to convergent propositions have
above average telecom spend. However,
operators need to uncover new consumer
insights to identify those segments that
most likely will be early adopters of their
convergent offering, tailor the offering to
the needs of each segment and identify
competitive barriers to protect their most
vulnerable segments from the convergent
propositions of other operators.
1. Survey of a representative sample of 610 UK
consumers, mobile and internet users, aged 16–55,
conducted June, 2005.
Testing Two Fixed-Mobile DiamondCluster’s survey of 610
Value Propositions consumers in the United Kingdom focused
on uncovering their views on two fixed-
mobile concepts that capture the key
components of convergent propositions
(Figure 1):
• A “packaged” offer of fixed voice, mobile
and internet access with a single
contact centre, a single bill and a single
web site to manage bills and queries.
The benefits tested were simplicity
(all fixed and mobile services bundled in
one, single customer service interface)
and cost-savings (price discount on the
“packaged” services).
• An “integrated” offer, requiring a
broadband connection at home. In this
concept, a single, dual network handset
works as a standard mobile device when
outdoors and routes traffic through the
broadband connection when at home.
Calls from the mobile are priced at fixed
line rates when at home. Value-added
services include a single voice-mail,
a single address book and a personal
diary accessible from all terminals. The
benefits tested were a better consumer
experience (in particular, improved mobile
reception at home), value-added features
and cost savings (fixed rates for mobile
calls from home).

Components of Convergent Propositions

a
“ Packaged” proposition
Key attributes: Terminal
Integration
Complexity of Delivery

• Simplicity
• Cost savings Product
Integration

Customer
Service
Integration b “Integrated ” proposition
Service Key attributes:
bundling
• Better service
• Value-added features
• Cost savings

Degree of integration

Figure 1

3
 Price Pressures on
“Packaged” Concepts
Consumers did not appear to see compelling
value in the simple bundling of fixed and
mobile services. To overcome the
inconvenience of switching providers
(a barrier to adoption more significant than
the actual cost of switching), consumers
would have to see a value proposition that
included significant cost savings and clear
value-added features.
If the value-added features are few, then
the size of the expected cost savings needs
to be significant. In the tested “packaged”
proposition, 20 percent of consumer
respondents said they would expect a cost
saving of at least 30%. Forty-seven percent
would expect a cost saving of at least 20
percent on their overall bill for them to
consider the service (Figure 2).
The price sensitivity of consumers puts
some serious limitations in building a
business case for convergent propositions
that only offer limited improvement to or
differentiation in the user experience. The
value lost on up-front selling costs and price
discounts could significantly offset the value
created through increased usage and loyalty.
This would be an issue, in particular, for
incumbent operators, while challengers could
be satisfied with lower margins and adopt
more aggressive pricing strategies.
Another key barrier to adoption is consumers’
scepticism about whether the “packaged”
proposition would deliver real savings or
even be suitable for their usage profile
(Figure 3).

Expected “Packaged” Proposition Savings

What would be the minimum discount on your total bill

for you to consider the “packaged” offer?
% Respondents

1-5% 1%

5–10% 5%

10–15% 16%

15–20% 22%

20–25% 19%

25–30% 8%
Note:
>30% 20% “Do not know”=9%

Figure 2

Barriers to Adoption of the “Packaged” Proposition

For which of the following reasons would the “packaged” offer

not be attractive to you, if any?
% Respondents
(multiple answers)
Sceptical about
52%
the real savings
Inconvenience
41%
of switching
Sceptical about fit
36%
with my usage needs
Want to
30%
“shop around”
Cost of
27%
switching

Figure 3
4
This scepticism can be explained by a market
that already is populated with a variety of
competitive, “unbundled” pricing propositions
tailored to different usage needs.
Operators need to be innovative in their
pricing design to differentiate their
convergent offers from their “unbundled”
competition in ways that will drive uptake.
For example, mobile operators could use
large minute bundles to aggressively displace
an incumbent operator’s fixed revenues in
combination with unlimited on-net calls
to create “group” effects. A critical factor
for successful operators is the ability to
determine the right price levers to find the
optimal trade-off points between re-price
effects on one side, and increased usage
and loyalty on the other.
4.5
4.0
3.5
3.0
2.5
Fixed rates Improved mobile
for mobile
calls at home
Scale: 1= Not at all attractive, 5 = Extremely attractive
Figure 4
Integration of Customer Service
Alone Would Not Drive
Convergence Uptake
Although consumers value integrated
customer service features, these alone
would not be a purchase driver. Among
these features, having a single bill or a single
web-site for bill management are more
appreciated than having a single call centre
number, pointing to the importance
of cost management considerations over
other customer service criteria.
Feature Innovation is Key
More consumers would find the “integrated”
proposition more attractive than the
“packaged” proposition: 41 percent and
32 percent respectively. Consumer interest
in the “integrated” proposition was driven
Most Valued Benefits of the “Integrated” Proposition
How attractive is the following benefit to you?
All consumers
Consumers finding the "integrated" proposition attractive
Single Single Multiple
reception number address book users for
at home the service
by its clear cost benefit (mobile at “fixed
prices” when calling from home) and by
value-added features. Consumers most
appreciate simple value-added features that
improve the “basics” of the user experience
– such as improved mobile reception at home
(Figure 4). Indoor mobile reception is still a
prevalent issue for many households and is
set to continue with the introduction of 3G
services. This is a real opportunity for dual
mode handset propositions if they can deliver
on their promise to transfer fixed and mobile
traffic seamlessly across networks.
Because consumers do not perceive much
value in a simple bundling of services, feature
innovation will be essential in differentiating
convergent offerings. Innovation around
applications may further help operators to
mitigate consumers’ discount expectations.
Single Single Single
handset for voicemail diary
all calls
5
 Consumers Will Not “Downgrade”
on Service Quality or on Choice
Not surprisingly, 94 percent of the most likely
adopters of the “integrated” proposition
would buy this service only if it was reliable.
While this may appear an obvious finding,
it does reiterate the importance of rolling
out stable offerings. It also indicates
potentially longer adoption timelines for
“integrated” offerings than operators would
expect, as consumers are more likely to
“wait and see” before adopting a service
with which they have no previous experience.
Consumer respondents foresee longer
adoption timelines for the “integrated”
proposition than for the “packaged”
proposition, even though the “integrated”
proposition is more attractive.
Furthermore, 75 percent of consumers
said that their decision to purchase an
“integrated” proposition would be influenced
by the available handset choice (Figure 5).
“Integrated” propositions that do not
meet consumer requirements for service
reliability and choice are likely to perform
poorly in the market. Consumer demand
for high quality service will be particularly
relevant for convergent propositions based
on terminal integration or on content and
application integration. In the case of
terminal integration, given that attractively
priced, reliable dual mode WiFi[2] handsets
are only expected to be rolled out broadly in
2006, convergent concepts based on handset
integration appear unlikely to significantly
penetrate the market in this period.
Fixed line Number “Stickiness”
Among the most likely adopters of the
“integrated” proposition, only 22 percent
would be very likely to give up their fixed
line number, while 27 percent would be
somewhat likely to give up their fixed line
number (Figure 5).
Consumer preference towards keeping
a fixed line number is an advantage for the
fixed line incumbent as it limits the scope
for challengers to fully displace the
incumbent through convergent offerings.
However, loyalty to a fixed line number
may gradually diminish as consumers
become more familiar with competitors’
“integrated” propositions.

Attitudes Towards the “Integrated” Proposition

Which of the following statements applies to you, if any?

% Respondents
(multiple answers)

I would consider 86%

the service only
if it was reliable 8%

Handset choice 51%

would affect
my decision 24%

I would give up 22%

my fixed line Strongly applies
27%
number Somewhat applies

Current dual mode handsets are based on Bluetooth, not on WiFi technology.

Figure 5

6
Identifying Attractive Know Your Customers above average cable penetration, above
There is a variety of appetites towards average mobile spend and predominantly
Market Segments
convergent propositions in the market. on mobile contract. Another segment
DiamondCluster’s research identified four likely to adopt convergent offerings, the
distinct segments (Figure 6). The most likely “convenience seekers” segment, is more
adopter of convergent propositions is the likely to be in a household with children
“technophile” segment. This segment is and has a late 20s to mid 40s age profile.
comprised of early adopters of technology, Similar to the “technophile” segment,
with a younger age profile (late teens to mid these consumers tend to be above-average
30s), predominantly male, with higher than mobile spenders.
average broadband and VoIP penetration,

Customer Segmentation by Attitudes

Towards Convergent Propositions

Expected cost
of savings Sample average
40% “Value
seekers”
“Discount
seekers” 17%

30% 14%

Integration
Sample average
20%
18%
“Un-bundlers” 27% “Technophiles”
24%

10%

“Convenience
seekers”
0%
1 2 3 4 5

Attractiveness of Conversion Propositions*

(*) 1: Not at all attractive, 3: Somewhat attractive, 5: Very attractive

Figure 6

Operators need to add new insights to their
existing segmentations to understand each
group’s distinctive needs and appetites
towards convergent propositions. Tailoring
their offers to segment-specific needs
(e.g. need for high broadband speed or need
to keep in touch with the rest of the family)
would help differentiate an offer in the mind
of the consumer and mitigate some of the
price pressure on the offer.
To build greater understanding of consumer
attitudes towards convergence, operators
should consider targeted cross-selling
activities on their base. This approach
would have two advantages: to capture
consumers at times when they are
more likely to reconsider their existing
providers, and to build direct experience
with consumer responses to specific
convergent propositions.

7
 Do Not Ignore Potential
Disruptive Impact of VoIP
Seventeen percent of surveyed UK
broadband consumers reported that they
have VoIP services. Their profile is relatively
broad in terms of age, employment, income
and telecom spend. The highest VoIP
penetration is in the “technophile” segment
at 25 percent.
While consumer penetration of VoIP is
rapidly increasing, the degree and speed
of revenue cannibalisation by VoIP is still
unclear. However, new features are helping
8
to overcome some of the limitations on the
user friendliness of VoIP.
If VoIP proves to be successful in migrating
a significant share of voice traffic, and given
the price attractiveness of VoIP, operators
would be incentivised to launch mobile +
VoIP + broadband services leveraging VoIP in
their price positioning. This approach could
be either an offensive or as a defensive
move. These services could be launched by
operators with both fixed or mobile assets
or through partnerships (e.g. a fixed line
challenger partnering with a mobile network
host with an MVNO deal). However, this
could, in turn, accelerate the process of
revenue cannibalisation by VoIP; thus careful
positioning of VoIP next to “premium”
voice services is required. In this scenario,
the disruptive impact of VoIP could be
very significant.
Operators should monitor changes in
behaviour of early adopter segments,
as a process of revenue erosion through
VoIP not only in fixed, as already experienced,
but also in mobile, may be happening on a
grand scale soon.
About the Firm DiamondCluster International (Nasdaq: DTPI)
is a premier global management consulting
firm that helps leading organizations
develop and implement growth strategies,
improve operations and capitalize on
technology. Mobilizing multidisciplinary teams
from our highly skilled strategy, technology
and operations professionals worldwide,
DiamondCluster works collaboratively with
clients, unleashing the power within their
own organizations to achieve sustainable
business advantage. DiamondCluster
is headquartered in Chicago, with offices
across Europe, North America, the
Middle East and South America. To learn
more visit www.diamondcluster.com
9
 About the Authors Milan Sallaba, a telecommunications
industry partner in DiamondCluster’s
London office, has over a decade of
consulting experience focusing on the
telecom, consumer electronics, media and
entertainment space. His client support
spans strategy development, operational
launches and improvement programs.
As a widely acknowledged industry
expert, he is regularly called upon as a live
commentator for television news channels
including the BBC, CNN and Sky. His
commentary and bylines have appeared in
many international publications such as The
Financial Times, CNN.com and 3G Mobile.
Milan has contributed significantly to
developing and delivering value at client
engagements across Europe and Asia.
10
Maria Pecorari is a principal with the
telecommunications industry practice in
DiamondCluster’s London office. Maria
has extensive experience as an advisor to
senior management and in serving in key
interim management positions at telecom
operations across Europe, Asia, and Africa.
Her expertise focuses on corporate
strategy definition, commercial strategy
development, pricing, offer design and
the execution, launch and turnaround of
telecommunications operations.
SueLi Lew, Adriana Guerrero, Max Heimann,
Laurent Bensoussan, Santiago Argelich and
Hamilton Sekino of DiamondCluster also
contributed to this report.
US
DiamondCluster International, Inc.
Suite 3000 John Hancock Center
875 North Michigan Ave. Chicago, IL 60611
T (312) 255 5000 F (312) 255 6000
www.diamondcluster.com
Europe For more information contact:
DiamondCluster International, Ltd. Mark Keeley, Partner (US)
10th Floor, Orion House mark.keeley@diamondcluster.com
5 Upper St. Martin’s Lane
London WC2H 9EA Milan Sallaba, Partner (Europe)
T + 44 20 7959 7700 F + 44 20 7959 7710 milan.sallaba@diamondcluster.com
www.diamondcluster.com

© 2005 DiamondCluster International, Inc. All rights reserved.

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