T-Mobile's Trial Balloon

On Aug. 10, T-Mobile USA started a hush-hush trial of a service that could turn telecom on its head. In the trial, the nation's fourth-largest wireless service provider will equip customers in states such as Oregon with special routers to be placed in their homes. The devices will enable users to make calls from home via a T-Mobile cell phone for a flat monthly rate, according to message board postings seeking volunteers for the trial, has found.

Why is this T-Mobile-At-Home service such a big deal? If this trial is successful and is followed by a full-blown rollout, it could open the floodgates on landline-to-wireless migration.

While today some 7% of Americans use their mobile as their primary phone, that number should climb to 40% within 10 years, figures Craig Mathias, president of wireless consultancy Farpoint Group. After all, if you can make calls from your mobile phone for, say, $5 a month??he amount T-Mobile is rumored to be charging during the at-home trial??hy would you pay some $30 for a landline?

Users will also have another incentive to sign up: better call quality. Today, some 30% of wireless calls are made from users' homes, according to consultancy Gartner. But because wireless signals can't always penetrate buildings, these consumers often have to deal with poor call quality and dead spots??roblems that this new service's router is intended to solve. "T-Mobile is interested in the replacement or displacement of landline minutes," a T-Mobile spokesperson, who declined to discuss unannounced products, wrote in an e-mail.

TRUMP CARD??This T-Mobile-At-Home service could emerge as the wireless company's trump card to get its subscriber numbers growing again. On Aug. 10, T-Mobile, a unit of Deutsche Telekom (DT), said it only added 613,000 new customers in the quarter, vs. 972,000 in the year-ago period, in part because it switched to longer, two-year contracts.

T-Mobile and other wireless carriers are also facing slower growth as they approach market saturation. With about 80% of Americans using cell phones already, adding new services, such as at-home offerings, can help attract new customers but also help hold on to old ones.

Indeed, T-Mobile is not the only telco pushing into at-home wireless services. Already, AT&T (T) expects to introduce two new at-home offerings in the coming months. In fact, every telco in the country is likely testing similar so-called wireless converged services, that might, for example, let you send a text message from your TV to your cell phone, or let you receive wireless calls on your residential line, says Michael Cai, an analyst with Parks Associates.

And where converged services are concerned, at-home offerings are near the top of telcos' to-do lists. Fact is, more Americans may be interested in a T-Mobile-like at-home service than in such overhyped offerings as mobile TV. Cai says that when Parks surveyed consumers about what they want from wireless companies, 39% said they wanted some kind of home-calling service, while only 6% said they wanted mobile TV.

HAWAIIAN HEAVEN. The at-home services are already proving popular in other countries. In Britain, BT (BT) offers BT Fusion, which allows the telco's wireless customers to make calls through their broadband connections while at home at low rates. BT has been signing about 2,000 new subscribers for the service a week.

In the U.S., Hawaiian Telecom, in partnership with a wireless service outfit called CallWave (CALL) began offering its $3.99-a-month Call Choice service on a limited basis in the fall of 2005. One nifty feature: When users get home, the service allows them to start receiving their cell-phone calls on their landline.

So far, the uptake "has definitely met our expectations," says Jon Gelman, vice-president for wireless operations and development at Hawaiian Telecom. He says the company is readying a major mailing for the service, which is not promoted at all, for 2007.

These success stories are finally prodding U.S. industry giants, such as AT&T, to follow suit. In late 2006 or early 2007, AT&T plans to introduce two offerings that could be used for cheaper at-home wireless calling. One is a dual-mode wireless phone, allowing users to make cellular calls as well as calls over a home or corporate Wi-Fi network. The service is expected to be similar to BT Fusion.

COMPETITION CALLING. AT&T's other upcoming at-home service is called Mobile2Home, and it allows customers of Cingular Wireless to make and receive free calls from AT&T residential numbers for a $2.99 monthly fee. Initial trials in Connecticut have shown strong demand.

"We were pleasantly surprised by the level of interest in it," says Stephen Bye, executive director for wireless and converged services at AT&T. "It's a competitive market, and we are looking to differentiate our offerings."

Competitive, and likely to get tougher—which is exactly why at-home calling efforts are ramping up. As cable companies like Comcast (CMCSA) push into the same services as telcos, the latter are losing business.

In its latest quarter, AT&T lost 320,000 primary consumer lines. New at-home services that cable companies can't yet offer might stem the tide and add subscriber gains to Cingular in the process. And the broadband division might also get a boost, since the Wi-Fi router requires a broadband connection (see, 3/6/06 "AT&T Rings a Familiar Bell").

WHAT'S AT STAKE. At-home services could boost average minutes used per wireless subscriber by 10%, reckons Gartner analyst Michael King. Depending on how the service is implemented, it could also cut costs for wireless operators (see, 4/3/06, "T-Mobile's CEO Forecasts Cheaper Calls").

Calls made from dual-mode phones are routed over the Internet instead of the wireless network, where operational costs are higher. This "offloading" of calling traffic from the wireless network also has a side benefit of creating extra network capacity for more services, like mobile TV.

Additionally, these at-home services might slow down the erosion in the prices wireless carriers can charge per minute. Emerging wireless outfits such as Leap Wireless (LEAP) are already offering unlimited flat-rate calling plans for as little as $30 per month.

In contrast, T-Mobile's Web site doesn't even list an unlimited calling plan for consumers. As more emerging carriers, using wireless broadband technologies such as WiMax, enter the market in the coming months with low-priced offerings, having better features like these at-home add-ons could allow the incumbents to hold off on cutting prices.

PROBLEM FOR VERIZON. One telco this at-home migration could leave in a lurch is Verizon (VZ). Chances are, if other telcos roll out at-home services, Verizon, whose number of switched access lines declined 7.4%, to 47 million, over the past year, will have to follow suit.

Problem is, a Verizon at-home service could, potentially, result in customers switching from its residential lines to Verizon Wireless service, which it operates jointly with Vodafone (VOD), meaning it would see only a partial benefit from such a shift. "If you don't own both landline and wireless businesses, one might cannibalize the other," says Parks' Cai (see, 3/7/06, "Is Verizon Heading South?"). For now, Verizon has no plan for such a service, says a company spokesperson.

But as competition within the telecom industry heats up, Verizon and other major telcos might not be able to afford to stay on the sidelines. After all, AT&T and T-Mobile are revving up their at-home efforts. And, in this race, no one wants to come in last.

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