Every mobile Operator is scrambling around to buy a broadband operator, but few have well thought out business strategies behind their acquisitions. Will this turn out to be a significant new leap for the mobile industry or another overhyped fad?

Having made almost all of its money out of fixed-mobile-substitution – or selling mobile phones to people who already have fixed line phones – both Orange and Carphone Warehouse have started offering free broadband to anyone who commits to spend more than £35 a month on their mobile bill.

The logic of bundling together broadband and mobile is irresistible for many operator executives: running a fixed line network is broadly similar to running a mobile network. Many staff in the mobile industry have a fixed line background, and there is certainly organisational “synergy”; Furthermore, the billing systems for broadband and mobile are reasonably compatible. You can be pretty confident that you can modify your mobile billing platform to charge for broadband with a major overhaul of your core systems.

But although attractive from an operational perspective, it is hard to see how to make sense of these products for the customer.

With the Carphone Warehouse product, there is a clear cost advantage. Using their own retail distribution network, Charlie Dunstone has been able to sell his Fresh MVNO and TalkTalk fixed line package with very low overheads, and at a significantly lower overall cost than many competing products. Adding free broadband make perfect tactical sense to attract the higher spending mobile customers and providing them with a relatively cheap bolt-on service that costs less than the additional value that these customers bring to the mix.

However, Carphone Warehouse is not an opreator, they are primarily a retailer, and their strength is in offering a compelling package of products to punters walking in off the street. Their brand is all about value-for-money and practical advice; with their TalkTalk product they are already in the fixed line business, and adding Broadband to the mix makes perfect.

However, by becoming the first business to offer a combine mobile/broadband package, Carphone Warehouse has also made it virtually impossible for any competitors to offer a similar package at a higher price. Charlie Dunstone has achieved a tactical advantage in signing up 340,000 new customers for his product but has effectively stymied the convergent ambitions of many of the mobile operators.

Back in April, Vodafone announced that they would pursuing growth through fixed line markets, with most pundits predicting an entry into the broadband marketplace. O2 has already bought broadband operator Be, and rumours abound about the imminent sale of AOL’s UK access business. However, with Sky spending £211 million to buy a broadband ISP it is difficult to see how mobile Operators will be able to make a profit if they cannot charge for broadband services.

The next key step will be to see how Sky launches its internet product. With NTL and Telewest each offering internet for free with television subscriptions, it’s likely that Sky will do the same, using the internet as a back-channel for their Sky boxes and selling more valuable content subscriptions that can be viewed over the Internet. When NTL and Telewest relaunch as Virgin TV it is likely that they will offer a comparable product and that the greatest competition for free broadband will be from the television companies.

Virgin can of course offer mobile services as well, but their ISP business is built around the TV product, not the mobile business. TV providers have a key advantage over mobile operators in that they are already providing a single bill for the whole household. Like water and electricity, internet access is purchased for the whole household. Mobile telephony is not: the success of the mobile phone has been its personal nature and frequently different family members choose their own phone and network, and will frequently end up with different operators. If each operator is offering free broadband, how does a family of five people decide which free product to use in their house?

Ultimately, it’s more likely that people will buy their television, internet, and fixed line telephony bundled together from a single supplier. If they want to offer mobile products for use in the home, forward thinking mobile operators would be better off providing VoIP gateways to allow mobile phones to roam onto any available wireless network and bill through the mobile bill. This gives the benefits of allowing people cheaper phone calls at home, or in a municipal WiFi area, but also ensures that the mobile operator can continue to benefit from routing the call to the conventional telephone network.

Internet access is best provided by mobile operators through mobile networks:. With handsets becoming more sophisticated and networks faster, it is likely that more and more internet access will go through a mobile device, and this is the big opportunity for mobile operators. The growth of mobile operators to date has been through substituting fixed lines for mobile, and this is where they excel: forget ADSL, cost effective broadband over wireless networks is the way for mobile phone companies to grow.

And with mobile data speeds of 1.8Mb/s just around the corner, those who have already bought broadband providers had better watch out.

Original Source: Mobile Strategies