Radioactive: Will Bluephone save BT?

BT's Bluephone Project is emerging as one of the company's key offensives in the battle against fixed-mobile substitution. But while this converged solution features lots of clever technology, it won't make up the lost billions of voice revenues, says Futurity Media's Anthony Plewes in this new column, Radioactive, which will focus on wireless and telecommunications issues.

Voice services still make up over two-thirds of BT's business and its revenue in this segment is shrinking rapidly. Last quarter saw a fall of 7 per cent in voice turnover over the previous year.

BT is reacting to this alarming decline by developing a whole new raft of products and services based largely around broadband. The heavily trailed fixed-mobile convergence project, codenamed Bluephone, is attracting the most attention.

This would not be the first time that BT has attempted a converged strategy. In the late 1990s, the company experimented with a dual-band DECT/GSM handset but OnePhone never really took off in the market. The Ericsson-developed dual-mode handsets were too bulky and users had to switch manually between the two wireless networks.

Bluephone is essentially an extension of the MVNO (mobile virtual network operator) service BT is offering using the Vodafone cellular network. The key difference to the standard mobile service is that it involves installing a Bluetooth base station in the home and hooking it up to the broadband connection. It will be initially marketed to BT broadband customers and should be available in the spring of 2005.

The service will allow users to roam seamlessly between their home cell and the mobile network. The Bluetooth base station will essentially act as an individual home's 'picocell'. When the user is within range, calls will be routed through the base station and the fixed network, and out-of-range calls will be routed through the standard cellular network.

Subscribers will benefit from lower rates when their calls are transmitted over their home base station. A call that moves from one network into the other will generate a composite bill.

The service works using the Unlicensed Mobile Access (UMA) specification recently published by the UMA Consortium. This allows voice to travel between the cellular network and the lower cost fixed network. This standardisation also means the service is radio-technology agnostic and Wi-Fi-based offerings are already on the drawing board.

There is no doubt that the technology is very interesting and it will be the world's first fully converged fixed-mobile service. Unfortunately for BT, technological innovation is not always rewarded with commercial success.

Many of the arguments for a converged fixed-mobile service, such as shared address books, go out the window if users continue to abandon their other telephony devices for the mobile phone.

BT has already accepted that mobile telephony is winning the voice market: it is a no-brainer that associating a number to an individual is going to be more attractive to consumers than tying it to a location.

Most consumers have stuck with their fixed-line connection because it remains cheaper than a mobile one, but even this traditional price advantage is being eroded. Most mobile phone post-pay packages in the UK are inclusive of bundled minutes, which means that users often have call time that they have paid for and will use - even when at home.

The next generation of mobile networks promise even cheaper calls. For example, UK operator 3's bundled minutes currently work out as low as 4.5p per minute. And when the other operators join them in offering 3G-based services, the only way for voice prices is down.

All Bluephone really does is offer cheap cellular calls when at home, and given that mobile call tariffs are coming down in price this is not going to be a good enough reason to switch. The one clear market is amongst mobile subscribers who have poor reception at home - but at most this is 11 per cent of the addressable market.

BT's challenge is to persuade users to switch to its service. Unfortunately its main selling point is still technological innovation, which is going to make it a very hard sell.

Anthony Plewes is a freelance journalist based in London.