2 Degrees zones in on the home phone

2 Degrees' home phone plan is ambitious, but can it execute?

It was a dark and stormy night – and I was experiencing a serious sense of humour bypass. A wind gust had just wrested my notepad from palm to wet pavement, my bags were strewn as I grappled to open the car door. And in the midst of it the phone was ringing.

Let’s just say it probably wasn’t an auspicious moment for 2 Degrees to let me know they were taking Telecom to the Commerce Commission. The reason? “Bully Boy” tactics for what it claims is a failure to honour interconnect agreements the Commission had already ruled on for Vodafone.

After a few mental (and physical) gear changes, the initial confusion resolved into a more interesting story: 2 Degrees wants to offer its customers the flexibility to use their mobile as they would a landline within a defined “homezone” area. Usually the zone is defined by the limited boundaries of a home or business.

However, this has a twist: the new operator ambitiously wants to extend it to cover a much broader geographic region – for example, all of the Auckland region — and in the process, disrupt traditional fixed and mobile pricing models. It has the potential to take landline calling behaviour to mobile on a broader scale. And it bypasses the current interminable debate on mobile termination by shifting to a model where, to quote the commission, “local voice calls between the parties shall be exchanged at a price of zero, in accordance with the pure bill and keep pricing method”.

Thinking of it that way, it is an interesting and potentially smart move.

Here’s how a homezone works. A user’s mobile has two numbers associated with their phone — a local “geographic” and a mobile number — which they can swap between depending on the call they wish to make.

The local number behaves just like a landline: for example, a mum can call her child on the mobile using the local number without being billed for unexpected mobile termination fees. If the user is out of zone, the call diverts to voicemail or to the mobile number, but at the mobile user’s request and cost.

It’s not a new concept: it was first launched in Germany by 02 under the “Genion” brand, and followed by Vodafone’s “Zu Hause”, working with prescribed zones of 300 metres to a kilometre. Nor is it simple to manage – issues like accurate billing and handover of calls as users move in and out of zone require sophisticated systems. The local number is attached to the individual’s phone, making it less attractive to families. Existing operators lose valuable revenues for terminating calls from the fixed line – that became a disincentive for Vodafone in New Zealand.

And while users may be willing to cut the landphone, they are less willing to disconnect the attached fixed broadband line.

For a new entrant, this kind of standard homezone service can be ambitious. However, 2 Degrees is not fighting for a standard homezone service. In fact, it has rejected Telecom's offer of the standard interconnect deal signed with Vodafone, based on a 1km homezone. What 2 Degrees wants enforced is the Commission’s wording in the 2006 local interconnect ruling, which would allow the homezone to cover a local numbering area.

This is a somewhat sassy as well as risky strategy. 2 Degrees would forgo a potentially valuable stream of termination revenues – it may attract a share of the homephone market, but the company also needs to make money from it. Yet, 2 Degrees also needs to stand out to get attention – it has to differentiate.

A one-phone option is attractive to certain markets and demographics, particularly if a landline number can be retained. Indeed, a recent business survey conducted by IDC shows that 29% of businesses with less than 50 employees in size described themselves as “using only mobile”, when asked about their interest in IP telephony.

A one-phone fixed and mobile solution that covers a significant geographic area may be of real appeal. It provides scope for different kinds of tariffing structures between communities of users.

So, if the commission rules in 2 Degrees favour, is this game-changing? Tough call. Much depends upon the appeal of the offer – this is complex to market – and the technical execution, will make or break the user experience. It requires users to begin to modify entrenched fixed and mobile calling behaviour, and that takes time. And, quite frankly, we have no idea how well 2 Degrees can execute at this point. Vodafone’s more restrained homezone offer has hardly taken the calling world by storm.

2 Degrees has also been known to fight fiercely for favourable regulatory terms on issues such as co-location, at considerable cost to all parties, then fail to capitalise on it.

But conceptually a homezone offer on this scale has the potential to challenge established boundaries between fixed and mobile calling, challenging established revenue models and forcing innovation. That means competition – and that can only be good for customers.

Nelson is telecommunications research manager for IDC New Zealand

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