I have made the case of why FON is great for ISPs. We have signed our first agreement with Glocalnet, Sweden´s second largest ISP, an amazing competitor to Telia and we are in the process of negotiating with another 11 ISPs in the United States, Europe and Latin America. Now can we make a case that FON is great for mobile operators? This one is a harder case to make but let me try to make it.

First I would like to say that in Europe mobile rates and GSM ARPUs are much higher than in America. In Europe GSM operators are getting around 1000 euros per year per customer, in America around half of that. In America operators sell big buckets of minutes, in Europe operators charge customers very high per minute charges, incredibly high fixed to mobile rates that the mobile operators keep and extortionist roaming rates.

Still my prediction is that in the next 3 years there will be a huge price drop on mobile in Europe and ARPUs will fall to half of what they are now, say 500 euros per year.

Now when Europe goes to flat monthly pricing, a similar system to that of the States, FON will be a friend of GSM operators. Why? Very simple, once you collect a flat rate pricing rate what you want is less usage, so you have to invest less in the network. At that point Dual WiFi GSM phones go from being a curse to being a blessing as a lot of traffic would leave the network through WiFi simply cause phones would detect it and so users do not pass a theoretical high bucket limit set by the GSM operator. In this way GSM operators rely on WiFI to invest less. Moreover WiFi is great for many in building sections that are not reached by GSM operators.

ARPUs in different countries
ARPU O2 in Ireland

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Jan Michael Hess on February 10, 2006  · 

Martin, just a quick comment:

Monthly ARPU in Germany is roughly 25 Euro, i.e. 300 Euro per year. If it was 1000 Euro, then you would forget about coop with ISPs but rather do it with MNOs (Mobile Network Operators) right away.

In fact, FON is quite disruptive, probably too disruptive for most MNOs, especially those ones without a fixed strategy. FON is about building an alternative wireless infrastructure around the fixed DSL connections. Nobody uses the mobile phone if they can do free VoIP in a hotspot. Do MNOs like this future which they probably cannot prevent from happening, anyway?

I will be in Barcelona next week during 3GSM and hopefully we can meet there to discuss this more.

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Marcelo L on February 10, 2006  · 

I do not think this is the case, when users will be paying a flat fee for their cellular minutes, why should they use a WIFI phone instead ? They will use their free minutes as much as possible, not considering that with traditional cell the quality of the calls will be much better.

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Eduardo Cruz on February 10, 2006  · 

Dear Jan,

As you have already pointed, FON may not be good for MNO’s not having a fixed strategy/market scope.

But the reality is that traditional MNO’s are being/going forced into getting a set of fixed strategies or increase their market specialization by housing MNVO’s if they want to ensure their market share in a long term.

This fact creates enough future cases where FON can deal/join market propositions, and what it is more important, being a tangible addition with real service value.

Just imagine this, yourself subscribing to “cooltel” and getting instant free worldwide access to urban wifi networks? Simply unbeatable.

Best regards, ed.

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isaac b on February 10, 2006  · 

Maybe in 3 years we’ll have wimax, after the wifi years (if we can build a real wifi network) gadgets and applications will run through that network since alll is happening very fast.

Communication through wifi will be much cheaper than a flat monthly pricing from GSM providers and on top of that, more data will travel through wifi at zero cost for the users, bandwith from 3g is limited.

You said GSM operators will be friends of FON but, what about roaming?

Do you think Mobile providers will like the idea of thousands of people travelling permanently through europe and using wifiFONs in FONcities at very low low cost?

I doubt it, this is a huge biz.

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Gareth Evans on February 10, 2006  · 

Average ARPU in Europe is in the Eu 25-30 range. In the US ARPU is double that – $50-60. Try going to an operator’s website and clicking the ‘investor relations’ link.

(sarcastic comment suppressed)

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Daniel on February 12, 2006  · 

Hi Martin,

Just point you out also that annual ARPU in Spain can be nowadays around 400-500 euros, but bigger when talking only about customers with contract. And as far as I know in other countries of the EU the amount is similar.

The idea of ‘unloading’ capacity from GSM networks when having flat rates is good, but note this two ideas:

– Most GSM operators launched UMTS networks which will host voice traffic as well. So operators will ‘play’ with capacity from the two networks.

– Talking about packet connections, where flat rates are firstly introduced, operators can adjust users’ speed rates depending on the remaining capacity. I suppose they’ll try to keep customers in their network. But they’ll specify in the contract the variable quality of service that they can receive.

I’m quite interested in how the competition of Wifi/Wimax (Fon in this case) will affect business of mobile operators. Feel free to contact me by email if you want to discuss more about this.

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Ricardo Domingues on February 12, 2006  · 

That’s a very hard sell, Martin.
In the inner cities it’s going to be difficult for MNOs to be competitive with wifi but in the outer cities somebody needs to provide connectivity. The near future is going to be a mix of wifi and 3G. Inside high density areas wifi will rule because it’s faster and cheaper than 3G. Nonetheless, when you go outside the cities, you’ll need a MNO.
Too bad MNOs made big investments in acquiring 3G licenses… They’ve been making very good profits for a long time but now it’s time to shrink the margins. Nothing is going to stop the wifi explosion. Foneros unite!

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Martín Varsavsky on February 12, 2006  · 

#2 Marcelo,

Mobile phones are evolving into mobile mp3 players/cameras/pdas/gaming/video machines. It is for these applications that operators need FON as a global wi fi roaming platform, not just for voice.


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Henri Verdoux on February 12, 2006  · 


What you suggest is what was known as UMA: Unlicensed Mobile Access. See http://www.umatechnology.org, now transitioned to 3GPP (http://www.3gpp.org), and the whole IMS (IP Multimedia Subsystem) initiative.

Quite a few operators are trying this already (I guess you are already aware of some of the trials, otherwise I can point you to the relevant links). FON could be a very attractive partner for those pure play MNOs since it would offer the WiFi access network, but I guess only when it reaches critical mass. Apart from the necessary agreements -more parties to split FON revenues- you will need enabling FW for FON routers (I guess FON is already working on roadmaps).

A related question is, what could be FON’s (sell) strategy for integrated fixed+mobile operators (such as FT and Telefonica in Spain): the FON pitch can resonate well with the ISP part of the company (more ADSL lines) but it threatens to cannibalize the mobile side of it. Will we see those companies replicating the FON model? (they also subsidize their WiFi routers and could also deliver UMA-enabled routers). An interesting dilemma for strategy-makers …


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Wolfgson on February 14, 2006  · 

“In Europe GSM operators are getting around 1000 euros per year per customer, in America around half of that”.

Where did you get these numbers, Martin?

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Eduardo Cruz on February 22, 2006  · 

Dear Henri.

Agree with your comment, someting i am really sure about, is that 3g is not the future of indoors connectivity. Wifi or wimax or whatever the future presents will be used far more effectively.


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