Behind Deutsche Telekom’s Axing of T-One, Some Key Questions about FMC

This week, Germany’s Deutsche Telekom (DT) announced it was cancelling its T-One fixed-mobile convergence service, launched in August 2006. The cancellation of T-One raises a number of questions for service providers. Was it a T-Mobile marketing failure, the specificity of the German market, or are FMC services not quite ready yet? We say it was some (not all) of the above. We also remain generally positive on FMC despite the T-One cancellation. There are key lessons to be learned (from price competitiveness to device attractiveness), but as several other carriers (e.g., Orange) are beginning to demonstrate, FMC can be made to work¹.

Behind the T-One Cancellation: Pricing, Devices, and Strategy

• Deutsche Telecom’s T-One service is the latest in a series of discontinued FMC services. Among earlier no-go FMC offers were Onephone, a GSM/DECT service launched by British Telecom (BT) in 1999, and Korea Telecom’s recently closed OnePhone. Arguably, BT’s Bluetooth-based Fusion service can also be added to this category. FMC services elsewhere—UMA-based in the Netherlands, Denmark, USA, Italy, France, and the UK, and dual-mode WiFi-GSM services in France, Germany, Spain, Japan, and Scandinavian countries—have also been off to a slow start: at the end of 2006, there were less than 400,000 FMC subscriptions globally. In context, this represents less than 3% of all triple-play service subscriptions in these markets.

• The lack of differentiating features and uncompetitive pricing contributed to the low adoption of FMC services in Germany. The main selling point of FMC services is discounted call price, and indeed, T-Com offered a discount of 6%-9% off the total cost of separate packages to the subscribers of T-One. However, the overall cost of the service was not competitive enough against other mobile offers, such as Vodafone’s flat-rate ZuHause (see Exhibit) . Nor did T-One have many features differentiating it from existing home zone services.

Exhibit: T-One’s Price Discount Not Deep Enough to Compete with Other Home Zone Offers

Note: Price of Vodafone Zuhause DSL Flat is set at 34.95 euro/month during the promotional 6-month period, after which it will increase to the above-mentioned 50 euro/month.
Source: T-Mobile, T-Online, Vodafone, Pyramid Research.