Service providers, whether wireline or wireless operators, want to breakaway from or avoid commodity-priced voice and data services. Despite several proposed mergers that may reduce the number of service providers, this objective will remain. Thus providers are turning to converged services to generate not just sustainable revenues from new and current customers but brand loyalty and new services revenue as well.

As part of this effort, service providers are exploring blended lifestyle services that can be offered seamlessly across devices regardless of access technology. The most common applications being targeted as a new revenue source are multimedia and interactive services, such as video and mobile video gaming.

To deliver blended lifestyle services, network operators must introduce a new network architecture that facilitates rapid service introduction and makes blending cost-effective through disintegration of applications from the device and the access method. The IP Multimedia Subsystem (IMS) architecture enables next generation converged communications services. Already some carriers have announced their IMS plans. Moving to IMS now offers both wireless and wireline service providers significant long-term benefits:

• Creates customer loyalty by providing lifestyle communications environment
• Opens a unique opportunity to be first to market with new revenue-generating services
• Minimizes capex and opex while evolving to next-generation communications network
• Drives continuous increase in demand for network capacity and bandwidth

IMS creates customer loyalty

The discussion to-date about customer loyalty has focused on churn. Service bundles have helped carriers reduce churn and therefore improve operating efficiency. With IMS-based networks and services, the conversation can shift to customer loyalty that results from lifestyle communications environment. IMS-based services are “brought” directly to the user, on the device and method of access of their choice, in a manner that is simple, seamless, personal, portable and secure. The user accesses all the services and applications with a single sign-on and these services and applications find the user whenever and wherever they are needed. It is clear that the first provider to deliver this environment will gain loyalty of the customer who is unlikely to seek any other experience anywhere else.

IMS opens a unique opportunity to be first to market with new revenue-generating services

Deploying the IMS architecture gives a service provider the opportunity to be first-to-market with a range of services that are customizable to specific localized market requirements. In a market where multiple players compete for the same customer, early market entry and service flexibility can produce market share and profitability.

Early market entrants have the advantage of capturing the early adopters and technology savvy high-end customer segments, where they can maximize their profits. Service providers who are late to deploy the services face greater competition, will have higher acquisition costs, and increased price pressure resulting in lower profitability.

With IMS, a service provider can substantially reduce the time required for deployment, standardization, integration and testing of every new service before it can be launched, thereby allowing an operator to introduce services more rapidly.

IMS can enable new converged and existing services for subscribers using wireline or wireless access. This increases value to end-users. Wireless usage has grown because customers see greater value in mobile access to features and applications. An IMS-based network adds further value through blending of services that may be available currently as separate services. For example, a subscriber could simultaneously have web portal-based management of personal call features and policies, presence capability to detect the availability of individuals on the subscriber’s contact list, and the ability to share a video clip with the contacts while discussing it with them, regardless of their type of access – wireline or wireless -- or device.

The ability to blend services and applications benefit all carriers and also can lead to beneficial business relationships between carriers. A wireline carrier, for example, can partner with a Mobile Virtual Network Operator (MVNO) to produce blended services that are available to customers under each partner’s separate brand. In another example, a wireless carrier may partner with a broadband access provider to develop and brand blended services.

Customers are likely to find the features, applications, and blending of applications enabled by IMS actually to be superior and willing to pay a premium. These applications can be targeted, for example, at “prosumers” -- end users whose professional and personal lives overlap –- or youth and families who are willing to pay for additional lifestyle services such as multimedia content and messaging, video telephony, and interactive gaming.

Lucent Technologies primary market research found that users in the youth, family and prosumer segments are interested in services that allow them to share information, via their preferred delivery method, with multiple individuals across multiple carriers’ networks at the time of their choosing. The three segments cited specific applications that are evidence of an interest in blended lifestyle services. The youths wanted universal messaging, presence capabilities to know when a contact is reachable, and the ability to instantly share video and data files with multiple contacts. Family respondents valued the ability to share contact information and schedule information that is updated by automatic alerts for schedule changes. They also were interested in video and data file sharing. Prosumers placed a priority on the ability to instantly establish a conference call and share data files, supported by automatic alerts for data changes.

The findings were determined without consideration as to the type of network or access – wireline, wireless etc., indicating that users are ready for anytime, anywhere services that would be available via an IMS-based network. The research conclusions were consistent with earlier Lucent research focusing on mobile data services that found that the concept of “always on/always available” services resonates with users. The mobile data research also revealed the users willingness to pay a fee each month for services in specific segments. As the chart below shows, the attractive services ranged from services with broad appeal, such as location-based services to those with niche appeal – gambling.

In a separate study that involved business modeling for IMS-based blended lifestyle services, Lucent Bell Labs researchers evaluated a specific set of applications and determined that the overall average revenue per user (ARPU) for a “generic” operator is likely to increase 40 percent annually over the next five years due to blended “lifestyle” services based on these applications.

The applications included:

• One voice mail box for both wireless and wireline
• Same inbound and outbound call logs on your wireless and wired calls
• Instant messaging between wireless and wired
• Corporate dial plan that is the same on wireless and wired
• Interactive push to talk
• Active Phonebook.

IMS minimizes capex and opex while evolving to next generation communications network

IMS is an open standards architecture that provides the network framework for converged communications services. This approach can offer a more cost-effective network that can support any type of multimedia services. The applications can be more easily developed and introduced in the network. Also, the modular network design lets carriers reuse components for cost savings.

Expense reductions also result from less churn, due to increased loyalty to new revenue generating services, and more efficient network access.

When customers buy multiple services from one carrier, they are much less likely to switch carriers. Single-service churn rates typical are in the range of 1.7 percent to 2.5 percent. Churn rates for multiple-service bundles may drop to 1 percent to 1.5 percent. Lower turnover means lower marketing and sales costs as the incremental cost of selling another service to an existing customer is much smaller than the average cost of making the initial sale. The incremental cost of billing, handling customer inquires, and collection for adding more services to the same customer is also smaller than the average cost.

The IMS architecture also allows service providers to benefit from the fact that the communications sessions are transported in the most efficient method for the particular session. For example, as more and more subscribers are making wireless calls from a fixed location (as shown in the graph below), the IMS architecture optimizes routing through delivering voice or data services via a variety of network options, including access available in the location, such as WiFi access points, thereby lowering the cost of transport and offloading macro-wireless system capacity for other calls.

Service providers also can save through the elimination of redundant systems as they deploy ubiquitous services across access devices. In addition, the common standards based architecture makes deploying new services easier and cheaper than individual point solutions using existing systems. In its study Bell Labs analyzed the value of IMS for a traditional set of voice and data services. Over the 5-year period, total operating expenses decrease about 10 percent, from $805M using a point solution to $723M with an IMS solution.

The next step in profitability

As service providers consider their next steps to win in their markets, they have an opportunity to move now toward IMS and take advantage of the benefits outlined above. The modular structure of IMS architecture creates a unique opportunity to evolve toward this new IMS-based network in a step-by-step, evolutionary way. The initial capital expenditure will be more than offset by the long-term value of introducing converged services as quickly as possible. By blending service features, operators can create intelligent “lifestyle” services, which generate greater end-user demand and higher average revenue per user (ARPU) than traditional services, and differentiate operators from their competitors. A service provider that converges all types of multimedia services in a seamless way by moving to IMS can lower costs, create customer loyalty and unleash greater opportunity for new revenues, market share and increased profitability.

John Marinho is vice president of strategic marketing for Lucent Technologies.