Ziggo's mobile strategy: virtual and over-the-top

Dutch cable operator Ziggo is opening up its customers' Wi-Fi modems for shared access with other subscribers. After a successful trial of the service in the northern city of Groningen, the company is going ahead with a nationwide roll-out. This is expected to lead to around 1 million WifiSpots (as Ziggo calls them) available for customers by August. The company has also said it will be using femtocells, which will probably take advantage of the 2600MHz band spectrum its joint venture with UPC, Zum acquired in 2010. In addition, Ziggo will launch a VoIP app for smartphones. Ziggo's mobile strategy is completed with a MVNO deal with Vodafone, agreed in July 2011, which will give customers with laptops and tablets access to a full mobile data service. 

Ziggo presents its mobile strategy under the motto the 'living room without borders'. This seems more the motto for a 'TV Everywhere' strategy, on which Ziggo is also working. However, the idea communicated to customers is that they can call from anywhere like they're at home. The new services, built around access and voice, are essentially an over-the-top service; Wi-Fi, the MVNO and femtocells as well as the VoIP app will all make use of existing broadband connections. As a cable operator that wants to offer mobility (and quad plays), Ziggo faces some limitations in terms of financial will and the saturated mobile market, making OTT the way to go. 

Looking at the two components of its strategy:

• Access. Ziggo is making Wi-Fi central, with the addition of its own limited mobile network (LTE-2600), a MVNO (on Vodafone) and 2.824 million customers (including business users).

• The Wi-Fi routers will be opened up to other subscribers (with a possible opt-out). If UPC adds its customers to the plan, the coverage will expand even further. Ziggo is in talks with UPC and other cable operators on expanding the initiative.
• Femtocells will be deployed at 'white spots' in Ziggo's network footprint, such as public places likes parks. 
• As for the MVNO, Ziggo will likely choose to offer Sim-only services (so no handset procurement or subsidies) and quite possibly offer data only (so only GBs need to be bought wholesale from Vodafone). However without traditional voice minutes over the Vodafone network, Ziggo will be asking a lot from its VoIP app.
• Voice. The VoIP app, which was disclosed during Ziggo's conference call on Q1 results and will be launched in H2 2013, will make calling possible from any smartphone with the app installed. We assume the app will work over both Wi-Fi and mobile networks (3G and 4G). Calls will probably cost the same as over a Ziggo fixed line, including free on-net calls. Ziggo expects to be able launch the 'mobile' voice offer within a year.

• Access. Customers will have the option to add a MVNO subscription to their Ziggo contract. This will result in many cases in a quad-play package. Coverage will be national, as in addition to Wi-Fi and femtocells, subscribers can fall back on the Vodafone network in other locations. A challenge will be ensuring a seamless handover between Wi-Fi and the MVNO. Ziggo will be unlikely to earn anything from this and at best be able to reduce churn. However if it chooses to actively market the MVNO, it could create a new revenue stream. The competition (not UPC, but the other mobile providers) will face a new rival and in theory see a decline in demand for data. While KPN is pursuing Wi-Fi sharing as well through its cooperation with Fon, this is not directly relevant. Wi-Fi is in effect an unmissable component of all operators' offerings. 
• Voice. Here Ziggo does have a business model, as revenues from telephony should increase (if the service is successful). Ziggo needs this revenue boost, as its telephony revenues have come under pressure in recent quarters due to the success of free on-net calls. Every cent earned with the app is one extra for Ziggo. This will put pressure on the mobile market, driving prices further toward fixed-line rates. Tele2 will find it more difficult to pursue its said strategy of driving down prices with its mobile network launch in 2014. 

Conclusions

Ziggo has chosen an unconventional, asset-light strategy as an OTT provider of both access and voice. The business model is based mainly on growing revenues from telephony, and if it markets the MVNO, then it will also add traditional mobile revenues. This is bad news for the existing mobile providers - KPN, Vodafone, T-Mobile and the MVNOs, and Tele2 faces the difficult task of introducing a competitive offer with the launch of its LTE network in 2014. 

As fixed and mobile telephony converge further, any recovery in the mobile market for the existing providers will take longer. The same as in the fixed market, voice will become 'nice to have', an add-on that offers little extra value. What's interesting is that as LTE allows mobile operators to offer fixed-line replacement services, Wi-Fi is allowing fixed operators to compete on the mobile market.