19th October - Vodafone is taking on the role of integrated player in Europe, directly challenging France Telecom, Telefonica and leading cable operators with its acquisition of Tele2's fixed assets in Spain and Italy. It paid Eur775 million ($1.09bn) for the assets.

The move into Italy and Spain offers new opportunities for fixed-broadband services in some of the largest but least penetrated broadband markets in Europe, but FMC strategies are in early stages and still hold some risk.

Through Tele2's assets, Vodafone becomes Italy's second-largest integrated telco and gets a competitive boost against rivals in Spain, particularly Telefonica and France Telecom, at a time when a plethora of fixed/mobile-convergence offerings are coming to market.

Vodafone said that it now has a "clear route to delivering fixed-broadband services in each of our major European markets."

"Convergence remains the key risk to Vodafone and the sector," investment bank Credit Suisse wrote. "So far, the cost of this in wireline acquisitions has been small ... with demand for bundles and converged products patchy at best and losing momentum in several European markets (e.g. Germany, the UK, Portugal and Austria) to mobile home zones and mobile broadband plans."

In Spain, France Telecom's Orange has launched a flat-rate quadruple-play package for Eur34.95 a month. The offer includes line rental, ADSL up to 20Mbps, calls to Spanish fixed-line numbers, IPTV and 1,000 minutes of calls to a designated Orange mobile number.

In Italy, Telecom Italia has recently stepped up its convergence strategy by introducing a quadruple-play offer, Unica, which starts at Eur78.53 a month - including a monthly access fee - and offers unlimited calls from home to all fixed-line TI numbers and 30 minutes of voice calls a day to on-net mobile numbers. Users can make both mobile calls and VoIP calls from home via Wi-Fi with the Nokia E65 handset.

The "uniqueness and relative price" of the offer "should help market share," Dresdner Kleinwort stated in a research note.

In France, mobile operator Bouygues Telecom said that it plans to take over a ready-made DSL network in June, after signing a wholesale deal with Neuf Cegetel.

Rival operators Orange, Neuf Cegetel and SFR are also pursuing both fixed and mobile services.

Orange has about 300,000 subscribers for its Unik Wi-Fi/GSM converged handset and service, and Neuf Cegetel has "tens of thousands" of customers for its equivalent offer, Twin, many of which are enterprise users, according to the company.

In the UK, O2 is the most recent player to enter the FMC market, having launched its broadband offer after two delays, 15 months after it acquired Be Unlimited. It charges £7.50 ($15) a month for 8MB of use, £10 for 16MB and £15 for 20MB, not including line rental or voice.

"FMC is still in the exploration phase, and it will take time for these services to be absorbed by the market, as the business model still presents some issues," Turkcell's chief technical officer, Cenk Serdar, told Informa Telecoms & Media.

Operators are trying to overcome such hurdles by considering the offerings "on a market-by-market basis, because the conditions can vary significantly," Gordon said.

For instance, in Spain, the market is more challenging, because "lower incumbent pricing and some difficulties with the local-loop-unbundling-provisioning process has left unbundlers lacking scale," Credit Suisse wrote.

Vodafone already has fixed offerings in Germany, via its Arcor operation; France, via its affiliation with SFR; Romania, where fixed services launched in June; Malta; New Zealand; and Portugal.

In the UK, Vodafone has a reselling deal with BT - a cheap wholesale route but one that would prove too costly in the rest of Europe. BT "is pretty cheap for us," Simon Gordon, a Vodafone spokesman, told Informa.

There appears to be strong evidence to support what Global Insight calls a "bottom-up, localized strategy aimed at enabling the local operating companies to adapt their strategy to suit local demands."

France is a good comparison to the UK in this sense. France Telecom's converged strategy in its home market is making some headway, but the company appears to have lost its way in the UK, where it has performed poorly in customer service, in a market that has a high level of broadband competition, a source from a rival operator told Informa.

Orange, fifth in the UK in residential broadband subscriptions, saw its subscription count fall in 2Q07.

"It will take some undoing to reverse this trend, given the nature of the UK market, with Carphone Warehouse and British Sky Broadcasting being so aggressive on price," the source said. "They cannot grow organically, and acquisition or market consolidation is really the only way forward for them."

Virgin Media's attempt to sell quadruple-play packages in the UK has not turned out well, with its share of new customers declining in 2Q07, according to Dresdner Kleinwort.

Despite the difficulties, it seems that operators will need to continue chasing broadband and fixed subscriptions to compete with the converged offers of other mobile operators.