The Mobile-Phone Plan of the Future?

In Germany, O2's Genion is gaining popularity by letting subscribers make cheaper calls from their home zone

Frank Sarfeld, a public-relations consultant in

Hamburg, isn't your land-line kind of guy. An inveterate schmoozer, 38-year-old Sarfeld spends "24 hours a day" on his mobile telephone and never goes anywhere without it. He also carries a mobile-linked handheld computer to check e-mail on the go, and even has a vanity mobile-phone number. For someone who's self-employed like Sarfeld, though, the problem is how to keep up the chatter without racking up humongous phone bills. Sarfeld's solution is a service called Genion from cellular carrier O2. Genion's appeal: It brings mobile communications a step closer to being a true replacement for a traditional fixed phone line.

The service lets customers choose a "home zone," which can be their house but might just as easily be a workplace, a university campus, or a favorite biergarten. Inside this zone, O2 charges Genion customers as little as 3 cents a minute for local calls made via the company's cellular network. That's slightly more than a standard land line in Germany but far less than the cost of a regular mobile-phone call, which can top 60 cents a minute. "That's really saving you some money," says Sarfeld.


Because the home zone is 500 meters in diameter, the low rates also apply in Sarfeld's immediate neighborhood. He can make calls on his mobile handset from the grocery store, the bus stop, or a nearby café, and, as far as his phone bill is concerned, Sarfeld is still in his living room. Outside the zone, Genion users pay mobile rates of 8 cents to 34 cents, depending on time of day and where they're calling. That's competitive with other German mobile providers.

Theoretically, everyone will live this way someday. The lines between mobile and fixed-line service will blur and disappear, and everyone will be reachable everywhere for pennies. Genion is an early version of that telecommunications nirvana -- and it seems to be selling. Genion has helped O2 attract about 5 million customers since launching in Germany in 1998, an 8% share of the mobile market. The company, the last of the major operators to enter the fray, is still in fourth place in Germany. But Genion is profitable, in part because the service encourages heavy use and holds down customer turnover, company execs say. O2 doesn't report financial results for Genion separately, but three-fourths of its new subscribers sign up for the service. In the fiscal year ended in March, O2 -- a subsidiary of British mobile operator mmO2 (OOM ) -- reported an operating profit of $51 million. "Genion is by far our most important product," says Rudolf Gröger, CEO of O2 Germany.

Corporate customers are also picking up on Genion. Campbell Soup (CPB ), Kraft Foods (KFT ), and building-equipment maker Liebherr all use the service on corporate campuses and in factories. Auto maker BMW gives Genion phones to some 5,000 employees at plants in Regensburg, Berlin, and other locations. By designating the factories as home zones, workers can roam the assembly line, ever-reachable yet without paying mobile rates.

Genion isn't the only way that O2 is stealing business from Deutsche Telekom's (DT ) land lines. Another option, called duo, charges couples $19.66 per month for two mobile phones. The plan lets them call each other for 8 cents a minute -- just a few cents more than the cheapest long-distance rates in Germany. "My old phone bill was shameful," says Elke Brechmann, a 28-year-old resident of Starnberg, south of Munich. By using the duo rate to call her boyfriend, an officer in the German army who switches his home zone to wherever he is stationed, Brechmann has cut her cell-phone bill in half.

That's not to say that all Genion users are ready to cut the cord entirely. Anyone who wants to get online, for instance, still needs a fixed phone or some form of broadband Net access. But O2's goal isn't to get customers to disconnect their land lines. Instead, O2 wants to steal as many voice minutes as possible from Deutsche Telekom. "The battleground is the home," says Nicolas McQuire, an analyst for market-watcher Pyramid Research.


Still, Genion is probably a transitional technology. Few other networks can determine whether a customer is in his or her home zone. "It's a unique service in that market," says John Karidis, an analyst at Commerzbank in London who estimates that other carriers won't have the technology to offer competing service for several years. Eventually, says mmO2 Chief Technology Officer Dave Williams, customers will probably own a mobile phone that, at home, will function like a cordless phone that routes calls over the Internet. As even Williams concedes, such a network will remain cheaper for many years to come because of the relatively high cost of cellular switching equipment. "To attack wired, you have to reduce costs even further," says Williams. For now, though, Genion is the closest thing to the wireless future that the present can offer.

By Jack Ewing in Frankfurt

    Before it's here, it's on the Bloomberg Terminal.