Quotes of the Day

Dave Tuttle keeps the telecommunications industry on its toes. The 44-year-old computer programmer takes both telephone and broadband service from provider NTL at his home in Cheam, England, and gets a 40% discount on the broadband. He used to subscribe to NTL cable television for an additional $70 a month — until he discovered he could install a set-top box that allows British residents to receive digital channels without paying a monthly subscription. Recently he called a friend who was visiting India on a Voice over Internet Protocol (VoIP) service that allows users to make toll-free calls to each other via their computers' online connection. Now he plans to call friends in the U.S. the same way — instead of dialing his NTL fixed-line telephone. "I'm just trying to find a way to keep down the costs," says Tuttle.

His life could obviously be simplified if all his communications came through a single pipe, and that's what tomorrow's telecom companies are hoping to offer. As digital technology enables more customers to bypass traditional paid services, telecoms are scrambling to introduce services that combine telephone, broadband and subscription television into a single package that can be piped into every home — and eventually to mobile devices. So far only 5% of Europeans have "triple-play" services — voice, video and data — in their home, but 35% say they are interested, according to technology consultants Forrester Research. That's a huge potential market. "There's a race now among all the operators to arrive first," says Luigi Pugliese, a telecom consultant at Booz Allen Hamilton in Milan. "The world of triple play will soon close. It's growing rapidly and the first to get a customer will not lose him."

Most European communications companies are not equipped to offer all three services easily — hence a wave of strategic mergers. Late last year NTL, a U.K.-based telephone, cable and broadband company that emerged from bankruptcy just three years ago, proposed to buy Virgin Mobile for $1.4 billion so it could add mobile-phone service to its mix in a "quadruple play." Virgin Mobile's board rejected the initial offer but analysts now expect NTL to increase its bid by around 10%. "The market is telling us that it's still expecting this deal to go through," says Laura Mills of Merrill Lynch in London. Pay-TV operator British Sky Broadcasting is buying the British broadband network Easynet for $367 million. Deutsche Telekom is trying to buy back the outstanding shares of T-Online, the Internet services arm it spun off at the height of the dotcom boom. And Italy's Tiscali and Fastweb are reported to be seeking investors to help them take on Telecom Italia in that country's race for triple-play market share.

The wave of wheeling and dealing clearly has risks. NTL, for example, is still hashing out the terms of its $6.6 billion merger with broadband firm Telewest — so how can it now absorb another major company so quickly? And anyone who witnessed the "synergy" mergers in technology and media in the late 1990s has good cause to be skeptical about the current surge in activity. But the traditional phone companies feel they have little choice. The loss of fixed-line revenues to mobile networks and VoIP has left them with bleak prospects, and they seem genuinely bullish about pushing any and all services through high-speed lines. "The operators have understood that it is necessary to offer as many services as possible because once you have acquired a client with an adsl [high-speed] modem, you can try to sell as much as possible in that house," says Pugliese. "If you could sell food through the modem, you would." The companies are also looking to save money by consolidating their networks, reducing administration with a single bill and discouraging customers from changing service providers.

If it works, multiplay would be a huge departure from the traditional structure of Europe's telecom industry, and the product both of deregulation and technological progress. And the bets are large: BT, long the dominant telephone provider in Britain, is spending $17.4 billion upgrading its network to provide triple-play services over a single line. In the process, BT is providing services not usually associated with a phone company. Last month, BT signed deals with bbc Worldwide, Paramount and Warner Music Group for content to be used in the multichannel TV and video service it will launch in the fall. "We're moving from being a telco ... to being a participant in other markets, some of which don't even exist today," says BT Retail chief executive Ian Livingston.

After lagging behind countries like France and Italy, Germany is also taking to high-speed Internet bundled with basic telephone and television. Kabel Deutschland, Germany's largest cable-TV operator, created in 2003 when regulators forced Deutsche Telekom to sell it, is spending €500 million over three years to make its network triple play ready for 90% of the 15.3 million homes it covers. Right now, just 3.7 million of its homes can receive the service. Deutsche Telekom itself plans to roll out its "Conquer the Home" strategy — bundling telephone, 100 television channels and T-Online Internet access and delivering them over fat, 50-megabits per second lines in 50 cities — pending completion of its takeover and reintegration of T-Online. Chief executive Kai-Uwe Ricke aims to have 1 million triple-play customers by 2007 to help replace basic telephone revenue that slipped 5% in the first half of 2005 and prompted it to cut 32,000 jobs in its fixed-line business over three years.

There remain significant obstacles to the triple-play strategy. Broadband uptake is a key limiting factor — it currently reaches only 22% of European households. That figure is expected to rise to 41% by 2010, according to Forrester Research. But it will ultimately top out at about 60% in advanced markets, according to research firm Datamonitor, because not everyone will have access to a connection or want to pay for it. VoIP usage is even further behind. Only 3 in 10 Europeans have heard of it and only 2% use it, says Forrester Research. Then there's customer service, at which the industry has never been great. In some parts of Europe, it can still take a month or longer to install telephone or broadband. Sound and picture quality aren't reliable everywhere, either. And using traditional utility-like companies to sell cutting-edge service packages is bound to perplex many. "Consumers are confused and they've got every right to be confused," says BT's Livingston. "A huge number of people are selling services to them ... They don't know their usb from their wi-fi from their gsm from their Voice-over-IP from their gprs."

But get multiplay right and the dividends could start rolling in. One of France Télécom's fastest-growing offerings is a VoIP service that has picked up half a million customers in its first two years. Even bargain hunter Dave Tuttle says he'd consider shifting to a quadruple-play package, provided he was confident of its quality and the price was right. A single bill "would be very useful," he says. One thing is clear: the telecom industry's future depends on winning over tough customers like him.

• ANDREA GERLIN
• Telecoms are clambering to offer TV, voice and Internet in one neat package. Will Europe buy it?