The competitive threats to network operators are well documented: legacy voice traffic is migrating to VoIP providers such as Skype, data traffic is expanding beyond available capacity (but without a corresponding revenue increase) and users’ primary address books are relocating from the phone to social networking services such as Twitter, Facebook and Gmail.

Orange is experimenting with a new approach to sustain its competitive position in this difficult landscape, launching a service called ‘ON‘ through its Orange Vallee incubator unit.

The concept for ON started life as a home screen replacement and could easily have become another proprietary attempt by an operator to paste their branding and applications across the user interface of the handset, regardless of their customer’s preferences. However, led by Giles Corbett, the ON team worked with user experience agency Seren to take a rather different approach. Instead of limiting to pre-installation on Orange devices, ON is being made available as a free download for users on any network.

It is currently published in the Android market, with an iPhone version coming shortly. Following user feedback, it no longer replaces the homescreen, but instead can be run as an individual application. There is also a web-based interface, accessible from any browser.

According to Corbett, who I spoke with at Mobile World Congress this week, ON is all about reflecting the fine nuances of social groupings. Instead of continuing the first generation social networking model of sharing your life with as many people as possible, ON gives you a really quite sophisticated level of control over how you communicate with the individuals in your life.

It is based around a user experience metaphor of circles. For instance, your partner may be in a circle of their own, given the highest level of access to your updates and location, as well as priority whenever they try to contact you. Your key business colleagues might be consigned to a different circle, where they can track your approximate location, reach you apart from when you’re in meetings and receive updates you post to Twitter, but not to Facebook.

ON imports all of your contacts from your address book and services like Gmail, allowing you to get started quickly. At first, everyone is located within the same circle, but as you start to assign users to different circles, you start to build up ‘worlds’ where you can see the updates from certain groups of individuals, control which updates they see from you, what happens when they try to contact you and whether they can locate you.

The location controls are particularly sophisticated. You can drag a slider to select how much contacts in a particular circle know about your location: e.g. country, city, street or building level. Also, you set ON so that it only releases your location when you’re in a specific venue. For instance, you may want your work colleagues to know when you’re at the office, but you don’t want them to see where you are outside of office hours.

Dealing with incoming voice calls is also quite smart. Users can select an availability level for a particular world (e.g. I am available to my friends, but I am not available to work colleagues) and, when someone from one of those groups calls, ON will give them an automated voicemail message tailored to their particular context.

Corbett has been working on this concept for some years, first as part of his own venture and now within Orange Vallee. It has clearly taken some considerable investment to build the architecture behind it and yet more – in partnership with Seren – to create an elegant user interface which allows easy control of some quite powerful capabilities.

So, what is Orange’s motivation for investing in this, especially given that it currently generates no direct revenue for them? According to Corbett, there are 3 goals: customer retention, customer acquisition and doing to other operators what Skype and other VoIP providers are doing to Orange: stealing traffic.

The customer retention angle is simple. Orange will make this available to existing customers and hope it is sufficiently interesting to keep them feeling positive about Orange and less likely to churn. Also, it gives Orange deep insight into their customer’s behaviour, allowing them to make some sophisticated analysis of how best to retain them.

Behavioural analysis is at the heart of the new customer acquisition story too. By acting as the main interface for all your communications, ON will enable Orange to build up a picture of who you are as a user, regardless of which network you’re on. It then becomes a relatively simple marketing story: Orange can contact you and offer you a better deal than your current operator, based on real knowledge of your usage patterns.

The third leg of this strategy is the most controversial. Orange has a growing network of alternative access points, ranging from the fixed broadband gateways installed in homes to Wi-Fi access points. This is particularly strong in France according to Corbett.

In future versions of the service, ON may be able to detect when a user from another network is within reach of Orange’s broadband access points and offer to switch them to Orange’s high definition voice service or give them a better rate of international calling.

Put simply, Orange is adopting the same sort of methods which are reducing voice traffic on its own network to win new traffic away from its competitors. This is bold and forward-thinking, although it remains to be seen how far Orange will carry this forward when it has other initiatives underway which overlap, such as the Rich Communications Services (RCS) offering it is collaborating on with other operators at the GSMA.

I’d recommend experimenting with ON – it provides an important vision of what the future of communications may look like. The visual framework and interaction metaphors also provide an exciting glimpse of what truly integrated communications should look like. It is still in beta and there is a sluggishness to certain actions which compromises the user experience (especially when importing lots of contacts from other services), but the foundations have been created for an impressive and highly usable service.