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Current Issue: December 2007
Thinking Out Loud
Bundled out
by Ken Wieland, Editor in Chief
Carriers offering triple-play or quadruple-play packages, all charged to one bill, are kidding themselves if they think this will translate into greater customer loyalty. Although it might be more convenient from a cost point of view for the carrier to offer one bill — if it can manage to streamline its back-office operations — it is not a convenience most customers value above price. If a cheaper deal comes along, even for only one of the multi-play services, the customer will more often than not sign up with that other carrier (and renegotiate the price of the remaining services with his existing carrier or go elsewhere for a better deal).
This is the headline finding of a new report by KMPG and one that makes depressing reading for carriers and their shareholders. In an extensive survey — more than 4,400 consumers were questioned in 16 countries around the world — 57 percent said attractive pricing was the most important driver in their decision for signing a bundled service contract. By contrast, a meager 12 percent of global respondents said convenience was the key factor in their decision to opt for a triple-play or quadruple-play package.
Admittedly, the convenience of bundled service provisioning is more highly valued in developing countries (where registering for different services can be more cumbersome than in developed countries). However, if we follow the logic of KPMG’s findings, once service provisioning improves and price competition heats up in the developing markets, customer behavior is unlikely to differ markedly from the developed markets.
The results of the KPMG report shouldn’t come as a complete surprise to carriers. After all, the discount is one of the big selling points for bundled service packages. So, if triple-play packages attract mostly price conscious customers (which the KPMG survey confirms), carriers can’t expect too much loyalty based on "convenience."
What surely must be depressing for carriers is how far price outweighs any other factor in consumers’ service choices. Not even extensive marketing budgets to boost a carrier’s image can alter this, it seems. "When we talk to consumers, the influence of brand is certainly not as powerful as the influence of pricing," says Carl Geppert, a KPMG partner.
It also means a bundled service strategy is a dangerous one for carriers to pursue. Not only are they offering discounts, but churn, potentially, is a lot more damaging. There are now three or four services customers might abandon rather than just one. If there is little customer loyalty pay-off through discounted bundled packages, carriers seem to be running a careless risk by offering them.
Of course, not all carriers offer a one-bill bundled service package. Hong Kong’s PCCW is a multi-play forerunner using an entirely different business model (see PCCW gives IPTV sporting chance). And, arguably, the bundled model may already be on the wane. Virgin Media UK recently announced it would focus more on broadband services, marking a shift away from its hitherto quadruple-play emphasis.
Going forward, KPMG’s senior executives advise that carriers should develop non-subscription-based business models. Advertising-sponsored content and services look promising, they say, especially since mobile customers are receptive to this model.
The financial markets clearly believe, however, the big Web brands — not the carriers — are far better placed for growth. A spokesperson for Telenor, a Scandinavian operator, wryly observed at the Financial Times World Telecom Conference in London last month that its market capitalization — at US$40bn — was more than five times less than that of Google, despite posting similar top line and bottom line financials to the online advertising giant in 3Q07.
If bundling is on the way out, carriers desperately need to demonstrate a successful business model alternative if they are to cheer up their shareholders.
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