Summary
1) Given the commoditised state of the fixed and wireless telephony markets and consumer desire to switch suppliers for better deals, we should expect to see operators launching bundles that aim to secure a greater share of a household's spend.
2) These higher value bundles are clearly targeted to the high-end segments. It is these customers with these high end bundles that have the lowest churn and greatest customer lifetime value.
Analysis
Europe shares the same market trends as the US - with the fixed line telephony market mature and in decline and increasing pressure on the wireless market. The challenge for operators is to improve customer loyalty, acquire switchers and maximize pricing (as much as possible) and ‘guarantee’ as much revenue as possible via higher priced bundles.
I certainly agree with the analysis in the original article that the plans “have the effect of a grenade blast, damaging not only wireless competitors but also landline carriers (both traditional wireline and cable) with an attractive wireline substitution story (both voice and data).”
For perspective in the UK, many new resellers have been attracted to this market by the historically relatively high margins (historically c. 30-40% EBITDA) and their market entry has been facilitated by the incumbent British Telecom being forced to introduce new wholesale products that lowered the barriers to entry. The resellers’ strategy has been to mirror products and price lower than BT (this is partly due to the nature of their wholesale agreement with BT which does not allow for product differentiation). And so, consumers increasingly see fixed line telephony as a utility and therefore choose their provider primarily based on price and on pricing simplicity (hence the growing popularity of unlimited bundles).
Further, the debate has moved on to which consumer segments would be drawn to these unlimited bundles. Logically, the high end of the market would be able to afford them and prefer them. Contrast this with the greater attractiveness for ‘pay-as-you-go’ services for the lower end of the market. In addition, looking at European bundle providers such as ntl:Telewest (now known as Virgin Media) or Liberty Media’s UPC Broadband – their higher value bundles are clearly targeted to the high-end segments in their respective countries. It is these customers with these high end bundles that have the lowest churn and greatest customer lifetime value.
