Bundled Services Could spell danger for Mobile-Only Providers

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With mobile penetration in mature markets such as the UK reaching near saturation, operators are looking to reshape their business models to defend customer bases, cope with revenue declines in  voice/SMS and manage the increasing demand for data. This is leading operators in these regions to move towards adding quad play packages, which include fixed and mobile voice and data and content services, to their consumer offerings.  By adopting a bundled approach where consumers are offered fixed, mobile and content services are offered under a single bill, operators are better able to retain customers and so reduce churn. Chris Cowan, Associate Director, Coleago Consulting discusses

This ability of bundled services to reduce churn is leading to a number of major players moving towards this approach.  BT for example has invested heavily in adding content to its fixed services and is expected to add mobile services in the New Year, whilst Sky is rumoured to be planning to add mobile to its fixed and content services.  EE also announced last month that it is taking steps to add content to its fixed broadband offering, complementing its high speed 4G mobile proposition highlighting how the shift towards bundled tariff offerings is gaining rapid momentum.

This strategy is one that Vodafone is also pursuing, with the operator looking to use some of its Verizon dividend to strengthen its 4G proposition across its footprint and to buy service providers with a fixed broadband and content proposition.  In the past year or so, Vodafone has bought Kabel Deutschland in Germany and ONO in Spain, and so the rumours that it might be looking to buy a UK fixed broadband/content player come as no surprise, strengthened by the confirmation in the company’s half year results presentation that it intended to return to UK fixed broadband market.

By buying a fixed/content provider, Vodafone would be able to become a major converged telecoms and content player in the UK in one step.  Indeed, Vodafone’s CTO admitted in their results presentation that its fixed broadband strategy was a defensive one, explaining that it would help it maintain its position in the mobile market. Rumours have also been circulating that Vodafone would ideally like to buy Liberty Global, who own Virgin Media in the UK, and is the largest cable operator in Europe. This would enable Vodafone, along with its Kabel Deutschland and ONO acquisitions, to offer a quad play bundle across many of Europe’s most attractive territories, such as Germany. This sort of scale would also accrue significant advantages in negotiating for content rights, in particular sports rights.

As BT and potentially Sky move into the UK mobile market, for operators only offering a mobile service, price looks set to become the main differentiator.   For 3 and O2, who look as though they will be left with a mobile-only approach (O2 sold their fixed broadband business to Sky), their position is going to become more precarious.  EE and Vodafone have better spectrum frequency allocations, meaning that they have more fire power in the high speed mobile market, and neither O2 nor 3 have sufficient resources to invest in buying fixed operators with content.  To preserve shareholder value, the large mobile-only players will need to seriously consider their strategic options as the competition for customers heats up.

Whether or not the rumours that Vodafone is looking to buy Liberty Global turn out to be true, it seems highly likely that it will mirror its behaviour in Europe in the UK market, and either make a play for a fixed operator with content or construct partnerships to enable it to offer the quad play of services. With the shift towards bundled offerings looking set to continue, big changes are on the horizon and mobile-only providers in particular will need to react quickly and intelligently to defend their customer bases and shareholder value.