The multi-play migration: The scramble to bundle continues apace

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As broadband becomes more pervasive, competition intensifies and incumbent operators see their voice revenues heading remorselessly towards zero, the focus has shifted increasingly towards boosting average revenues per user (ARPU) and cutting customer churn. The result has been a rush to offer bundled 'multi-play' services, with the goal of providing all the services and content needed by an individual or household on a single bill. But as the 'triple-play' of voice, video and data becomes 'quad-play' through the addition of mobile, questions remain over the degree of real synergy between the various elements.

"In terms of bundling, at the moment we are at the stage of financial bundling -- here's one product, here's another, and if you buy both you get a discount," commented Paul Rees, Global InfoComm Leader with PricewaterhouseCoopers, in the panel session on day two entitled 'The battle of the bundle'. "In the world of tomorrow you will be buying an integrated service. The integration of service between the various platforms is hugely complicated, and can only be done locally -- things like integration between fixed, mobile and the home PC. You can't do that on a global basis, and you need excellent customer service to support it."

A strategy that delivers

However, others pointed out that the benefits of bundling are proven -- and are being felt in their business every day. "In terms of bundling, our view is that numbers don't lie," said Shane O'Neill, chief strategy officer, Liberty Global Europe and president, Chellomedia, speaking on the same panel.

"Bundling clearly works and is a compelling offer for the consumer," continued Mr O'Neill. "27% of our overall customer base take a bundled service. Among our broadband and telephone customers, 88% of our broadband customers and more than 90% of our telephone customers take more than one service. So bundling is clearly working today." He added: "Cable is well-positioned to compete in this converging world. We have the content -- that's our core business. We have the bundle. And thirdly we have the networks -- advanced state-of-the-art two-way networks. So we're well positioned."

The decisive shift towards bundling was echoed by speaker after speaker. During the panel session on growth strategies on day one, Hans-Holger Albrecht, President and CEO of Modern Times Group, was asked about consumers' willingness to pay for content. "It depends what kind of content you are talking about," he replied. "For example, sport is a type of content that people are willing to pay for. Top movies also do well. Then there is the community aspect. With pay TV it's not so much about content alone, but when and where you can watch it. We are at the stage of finding out if the best way to charge is per viewing or bundled in a package. The signs to date are that it should be on a bundled basis."

All-round offering

Alongside reducing churn and building ARPU, a further incentive for bundling different service offerings is to diversify the provider's revenue base, thereby reducing the reliance on each individual element. "I believe one hundred per cent in the future of free-to-air-television and therefore in the future of a strong advertising-based TV industry," said RTL Chief Executive Officer Gerhard Zeiler in his keynote address on day one. "But -- and there is a but ? in order to finance all the new offers to the consumer, advertising revenues alone won't be enough. We will have to look for new sources of revenue -- beyond advertising. The most successful broadcasters in the future will have to have a much more balanced revenue stream, composed of a mix of advertising, subscription, transactional revenues and content sales."

For incumbent telcos, the drive to expand into bundled offerings is a commercial necessity rather than a choice. "Where can an incumbent telco go to get growth in such a large business?" asked PricewaterhouseCoopers' Paul Rees. "Technology changes with broadband have enabled telcos to move to VoD/IPTV. There's a natural move to the video space where growth rates are much higher. If you add all that up we have a very competitive environment for telcos, with fixed and mobile operators fighting in each other's markets. You have cable operators fighting the telcos, not just on new services but on internet access and voice. You have the MVNOs. You have the satellite operators like Sky providing DSL and competing head-to-head with the telcos. It's a pretty horrible marketplace to be in -- and telcos have no choice but to free themselves up to go for growth opportunities in the media sector."

Speaking in the same session, Helmut Leopold, managing director platform and technology management for Telekom Austria, underlined the same point. "In tomorrow's marketplace, we will end up with zero price level for voice services because of VoIP," he said. "There will be a full-on attack on my existing business. So the main question is: can we drive applications and content services, and bring enough capacity into our network to offer value-add for the communication needs of the consumer? That's why we are investing in capacity of at least 20 Mbit/s to households to support media ranging from HDTV to voice."

Customer service: the key

While the move to bundling can raise technological and infrastructure challenges, the consensus was that the component that will make or break a bundled approach is customer service. "In terms of critical success factors, I have been doing a series of interviews with senior executives in the telecoms and cable industries," said Paul Rees, PricewaterhouseCoopers. "A common theme was the importance of customer services. When you are expanding into new service areas, keeping customer service high is a real issue."

It is also a real challenge. Telekom Austria's Helmut Leopold described his own company's recent experience. "We launched IPTV last month," he said. "We have customers calling saying: 'My TV doesn't work, how do I connect it, how do I get it to talk to my VCR?' You can't spend all day training them to install it. People don't want to become the CIO of the home. You need to hide the complexity and offer a service where you manage everything in the home."

The importance of customer service is underlined by the weight that investors attach to it. "In the pay TV market, as well as having must-have content and connectivity in people's homes, you increasingly need to have very high standards of customer service," said Joseph Schull, Warburg Pincus' managing director, media & business services for central and Eastern Europe, speaking in the closing session, 'View from the summit'. "One of the things we like in the Dutch market where we have invested is that cable operators have historically had relatively high levels of customer service and satisfaction, which makes it easier to upsell additional services. That's a critical element -- particularly as cable enters long-tern competition with telcos."

By common consent, bundling is the way forward for service and content delivery. But the companies that win out will be those that execute it well and provide the level of support that customers expect. As the industry progresses from financial bundling to truly integrated bundled packages, the real test of bundling as a strategy is only just beginning.


Find out more about the European Media Leaders Summit 2006 at www.euromedialeaders.com. Or contact: Alex Maclean, Marketing Manager, Global Entertainment & Media practice, PricewaterhouseCoopers. Phone (44-20) 7804-3421; email: alexandra.r.maclean@uk.pwc.com.
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