Quad-Play and Beyond: Multiplay Bundling Strategies for Telecoms and Pay-TV Operators

Extract Quad-Play and Beyond: Multiplay bundling strategies for telecoms and pay-TV operators

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Your global research partner Case study: BT’s broadband/Wi-Fi bundling strategy

17 February 2011 Informa Telecoms & Media

Key points • Since June 2010, BT Retail has bundled unlimited Wi-Fi access with its midpriced home-broadband packages at no extra charge. • The UK incumbent hopes to reduce churn and increase its customer-acquisition rate and ARPU, partly by targeting bandwidth-intensive smartphone, iPod and iPad users. It also aims to defend its current- and next-generation broadband business against 3G + and 4G mobile. • The company has rapidly scaled up its Wi-Fi network by partnering with Wi-Fi operator FON to enable BT customers to share bandwidth on their residential WLANs with other users. • The sheer scale of the hot-spot networks – 2.6 million hot spots by February 2011 – is the main strength of BT’s strategy, but questions remain about the quality and availability of BT FON hot-spot access. • The main opportunity is that of carving out a new market subsegment of residential- quality broadband on the go, especially in indoor and built-up public spaces. The main threat is BSkyB’s likely entry into the Wi-Fi market after its acquisition of Wi-Fi provider The Cloud. • Informa believes BT’s strategy is smart and will continue to generate growth for its ﬁxed-broadband business in the medium term. In the longer term, its success will depend on the degree to which bandwidth and availability will match those of 4G mobile.

Overview: ubiquitous, “free” Wi-Fi In June 2010, UK incumbent BT made unmetered Wi-Fi-hot-spot access available to all customers subscribing to its residential Total Broadband packages. Previously, Wi-Fi access had been time-limited in all except the highest-priced Total Broadband option.

At the time, about 1.5 million hot spots were available to BT subscribers. The vast majority of these were BT FON hot spots: Residential WLANs made available to third-party BT users on a secure basis using software supplied by independent Wi-Fi operator FON. By November 2010, the number of hot spots had topped 2 million, including the following:

• About 2 million BT FON hot spots. • About 195,000 BT Business WLANs broadcasting a BT Openzone public Wi-Fi signal. • About 3,900 BT Openzone public WLANs. The pace of hot-spot growth has accelerated since then: At the beginning of February 2011, BT reported that it already had about 2.6 million hot spots in operation, exceeding its original target of 2.5 million by end-2011.

Strategic goals BT’s move serves a number of strategic purposes:

• Adding value to the fixed-broadband offer – The provision of widely available, unlimited Wi-Fi adds a significant competitive advantage for BT in the broadband market. • Defending against fixed-to-mobile substitution – BT’s offer is targeted at high-volume mobile data users, especially users of devices such as smartphones, the iPod, tablets (such as the iPad) and laptops. The aim is to provide a nearly ubiquitous wireless- broadband experience that is an extension of users’ experience with residential WLANs and at least as good as, if not better than, current 3G(+) broadband. In this way, BT aims to prevent this high-value portion of its customer base from replacing their fixed-broadband subscriptions with mobile offerings, including some that are also bundled with free Wi-Fi. • Carving out an “indoor wireless broadband” market subsegment – The rationale for using both public and private WLANs (via the partnership with FON) as an alternative www.informatm.com © 2011 Informa Telecoms & Media 1 wireless-broadband technology is that it targets the locations where 3G coverage is known to be patchiest – indoors, whether at home or on the move, such as in cafes, hotels, train stations and airports, and in built-up areas in general, where there is a high density of residential and business WLANs. • A pre-emptive strike against LTE – By rapidly building out its Wi-Fi infrastructure and building up its Wi-Fi subscription base now, before the UK rollout of Long Term Evolution (LTE) 4G networks, BT is aiming to blunt LTE’s impact on its broadband business – since LTE is expected to contribute greatly to the trends of fixed-to-mobile substitution and improved indoor mobile coverage that BT’s strategy is designed to counteract.

Business model The unique selling points of BT’s Wi-Fi offering are its ubiquitous and unrestricted character and the fact that it has been bundled with BT’s residential broadband packages.

Marketing: ubiquity in pursuit of the iPad generation The key to achieving ubiquity has been the partnership with FON, which enabled the launch of the first BT FON hot spots in October 2007. The partnership has led to unprecedented growth in the number of hot spots available to BT subscribers, with about 2 million being added in just over three years.

BT is using its success in expanding its Wi-Fi coverage to attract and retain users of smartphones, iPods and iPads, who increasingly expect to be able to effortlessly access their apps and content without regard to location or access technology. These users are being explicitly targeted by apps for the iPhone and Android phones (launched in September 2010) and for the iPad (launched in January 2011) that enable BT Broadband subscribers to easily locate and automatically connect to any available BT hot spot.

Advertising: ‘Take your home broadband with you wherever you go’ The marketing message of “portable home broadband” was communicated in a TV and an online ad for the new iPhone app (see fig. 1), in which a number of environments outside of the home (a park, a soccer field, outside a rural pub, inside a bus station) are imaginatively transformed into the home environment as people effortlessly access typical home-broadband applications and content on their iPhones or iPads.

Fig. 1: BT Retail, Wi-Fi TV ad, Nov-10

Bundling strategy: adding value as well as ARPU As well as seeking to attract and retain the iPad generation, and slow its drift to all-mobile broadband, BT is seeking to add value to its broadband proposition. Wi-Fi enables BT to achieve this at little incremental cost, in that it piggy-backs on services such as customers’ home WLANs (in the case of BT FON) and the Openzone public WLAN network, access to which is still being charged on a retail basis to non-BT Broadband customers and on a wholesale basis to other operators, including mobile operators Everything Everywhere (Orange and T-Mobile brands) and Vodafone.

The low cost – compared with cellular-network deployments – with which BT has rapidly expanded its Wi-Fi coverage enables it to offer a service that is potentially valuable to many customers at a competitive price (see fig. 2). BT attributed its high share of net broadband- customer additions in 4Q10 (53%, according to the operator) in part to the Wi-Fi offer. The www.informatm.com © 2011 Informa Telecoms & Media 2 growth of the broadband-customer base is in turn generating greater ARPU, in that customers are adding broadband to their telephony packages. In its results for 4Q10, BT reported that consumer ARPU rose by £5 (US$8) quarter-on-quarter, to £322.

Fig. 2: UK, selected midrange broadband prices and services, Feb-11

Wi-Fi clearly sets BT’s services apart. By contrast, BSkyB uses its market-leading satellite-TV service to attract new broadband customers via its entry-level offer of “free” broadband (the £19.50 bundle), limited to 2GB of downloads a month. BT also imposes monthly download limits on its midrange bundles, in part offset by the unlimited Wi-Fi.

Results Wi-Fi offering contributing to BT’s customer-acquisition rate BT reported that it added 114,000 retail and LLU DSL subscribers in 3Q10 and 188,000 in 4Q10, representing 45% and 53% of all UK net additions, though the 3Q10 figure varies slightly from Informa’s estimate (see fig. 3). BT attributed this success in part to its Wi-Fi strategy. It pointed to the rapid growth in the number of hot spots it has deployed and the fact that Wi- Fi usage increased from 335 million minutes of use in 4Q09 to 881 million in 4Q10, driven by smartphone and tablet-PC usage. In addition, in the two months to mid-November, BT reported that there had been more than 170,000 downloads of the free iPhone and Android app for locating and connecting to BT’s hot spots.

Fig. 3: UK, fixed-broadband net additions by selected operators, 4Q09-3Q10

BT needs to include a distinct added value in its broadband packages to compete with BSkyB. The satellite operator has experienced huge success in gaining new broadband users via its entry-level triple-play offer of broadband as a “free” add-on for Sky TV customers paying £19.50 a month for their TV subscription. The Wi-Fi offer is targeted at winning and retaining a different user segment: more-intensive broadband users who want to access the same services, applications and devices on the move – as opposed to BSkyB’s TV-focused customers using broadband mainly in the home.

Fig. 4: BT’s broadband/Wi-Fi bundling strategy SWOT analysis

Informa viewpoint BT sweats its assets BT’s use of Wi-Fi to boost its customer-acquisition rate and add value is a classic example of maximizing the revenue potential of a massive but rapidly depreciating asset: BT’s ownership of the legacy copper local loop, which it is incrementally replacing with fiber and hybrid fiber and copper (VDSL).

Developing long-term value for fixed broadband BT needs to ensure that it has a large and stable base of broadband customers to which it can market its Infinity-branded VDSL services. To achieve this, it needs to establish the idea that only fixed broadband can offer the bandwidth and reliability that intensive Web-based- service users demand, including when on the move.

Wi-Fi offer will help BT sustain rapid subscription growth in the medium term Coupled with the competitive prices of BT’s bundles, the Wi-Fi offer does represent a significant differentiator for BT Broadband. In view of that, Informa expects BT to be able to sustain its high rate of customer acquisition over the next year or two. This will depend on the extent to which the BT FON network develops a reputation for ubiquity and quality, since these will be crucial in resisting churn toward increasingly higher-bandwidth mobile broadband offering better indoor coverage. The great majority of the increase in BT customers’ use of Wi-Fi is attributable to the FON network, according to BT. Since there have been no widespread reports of customer dissatisfaction, customers’ quality and availability concerns are most likely being addressed adequately.

BT’s strategy is not easily transferable into comparable European markets BT is unique among incumbents in major Western European countries in that it does not own a mobile network. This enables it to battle on both fronts: defending and building its fixed- broadband business as it mounts a pre-emptive assault on the mobile-broadband market. By contrast, incumbents such as Orange France, Deutsche Telekom and Telefonica are much more cautious about how they position their Wi-Fi services so that they do not cannibalize either their fixed- or mobile-broadband businesses.

Contributing Analysts...... 1 Quad-Play and Beyond: Executive Summary – PowerPoint file (66 Slides)...... 2 Global Multiplay Market Status Report – PowerPoint file (199 Slides)...... 3 Multiplay M&A strategies: Multiple options for operators to offer bundles...... 4

Fig. 1: Market-entry strategies for operators seeking multiplay bundling...... 5

Fig. 2: Global, mergers and acquisitions for multiplay bundling, selected operators...... 5

Fig. 3: M&A opportunities for fixed-line operators moving into TV...... 6

Fig. 4: M&A opportunities for TV operators moving into fixed broadband...... 7

Fig. 5: M&A opportunities for mobile operators moving into fixed-line triple play...... 8

Fig. 6: Global, mobile operators that have built FTTH/B or cable networks...... 9

Fig. 7: M&A opportunities for fixed-line/TV operators moving into mobile...... 9

Fig. 8: Rationale and results of selected telecoms and media M&A deals...... 10 Quad-play bundling in France: Is more than three a crowd?...... 12

Fig. 1: France, overview of existing and potential quad-play providers, Mar-11...... 12

Fig. 2: France, quad-play bundling strategies of selected operators, Mar-11...... 13

Fig. 3: France, quad-play bundling business models of selected operators, Mar-11...... 14

Fig. 4: France, selected bundled offers, Mar-11...... 16

Fig. 5: France, selected bundled offers, Mar-11 (cont.)...... 16

Fig. 6: France, selected fixed-broadband providers' share of net additions, 1Q09-4Q10...... 17

Fig. 7: France, mobile ARPU, 4Q08-4Q10...... 17

Fig. 8: France, quad-play bundling scorecard, Mar-11...... 18

Fig. 9: France, selected operators' fixed-broadband net additions, 4Q08-4Q10...... 19 Case study: SK Broadband reaps rewards of targeting SKT mobile subs with bundled plans...... 21

Fig. 1: South Korea, fixed-broadband market share by operator, 1Q09-3Q10...... 21

Fig. 2: South Korea, No. of smartphone models and proportion of smartphone subs, by operator, 4Q10...... 22

Fig. 3: SK Broadband and SK Telecom monthly bundled offerings...... 23

Fig. 4: SK Broadband bundled fixed/mobile subscriptions, 2H08-2H10...... 24

Fig. 5: SKB subscriptions and net adds, by service, 1Q09-4Q10 (000s)...... 24

Fig. 6: SK Broadband marketing expenditure, 1Q09-4Q10...... 24

Fig. 7: SK Broadband operating revenue, 1Q09-4Q10...... 25 Case study: YTL steps up to the plate as first wireless triple-player...... 27

Fig. 1: Malaysia, mobile broadband subscriptions by operator, 2Q08-2Q10...... 28

Fig. 2: Astro, DTH subscriptions and household penetration, 3Q08-3Q10...... 29

Fig. 3: Yes, WiMAX-service pricing...... 30

Fig. 4: Malaysia, mobile broadband postpaid plans by operator, Mar-11...... 31

Fig. 5: Malaysia, WiMAX and FTTH subscriptions, 1H09 to Feb-11...... 31 Superfast-broadband bundling strategies: How to avoid turning fast food into a junk meal ...... 33

Fig. 1: Superfast-broadband markets classified by phase of development...... 34

Fig. 2: Japan, operating performance of superfast-broadband services assessed in relation to bundling strategies...... 42 www.informatm.com © 2011 Informa Telecoms & Media Fig. 3: Netherlands, operating performance of superfast-broadband services assessed in relation to bundling strategies...... 42

Fig. 4: South Korea, operating performance of superfast-broadband services assessed in relation to bundling strategies...... 42

Fig. 5: Sweden, operating performance of superfast-broadband services assessed in relation to bundling strategies...... 43

Fig. 6: France, operating performance of superfast-broadband services assessed in relation to bundling strategies...... 43

Fig. 7: Germany, operating performance of superfast-broadband services assessed in relation to bundling strategies...... 43

Fig. 8: UK, operating performance of superfast-broadband services assessed in relation to bundling strategies...... 43

Fig. 9: US, operating performance of superfast-broadband services assessed in relation to bundling strategies...... 44 Value-added-service strategies: To bundle or not to bundle...... 46

Fig. 1: Selected operators, value-added service bundling strategies...... 47

Fig. 2: SFR Evolution, bundled content...... 48

Fig. 3: Free, services bundled with the triple-play package...... 48

Fig. 4: TDC, HomeDuo packages...... 49

Fig. 5: Virgin Media, online storage and back-up offers...... 49

Fig. 6: Key operator and content provider partnership examples...... 50

Fig. 7: Key business rationale behind value-added service bundling strategies...... 51

Fig. 8: Types of operator/content provider partnerships...... 52

Fig. 9: Value-added service bundling strategies...... 53

Fig. 10: Broadband operator value-added service segmentation...... 53 Broadband/Wi-Fi bundling strategies: the latest battleground between fixed and mobile...... 55

Fig. 1: Global, fixed-broadband / Wi-Fi bundling strategies of selected operators, Feb-11...... 56

Fig. 2: Global, fixed-broadband subscribers and Wi-Fi assets of selected operators, Feb-11...... 56

Fig. 3: Global, fixed-broadband/Wi-Fi bundle pricing of selected operators, Feb-11...... 59

Fig. 4: Global, fixed-broadband/Wi-Fi bundling strategies of selected operators, Feb-11...... 59 Case study: BT’s broadband/Wi-Fi bundling strategy...... 62

Fig. 1: BT Retail, Wi-Fi TV ad, Nov-10...... 63

Fig. 2: UK, selected midrange broadband prices and services, Feb-11...... 64

Fig. 3: UK, fixed-broadband net additions by selected operators, 4Q09-3Q10...... 64

Fig. 4: BT’s broadband/Wi-Fi bundling strategy SWOT analysis...... 65 Anti-cord-cutting strategies: Pay-TV operators look to bundling to counter the risk ...... 66

Fig. 1: Global, pay TV subscribers, 2010-2015...... 67

Fig. 2: Global, key pay-TV operator strategies in relation to cord cutting, Mar-11...... 67

Fig. 3: Global, selected pay TV operators subscriber performance, 3Q09-4Q10...... 71

Fig. 4: Global, selected countries’ cord cutters as a percentage of pay TV, 2010-2015...... 72

Fig. 5: Global, selected pay-TV operators’ annualized churn rates, 3Q09-4Q10...... 72

Fig. 6: Europe, HDTV performance of selected pay TV operators, 4Q10...... 73

Fig. 7: UK, BSkyB, additional product take-up, 4Q10...... 73 Next-generation set-top box strategies: Gateways, gatekeepers and OTT...... 76

Fig. 1: Western Europe, selected operators’ next-generation set-top-box deployments, Mar-10...... 77

Fig. 2: Western Europe, selected operators’ next-generation set-top-box specifications, Mar-10...... 77 www.informatm.com © 2011 Informa Telecoms & Media Fig. 3: Europe, UPC Horizon set-top box...... 78

Fig. 4: France, Free Freebox Revolution set-top box...... 78

Fig. 5: UK, Virgin Media Tivo set-top box...... 79

Fig. 6: UK, BSkyB Sky Plus HD set-top box...... 80

Fig. 7: Italy, Telecom Italia Cubovision set-top box...... 81

Fig. 8: Western Europe, selected operators’ next-generation set-top-box pricing and packaging, Mar-10...... 82 Connected device bundling strategies: OTT players up the competitive ante for operators ...... 85

Fig. 1: Selected operators, bundled device provision, Mar-11...... 85

Fig. 2: France, additional Livebox-related products and services, Jun-10...... 87

Fig. 3: STB monthly fees, selected operators...... 87

Fig. 4: Selected bundled devices score card...... 88

Fig. 5: Bundled-device scorecard totals...... 89

Fig. 6: Negative impact of Wi-Fi on home networks ...... 89 Assessing the future viability of mobile-only operators...... 91

Fig 1: Mobile operator acquisitions...... 91

Fig 2: France, broadband and mobile connection market shares, end-2010...... 91

Fig 3: European mobile operators – stated and actual integration strategies...... 92

Fig 4: Yoigo: a role model for the lean mobile operator...... 92

Fig 5: US, T-Mobile, mobile vs. Mobile broadband market shares, 3Q08 – 3Q10...... 92

Fig 6: Japan, operator market shares for mobile and mobile broadband, 3Q08 – 3Q10...... 93

Fig 7: Australia, operator market shares for mobile and mobile broadband, 3Q08 – 3Q10...... 93

Fig 8: France, operator market shares for mobile and mobile broadband, 3Q08 – 3Q10...... 93

Fig 9: Germany, operator market shares for mobile and mobile broadband, 3Q08 – 3Q10...... 94

Fig 10: Saudi Arabia, operator market shares for mobile and mobile broadband, 3Q08 – 3Q10...... 94

Fig 11: Sweden, operator market shares for mobile and mobile broadband, 3Q08 – 3Q10...... 94

Fig 12: Early results from Orange’s Open quad-play service...... 95

Fig 13: Telefonica’s integrated fixed and mobile network strategy...... 95

Fig 14: Saudi Arabia, Mobily’s mobile broadband network...... 95 Multiplay interactive forecasting tool – Excel file...... 96 Global multiplay-bundle tariffs 4Q08-2Q11 – Excel file...... 97

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