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What’s stopping quad play and do consumers really care?

The concept of converged services is nothing new. For the past decade, providers have bundled together broadband and fixed telephone services and take up of this offering has been very successful (approx. 46% of UK households subscribe to a double-play package). More recently triple play packages have been brought to market with TV services being added to the standard double-bundle.

Sky was really the first provider to do this, kicking off a telco 'war' with other providers including its main rival BT when it paid between £180m to £200m for the small fixed-line broadband business of O2. BT was forced to react, improving its TV offering by aggressively targeting high-value content like the English Premier League rights. The rise of quad-play (the convergence of broadband, fixed telephone, TV and mobile) is seen as a natural next step following the success of triple play and is now one of the biggest talking points in the telecommunications industry.

The nature of quad play extends beyond the concept of the provision of additional mobile service discounts.

Instead, it is part of a longer-term strategy for telco providers to increase the customer base to secure revenue for key areas such as future investment in infrastructure. As the telco market continues to become more stagnated and as a consequence more competitive, telco providers need to find new ways to expand their customer footprint, retain existing customer bases and find new ways to drive revenue and growth.  

Whilst the potential benefits of cost savings from buying fully bundled packages may be considered appealing, in the UK, take up has been slow.

Quad play has been discussed for almost a decade, but so far only Virgin has really tapped into the quad play market with approximately 16% of their customer base now taking all four services (approx. 800,000 households). TalkTalk implemented a quad play strategy in 2012 but has yet to see the results and other companies such as EE, Vodafone and BT are only now making moves to join Virgin as true quad play providers. There has also been a tendency by providers to focus on the cross-selling of services rather than on the creation of genuine quad play bundles. This has created confusion for consumers wishing to compare offerings across the sector. Given the take-up to date, it raises the question, are there barriers in place inhibiting the take-up of quad play bundles or do consumers in the UK just want to keep things separate?

The theory behind quad play is that the discount needed to attract new customers is then offset by savings made from lower customer churn.

In the United States, partly due to a large number of providers and an incredibly competitive telco/media landscape, take-up by consumers of quad play offerings is much healthier with approximately 13% of US households predicted to commit to quad play packages by 2016. Providers are able to offer significant discounts and can be flexible on the price of packages. By removing the barriers between media and telco companies, the United States has allowed customers to benefit from integrated landline and mobile services, broadband and premium television content.

Barriers between media and telco in the UK remain resolutely in place resulting in the absence of true ‘quad play’ product portfolios for customers to choose from. Consumers are willing to pay substantially more for individual mobile services. However, as providers are not currently in a position to offer significant mobile discounts when creating quad play bundles, customers struggle to see the value and benefits of bundling all four services together.

Telco providers also need to be wary of technology and media companies that are beginning to encroach and threaten the historic relevance of providers.

In the US in April, Google launched Project FI marking its first venture into the mobile wireless service industry. The project offers subscribers the standard ability to call, text and surf on Nexus 6 smartphones but gives customers control of how much data they pay for per month. Google are positioning Project FI not as a competitor offering but as an experiment that will push other providers to offer cheaper and more efficient data plans. Consumers are also starting to demand more flexibility in relation to premium TV and film content. Pay TV broadcasters like Sky and BT are feeling the pain from the rise of Over the TOP (OTT) organisations like Netflix and Amazon. These providers enable consumers to pick and choose content appealing to consumers who like to pick and choose rather than commit to restrictive bundles.

Customers are also resistant to quad play because of the perception that services such as broadband, fixed telephone and TV are household purchases (almost like utilities), whilst selection of a mobile phone services is considered a far more personal financial investment. Strong marketing campaigns are required to entice customers away from separate mobile contracts and towards quad play bundles.

Telco providers are also notoriously bad at customer service, often taking significant amounts of time to resolve issues. If providers want to persuade consumers to tie in yet another service, significant investment needs to be made to support customers when things go wrong. Given the dependency many consumers have on mobile, there will be little patience and a high possibility of early churn if the fundamental reasons for poor customer services are not addressed.

The recent increase in the number of strategic partnerships and proposed mergers indicates that despite the barriers to true take up, the sector still views the success of quad play as a priority and the investments required to support it a necessity.

As a consumer, the idea of tying myself into an expensive package with one provider does not appeal. I don’t really care about a fixed telephone line, I only want my broadband to work (not always the case), my mobile phone bill is relatively cheap and I use Netflix and Amazon Prime to watch TV shows and films that are available on Sky and BT anyway. However, it will be interesting to see whether the merger of BT and EE will truly kick-start take up of quad play in the UK. If successful, it has the potential to completely change the telco and media landscape with the merging of the UK’s leading fixed and mobile subscribers. BT will suddenly be in a much stronger position to offer far bigger discounts than its competitors. The hope is that this will generate lower prices and more choices for customers. The over-arching challenge that consumer growth is expected to remain quite static will however remain. If greater competition results in increased costs to entice new customers, providers may see limited financial returns if the market remains flat. Given the nature of the UK consumer, the more recent desire for increased flexibility and on-demand content and the continued encroachment from technology and media in the sector, it remains to be seen whether telco providers have left it too late to persuade consumers to commit to this latest telco trend.