Flagging demand for landline telephones and mounting competition from streaming services such as Netflix have left telecoms groups scrambling to keep their subscribers. Increasing numbers are opting to bundle several services together and attract customers with discounts, additional features and the convenience of a single monthly bill. But as more and more companies adopt that approach, it’s bound to become less effective. Investors should back those that can successfully innovate and adapt their offering to reflect evolving consumer demands.
Telcos are racing to assemble and sell 'quad-play' packages of television, broadband and both mobile and landline telephony. One reason is that the number of quad-play subscribers in the UK is forecast to to triple between 2015 and 2020 (see chart), according to Strategy Analytics, which also expects quad-play packages to account for more than 21 per cent of bundled subscriptions in the UK in 2020. Bundling boosts average revenue per user (Arpu), a key metric for telecoms companies, and can push up margins. Moreover, the hassle of switching over multiple services can discourage customers from decamping to competitors, allowing providers to push through price increases with limited fallout. And the strategy diversifies the supplier’s revenue streams, insulating it from weakness in any individual product line.
"In established telecoms markets like the UK, subscriber growth comes at the expense of another operator’s subscribers rather than a great deal of total market expansion," says Jason Blackwell, director of service provider strategies at Strategy Analytics. "As a result, customer retention and churn are key strategic issues, especially given high subscriber acquisition costs in many instances."