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Transforming Triple Play: Key Lessons and Best Practices For Winning RGU Strategies
Pyramid Research, Inc, June 2006, Pages: 98
The triple play model has grown in popularity over the past few years, as cable companies and telcos seek to further monetize existing customer relationships and diversify revenue streams. We believe the model warrants further introspection as more players rollout their triple play offers. In this report, we analyze the value of the multi-play proposition, with an emphasis on a number of key questions, most notably, is triple play indispensable?
The answer is not as straightforward as it may seem. Through analytical case studies of existing triple play bundles, we examine the key ingredients in creating successful triple play models. We focus on pricing, discounting, content, the strategic approach to triple play, as well as key performance indicators and bottom line impact. We make the following key arguments (supported by data and case studies), among others:
- In our view, the concept of subscriber will increasingly become insignificant as an indicator of carrier operational performance. What we see is th emergence of the “revenue generating unit” (RGU), a concept that focuses on the number of core applications sold to an individual subscriber. A key driver of this evolution is the transformation of the telco business model more towards a cable model, in a context where organic growth is less about adding subscribers and more about adding applications. Convergence is another driver, as an application-centric catalyst of organic growth.
- Triple play bundles do not compensate for deficient individual packages. One of the key lessons of our research and case studies is that triple play bundles (even when discounted) cannot hide the deficiencies of individual components in a competitive market. The most successful triple play offerings, as we demonstrate, are those in which the individual components are competitive on a standalone basis. If customers will not purchase one of the traditional triple components on a standalone basis, they are generally unlikely to purchase it as part of a bundle.
- In the triple play stakes, incumbent telcos are mistakenly focused on protecting the (wrong) core. Consequently, cable carriers (and a number
of alternative telcos) have taken a strong lead in service bundling. Many incumbent telco triple play offerings appear built to protect fixed voice revenues, the traditional mainstay of the telco business. In a context in which VoIP adoption is accelerating, such approaches to triple play are out of step with market dynamics. Some telcos (e.g., KPN) have understood as much, most (e.g., Verizon, France Telecom, BT) have moved slowly for a variety of reasons. Indeed, competitors are sensing vulnerability on this front, with many emphasizing the VoIP element of their packages in order to create obvious differentiation and to accelerate incumbent telco churn. For most telcos, we believe that the main core to protect is no longer voice; it is broadband.
- Quadruple play is a fallacy. The concept of quadruple play assumes that a single carrier would be offering four applications (fixed voice, broadband internet access, Pay TV/Video, and mobile) through a single, bundled subscription. A number of points make it unlikely that this offering will be rapidly picked up over the medium term. First, triple play is complicated enough. The second challenge for quadruple play is that it assumes that fixed voice remains a key, attractive option. In the Skype and mobile voice age, that is hardly the case. Rather than quadruple play on one bill, we believe the promise of adding mobility lies more in the ability to offer a more flexible, powerful multi-play proposition, one that allow the end user to create its own multi-play bundles.
- We do not believe that discounts are a prerequisite to successful bundled triple play; just as (if not more) powerful are service differentiation and segmented approach to pricing.
- We find the wisdom of incurring high costs for content that does not guarantee triple play market share gains questionable; as many players are finding out, broadcast networks can be a more effective catalyst of adoption than exclusive content.
- Triple play is good for ARPUs. With triple play, the end-user consolidates spending which otherwise would have been spread out among multiple service providers. By offering a set of services to the customer, triple play increases the average spend from the customer to the service provider. There are some caveats to this generally good ARPU dynamic. Triple play is not immune to erosion in extremely competitive markets where part of the triple play equation (voice, mainly) faces strong price pressures.
- We are forecasting the global triple play subscriber base to more than double between 2005 and 2010, reaching approximately 35m subscribers, remaining around 6–8 percent of the global broadband subscriber base. We expect Europe (thanks to IPTV) and North America (thanks to cable AND IPTV) to lead the way. We are also expecting that telcos will make a stronger impact in triple play, with their share of bundled subscriptions rising from about 25 percent in 2005 to slightly more than 50 percent at YE2010. We estimate the overall triple play bundle opportunity was about US$10bn at the end of 2005, and expect it to double to US$20bn by YE2010.
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