"UPC’s bid for Multimedia Polska, if approved, may stimulate big players to compete and innovate further in a more consolidated market."
Polish operators have been extending the multi-play paradigm beyond the telecoms, media and technology sector, to introduce bundles incorporating energy, finance and banking. These efforts to ‘super-bundle’ have met with varying degrees of success so far – take-up of energy bundles has been slow and banking bundles have struggled. This comment explores the relative successes and failures of operators’ super-bundling initiatives. It explains why the Polish market is a sound test bed for such propositions, why operators continue to invest, and what lessons can be drawn for future proposals.
Several Polish operators moved towards offering super-bundles at the same time, escalating the race to offer larger bundles
- Orange Polska’s conditional agreement to acquire Multimedia Polska Energia in July 2017 constitutes the most recent development in a narrative which began in earnest with Polkomtel’s launch of smartDom in February 2014.
- Orange Polska’s bid follows on from its launch of Orange Finanse, Inteligentny Dom (a smart home service) and Orange Energia. It also offers insurance.
- Polkomtel (owned by Cyfrowy Polsat) sells two bundle brands: smartFirma (a B2B service) and smartDom (a B2C service). The former offers banking, electricity and an office monitoring service, beyond its core products. The latter currently comprises electricity, banking, insurance and home security services, as well as telecommunications devices, home electronics and domestic appliances.
- Multimedia Polska currently offers home monitoring, insurance services, electricity and gas. The operator was once a pioneer in super-bundling, but is now awaiting confirmation of its acquisition by UPC. UPC’s bid, if approved, may stimulate the competitive drive among big players to innovate further in a more consolidated market.
Service bundling has price-saving appeal, but Polish convergence has not actually been that strong
The logic behind service-bundling strategies is clear. Multi-play bundling simplifies service provision to ‘one provider at affordable prices, under one contract, one subscription fee and one invoice’, as Cyfrowy Polsat states. The strategy seeks to reduce churn and bolster customer loyalty, while increasing both the number of contracted revenue generating units (RGUs) and ARPU. From a broader market perspective, super-bundling can increase the value proposition and service diversification of operators and help stimulate competition between operators, without necessarily provoking a price war.
The results of super-bundling have hitherto been mixed. Only 2.1% of Orange’s subscribers in Poland had registered for its banking service, Orange Energia had amassed just 15 000 customers, and 8000 Inteligentny Dom kits had been sold, all as of 4Q 2016. Orange Open (the operator’s pick-and-mix convergent offer) was replaced by Orange Love, a bundle tied to four services, in February 2017. This may have signalled a loss of confidence in previous bundling strategies, but the latest strategic plan, Orange.one, is committed to convergence and suggests a refocusing of efforts. In contrast to Orange’s experience, Cyfrowy Polsat’s 2Q 2017 earnings report attributed the following to super-bundling: a 1.4% increase in ARPU, a 252 000 rise in mobile telephony RGUs, and a 203 000 rise in pay-TV RGUs, as well as falling churn rates compared to 2Q 2016. It added that 24% of contract customers use the super-bundle offer. However, Multimedia Polska reported the loss of 2500 home monitoring and insurance RGUs as of 1Q 2017. Market timing may explain why Orange Polska and Multimedia Polska have failed where Cyfrowy Polsat has (according to its own assessment) succeeded, as Cyfrowy Polsat broached a more receptive market, but its success may also be explained by the more comprehensive range of services it offers.
Orange Polska’s recent bid to acquire Multimedia Polska Energia illustrates a desire to raise, rather than reduce, its commitment, despite low take-up of its banking and energy services. Poland has hitherto operated as a test bed for super-bundling initiatives, as demonstrated by the forthcoming roll-out of Orange Bank in France, 3 years after the launch of Orange Finanse. The question remains whether similar demand drivers exist elsewhere.
In some senses, the Polish market is a special case. The confluence of operators’ plans that led to several of them pursuing super-bundles simultaneously became somewhat self-sustaining, as competition to offer more innovative bundles escalated, even though subscriber take-up did not necessarily follow. Active diversification in Polish energy markets has presented opportunities for operators. Poland’s multi-play bundling market is relatively underdeveloped compared to others, though the improving quality of network access may change this. Moreover, super-bundling discounts have strong appeal for price-sensitive consumers though they may have less pull in higher-income markets. Nonetheless, the simple appeal of the super-bundle – that it unites numerous different services on one bill – is universal, even if the danger of bill shock for customers remains.
Operators should consider investing broadly as well as tactically
Range, as well as committed individual investment, must be central to strategic thinking. Orange Polska’s recent bid after limited success suggests that high commitment is required if super-bundling is to function well. Operators may also want to rethink how they invest – the partnership with mBank that created Orange Finanse pressured margins and ceded control of pricing to a partner. Cyfrowy Polsat’s success stems not just from the promotion it has given to bundle brands, but also from its decision to invest significantly in a broad portfolio of services. Acquiring and retaining a strong customer base through breadth of services will help relieve the pressure that bundling imposes on margins. Banking, security and energy all offer lock-in effects. However, operators must be sensitive to the degree to which specific conditions have determined results. Orange Finanse may have suffered because of insufficient investment and the customer lifecycle in mobile banking, but the initiative was also launched in an already-mature and highly-competitive consumer finance market. Operators must therefore ensure that they choose verticals where their presence can be felt.