Unbundling the bundled...

Unbundling the bundled...

by Jonathan Thompson, Chief Executive, Digital UK

posted on June 18th, 2015

Many years ago - in a world only people who know what a ZX81 is will remember – life was simple. The choice we faced in our ‘communications services’ was easy:

-    Do I need a television?
-    Do I need a radio?
-    Do I need a telephone?

There was no real choice of providers – no different packages and pricing – just a binary choice of have it or don’t have it. A by-gone age that a teenager today would expect dinosaurs to roam.

Then the telecoms market was opened up to competition and we had a choice - British Telecom or the Mercury phone service that nobody used. Eventually the market became truly competitive in the range of services, prices and devices available. Service quality and choice improved. Prices fell. Consumers won.

At the same time, competition in television was opened up for the first time with Sky’s launch in the UK. Not only did we face a choice of whether to pay for television to access premium sports and movies, but also increasing choice of paying for different packages of channels, better picture quality, even getting line rental and broadband from your TV provider.

‘We know all of that,’ I hear you say – ‘what’s the point?’

Well, skip forward and consider where we are today.

There are those who will say – indeed whose entire corporate strategies are based upon – the new world order is a return to a narrow range of communications services. The direction of travel is that every householder will make a simple choice: which communications operator do I choose on the basis of price, trust and service provision, to provide me with television, telephony and broadband access? And with a whole bunch more giveaways thrown into the mix to entice them to sign up. A free TV set-top box? No problem! A subscription to Netflix? How about 12 months? Free Champions League football – it’s yours!

In this world, every household in the UK will inevitably end up choosing a single provider who serves all of their communications needs. And we all know that there will probably only be room for 3 or 4 players in this world.

These people are the ‘bundlers’ – whose strategy is based on building the economies of scale in the market through acquiring the content, technology, brands and customers to have the financial muscle to fund the investment and marketing give-aways to get long-term monthly subscription income out of every one of the 26 million households in the UK.

Currently 39% of us take TV, broadband and phone rental from a single provider – a much smaller number (around 3%) take the holy grail of a quad-play. But the direction of travel is inevitable – and billions of pounds are being spent in achieving it. The operators will find increasingly appealing and creative ways to entice you to take all your services from a single source.

So that’s that then. A world dominated by a handful of major communications players.  

Well, not quite because life in the digital age is never that simple.

Despite the goal of the bundlers to tie us into a single provider model, there are forces acting in the opposing direction – to deliver a world with greater levels of unbundling.

First, those pesky regulators have been pushing to reduce the switching barriers between communications services for consumers. Through a variety of interventions Ofcom has put more power in the hands of consumers. Most recently it announced a plan to allow consumers to leave their broadband service if actual speeds fall below the headlines sold. And I wouldn’t be surprised if making switching between bundles easier is also on their agenda.

Second, technology is reducing the barriers to switching. As the costs of the devices that enable the delivery of services fall and their availability becomes mainstream, it becomes that bit easier for a consumer to switch from their integrated service provider to the App world of limitless choice on their tablet or smartphone.

Third, consumer behaviour is actually turning out to be far more promiscuous than the bundlers would like. Yes, people may take TV, broadband and telephony from Sky or BT, but they also have direct accounts with Spotify, iTunes, Netflix, Amazon Prime and increasingly directly with free-to-use providers like Channel 4 or Facebook, all of which are platforms for video and communications services. Given this, it is perhaps no great surprise that the majority of Netflix subscribers also take Sky television.  

Fourth, simple economics means that giving stuff away to consumers is expensive, and makes sense in a growth market but is much more difficult in a mature market. We have been pretty open to spending more on communications services in recent years but this is not limitless. Sooner or later it is going to be that bit more difficult for service providers to give away quite so much free stuff to steal customers from each other. And in fact, slowly but surely, we have been seeing prices for bundle components increasing. Only a few pounds per month, perhaps, but this trend is set to continue, and it’s hitting even those that are not buying bundled products.

So, as the bundlers try to lock us all in there are competing forces opening up an unbundled world that gives us an increasing ability to pick and choose the package of services we need – with low costs and no long-term commitments.  

And it would be wrong to characterise these two worlds as being distinct – of those who bundle and those who don’t. This is a messy world with a variety of different models of consumer behaviour, from those who will be happy to rely on a single provider to those who will package their desired content and services from the plethora of choice available. All of this makes the market much harder to segment for consultants and researchers, but it drives a huge amount of power and choice for the consumer.  

At Digital UK, we want to play our part in giving consumers that choice. If they get one of the increasing array of bundled offers based on DTT, they’ll know they have access to all the best and most familiar TV channels, regardless of who their broadband provider is. And if they prefer not to bundle, they’ll still have an option to access a compelling and relevant offer of broadcast and catch-up programming through free from subscriptions options like Freeview Play.

So don’t believe the world of communications belongs entirely to the bundlers and concepts of the major players ‘owning’ a household. Ultimately, it’s the consumer who is free to choose the service and content that best meet their needs and those players providing these that win out.

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