The Bundle Jungle. A closer look at consumer attitudes towards buying broadband, telephony and TV

Transcription

1 A closer look at consumer attitudes towards buying broadband, telephony and TV

2 Contents Research objectives and methodology 01 Six key findings Residential bundles are now mainstream but consumers are not receptive to packages that include mobile services Bundles generate higher customer satisfaction and reduced churn Attitudes towards fiber and pay-tv are polarized Internet behaviors are increasingly sophisticated yet consumers are apathetic and ill-informed about their broadband services Segmentation reveals stark contrasts in attitudes towards bundle services and internet usage In the future, service providers will need to target underserved users in a more fragmented market 32 Contacts 37

3 Research objectives and methodology To gain deeper insights into UK consumers attitudes to buying and using residential bundles of internet access, calls and content, we conducted an online survey of 2,500 UK consumers, covering all regions, ages and income groups. The survey, which was carried out in August 2013 and generated responses that have provided us with a detailed understanding of consumers perceptions, demands and motivations around bundled services. The insights from the survey have been used to develop this report, The Bundle Jungle the latest publication in our ongoing series designed to monitor and evaluate consumers views of multi-play packages that incorporate telecommunications and TV services. Additional analysis and insight were contributed by EY s team of Technology, Media and Telecoms (TMT) specialists. This latest Bundle Jungle report represents an update to an earlier study released in 2007, which also explored end user attitudes to residential bundle packages. In the intervening years, a wide array of developments have reshaped the bundle landscape, including the widespread introduction of fiber optic broadband, TV rights auctions, the roll-out of 4G services and ongoing market consolidation. Online survey of 2,500 UK consumers, covering all regions, ages and income groups 01

4 Segmenting the UK consumer base Compared to the earlier study, a key innovation in this latest Bundle Jungle report is our use of statistical market segmentation to differentiate between various groupings of consumers. This segmentation process has enabled us to develop a unique perspective on the UK broadband market, again further informed by our telecommunications and analytical experts. By analyzing consumers various responses to 55 attitudinal questions, we have been able to segment them into six different groups, each with its own distinct attitudes to bundled services. We have identified these groups through attitudinal segmentation, because experience shows that understanding customers attitudes is a more accurate predictor of future behavior and preferences than segmenting them on their current behavior. To turn our segmental insights into actionable recommendations for providers, we have applied a segmentation framework that reflects the structure and dynamics of the UK broadband market and that has the most meaningful spread of segments to support the development of distinctive offerings. Our profiling across the six segments looks at: bundling behavior, current and future household broadband usage, fiber broadband take-up and use of online services including video. A mature but fast-evolving marketplace The UK telecommunications, broadband and pay TV markets have evolved rapidly in recent years, with multi-play bundling of services becoming an increasingly prominent feature of the marketplace. As this trend has continued, it is widely accepted that consumers in general have become more demanding and sophisticated in their choices and buying patterns. But how accurate is this perception? Have consumers attitudes to bundling evolved in similar ways across the population? Or do different demographic and social groupings have contrasting views and behaviors? And how can service providers harness these trends to develop and deliver offerings that more of their target consumers will buy and keep on buying? 02

5 Six key findings In this report, we set out to answer these questions and more. The survey results point to six key findings. 1. Residential bundles are now mainstream but consumers are not receptive to packages that include mobile services Bundling is now the norm: 82% of UK households in our study take some form of bundle from their broadband service providers, compared to 53% in This increase has seen TV-based bundles move into the mainstream, with 42% of households taking a bundle that includes a basic or premium TV service, up from 23% in The leading take-up drivers for bundles are the convenience of a single bill and single point of contact for customer service. After many years of fierce price competition, price is no longer the prime driver of buying decisions as it was in However, although quadruple-play offers including mobile have been on the market for some years, they have yet to gain traction and are used by just 2% of respondents. 2. Bundles generate higher customer satisfaction and reduced churn Bundle customers are more satisfied than non-bundlers: 72% of those taking bundled broadband, telephony and TV say they re satisfied with their service provider compared to 55% of non-bundlers. Equally, bundle customers also have a lower propensity to switch and the likelihood of switching declines as the number of services in their bundle increases. Looking at specific types of bundles, broadband and telephony customers are the least satisfied, yet rank fifth out of eight bundle categories in terms of customer stickiness. TV-based bundles score best in terms of reducing customer churn, with less than one in five triple-play users saying they re likely to switch. In contrast, the propensity to switch is highest for customers with broadband and mobile combinations. 3. Attitudes towards fiber and pay-tv are polarized Consumers are deeply divided over the attractiveness of higherbandwidth services via fiber optic cable. While 44% of respondents either already have fiber broadband or plan to upgrade once fiber becomes available to their area, an even bigger proportion 49% have no plans to upgrade. And 50% overall agree that they are very happy with their current broadband speed, and don t think [their] household needs faster broadband. People are similarly split over buying premium TV services. While 53% of TV-based bundle customers agree that the TV elements of their bundle represent value for money, 64% of all respondents have no appetite to pay for premium sports content on TV. 4. Internet behaviors are increasingly sophisticated yet consumers are apathetic and ill-informed about their broadband services Online services are disrupting traditional behaviors, as the internet becomes increasingly core to people s everyday lives. Almost half 49% of our interviewees say some members of their household spend more time on the internet than watching TV, and three in four respondents use online shopping at least once a week. Yet so long as these services actually work, consumers show little interest in shopping around for the best bundle deal or comparing performance. Only one respondent in six has regularly switched provider for a better deal, and 39% admit they don t know the advertised speed of their broadband connection. 5. Segmentation reveals stark contrasts in attitudes towards bundle services and internet usage By segmenting the findings, EY has defined six different customer segments ranging from affluent sport-centric users to resolute anti-bundlers with sharply differing characteristics and needs. The six segments are described in this report. Looking across the consumer base as a whole, the complex interplay of attitudes towards bundle benefits, content consumption and willingness to pay suggests there are still untapped opportunities for service providers to meet customers needs more fully and profitably. 6. In the future, service providers will need to target underserved users in a more fragmented market Looking ahead, our findings suggest that the recent growth in bundling may go into reverse, with the proportion of non-bundle households potentially rebounding from 18% to 25%. This suggests that more selective and sophisticated behaviors will create new and distinct consumer needs in a more fragmented marketplace. To sustain growth in market share and revenues, service providers will have to target new demand scenarios that reflect the evolving needs of distinct customer segments. 03

6 Six key findings 01. Residential bundles are now mainstream but consumers are not receptive to packages that include mobile services 83% 42% 53% 23% 2007 Households 2013 Households 2007 Households 2013 Households Convenience of a single bill and single point of contact Price sensitivity is no longer the prime driver Bundles from broadband service providers TV-based bundles are now mainstream Leading take-up drivers for bundles 02. Bundles generate higher customer satisfaction and reduced churn Bundle customers are more satisfied than non-bundlers TV bundles score best in terms of churn reduction Broadband/ telephony bundlers are least satisfied Less than 1 in 5 triple-play users are likely to switch service providers Rank 5th out of 8 bundle categories in terms of customer stickiness 03. Attitudes towards fiber and pay-tv are polarized 44% 49% 53% 64% of respondents have fiber broadband or plan to upgrade. of respondents have no plans to upgrade to fiber of respondents agree they get value for money from the TV services they purchase from their broadband provider of respondents overall have no appetite to pay for premium sports content 04

7 04. Internet behaviors are sophisticated yet consumers are apathetic and ill-informed about their broadband services 49% 39% of respondents agree that some members Online services are of respondents don t know the advertised of their household spend more time on the disrupting traditional speed of their broadband connection internet than watching TV behaviors historically willingness to shop around for the best bundle deal is low 05. Segmentation reveals stark contrasts in attitudes towards bundle service and internet usage The complex interplay of attitudes towards bundle benefits Customer segment Digital devotees Serious about sport Smart switchers Loyal bundlers Anti bundlers Functional users Content consumption and willingness to pay suggests that there remain untapped routes for service providers to meet customer needs 06. In the future, service providers must target underserved users in a more fragmented market Now Future 18% 25% Looking ahead, the proportion of non-bundle households may increase. Suggesting that more sophisticated behaviors will spur new and distinct needs Target new demand scenarios 05

8 1. Residential bundles are now mainstream but consumers are not receptive to packages that include mobile services 82% of respondents have a bundle of some description, excluding those taking just broadband and line rental from the same supplier Take-up of multi-play packages incorporating telecommunications and TV services has entered a mature phase in the UK, with 82% of respondents having a bundle of some description, excluding those taking just broadband and line rental from the same supplier (see Chart 1). However, despite bundling now being very well-established, our study confirms that quadruple-play services with a mobile component have yet to take off among consumers, and that the bundle market remains at a dynamic point in its evolution. As Chart 1 also illustrates, the broadband and telephony double-play is the leading bundle category, taken up by 38% of respondents. And TV is now a core bundle product: 31% of consumers overall take a triple-play containing broadband, fixed telephony and TV, while 42% take a bundle containing a TV service, up from 23% in our 2007 survey. Mobile is included in just 4% of bundles, with the quadruple-play of broadband, telephony, TV and mobile voice and data being taken by only 2% of respondents. Chart 1: current bundle take-up by package type No Bundle 8% Broadband, telephony, TV and mobile 2% Broadband, mobile and TV 0% Broadband, telephony and TV 31% Broadband, telephony and mobile 1% Broadband and TV 9% Broadband and mobile 1% Broadband and line rental 10% Broadband and telephony 38% % Respondents 0% 10% 20% 30% 40% 50% 06

9 Convenience outweighs cost Turning to the reasons why consumers choose to take up a bundle from a particular service provider, it s clear that convenience is now a more important consideration than cost. Among the drivers for taking up a bundle, the opportunities to have a single point of contact for customer service, and a single bill, lead the way (see Chart 2). Cost which was the top take-up driver in our 2007 study is now relegated to third place, possibly reflecting greater affordability resulting from fierce price-based competition. It also seems that the impact of introductory offers may be running out of steam, given the relatively low weighting that consumers attribute to them. However, despite their apparently low sensitivity to bundle pricing, consumers remain highly price-conscious regarding telecoms. Some 43% of the respondents in our survey agree that they try to spend as little as possible on communications services. Chart 2: ranking of bundle take-up drivers A bundle from one provider is very important for the convenience of a single point of contact for customer service 23% 37% A bundle of services from one provider is very important for the convenience of getting a single bill 21% 39% A bundle from one provider is very important to save costs 19% 38% The quality of equipment (e.g., TV box) that comes with a broadband service played a significant role in my choice of provider 16% 35% The introductory pricing played a significant role in my choice of provider 13% 27% Recommendations from friends and family played a significant role in my choice of provider 8% 25% % Respondents 0% 10% 20% 30% 40% 50% 60% 70% Strongly agree Slightly agree % respondents agree/strongly agree 07

10 2. Bundles generate higher customer satisfaction and reduced churn Customers who take a bundle tend to be more satisfied and less likely to switch providers with their satisfaction level tending to increase in proportion to the number of services in their bundle. As Chart 3 shows, some 72% of customers taking a triple-play of broadband, telephony and TV are quite or very satisfied with their package, compared to 62% of those taking broadband and telephony, and 55% of non-bundlers. Although the quadruple-play of broadband, telephony, TV and mobile has yet to gain mass take-up, it generates the highest customer satisfaction, with a very satisfied rating of 46%. And while the traditional double-play of broadband and telephony is the best-established bundle, at a take-up rate of 38%, satisfaction levels among these bundles are below those of customers who don t take a bundle at all. Chart 3: level of satisfaction with current bundle 72% of customers taking a triple play of broadband, telephony and TV are quite or very satisfied with their package Broadband, mobile and TV Broadband, telephony and TV Broadband, telephony, TV and mobile Broadband, telephony and mobile Broadband and mobile No bundle Broadband and TV Broadband and telephony Broadband and line rental % Respondents 0% 20% 40% 60% 80% 100% Very dissatisfied Quite dissatisfied Neither satisfied nor dissatisfied Quite satisfied Very satisfied 08

11 The higher the number of services, the greater the loyalty As well as being more satisfied, consumers taking a bundle with a higher number of services also have a lower propensity to switch suppliers. As Chart 4 illustrates, the TV service element appears to have a particularly positive impact on customer loyalty, with the various categories of bundles containing TV taking the top three places in terms of customer stickiness among the eight package types identified in our survey. While broadband and telephony ranks last in terms satisfaction by bundle type, it comes in fifth for customer stickiness. The loyalty and churn profiles of fixed and mobile service combinations remain less clear. While bundles including mobile score well in terms of customers intention to stay with their current provider, the water is muddied by the fact that these bundles also tend to contain TV elements. Customers with broadband and mobile packages have the highest switching propensity, suggesting an upside opportunity for mobile operators able to offer strong and competitive residential access propositions. Chart 4: future switching propensity by type of bundle Broadband, mobile and TV Broadband, telephony, TV and mobile Broadband, telephony and TV Broadband and line rental Broadband and telephony Broadband and TV Broadband, telephony and mobile No bundle Broadband and mobile % Respondents 0% 20% 40% 60% 80% 100% Very dissatisfied Quite dissatisfied Neither satisfied nor dissatisfied Quite satisfied Very satisfied Likelihood of switching in the next 12 months 09

12 3. Attitudes towards fiber and pay-tv are polarized 56% of respondents agree that broadband is a cheap service relative to the benefits it generates Looking across the individual elements that make up the bundle, consumers tend to view broadband as a utility albeit one that delivers value for money while attitudes toward pay TV are sharply divided. Over half (56%) of respondents agree that broadband is a cheap service relative to the benefits it generates. Although migration to higher-bandwidth fiber is underway, consumers appetite for faster broadband speeds is mixed, with two-thirds of respondents saying that the reliability of their broadband connection is more important than speed. Chart 5: fiber take-up and satisfaction with current broadband speeds Q3. Do you have fiber optic broadband? 49% 26% No Yes No, it is not currently available in my areas, but I plan upgrading when it becomes available Don t know Currently upgrading to fiber broadband 15% 7% 3% 10

13 The focus on reliability over speed is underlined by attitudes to fiber. Just over onequarter of respondents already have a fiber broadband service, with another 3% currently in the process of upgrading, and 15% intending to upgrade once it is available (see Chart 5). But 49% have no plans to upgrade to fiber. And half of our respondents are happy with their current broadband speeds: asked whether they actually need faster broadband, 50% of consumers say they don t, versus 24% who say they do. Q3. Do you agree with the following: I am very happy with my broadband speed and don t think my household needs faster broadband? 32% 27% Strongly agree Slightly agree Neither agree nor disagree Slightly disagree Strongly disagree 18% 15% 9% Chart 6: broadband speed preferences if forced to switch provider Other findings suggest that future bundle preferences are unlikely to be driven by the need for speed. If consumers were forced to switch broadband provider, almost half would take a package offering the same speed as their current service (see Chart 6). Also, 75% are quite or very happy with the speed of their current broadband connection compared to advertised speeds. These responses indicate that many consumers remain unconvinced of the value in paying more for faster broadband. Q23. If you were forced to switch supplier for your home broadband service, which of the following would you choose? The same speed broadband connection 49% A faster broadband connection 24% A much faster broadband connection 21% A slower broadband connection 6% % Respondents 0% 10% 20% 30% 40% 50% 60% 11

14 3. Attitudes towards fiber and pay-tv are polarized Pay TV: love it or hate it 53% of respondents agree they get value for money from the TV services they purchase from their broadband provider Consumers polarized views on paying for faster broadband are echoed by strongly differing attitudes toward pay-tv services. As Chart 7 shows, opinions are sharply divided about paying for sport on TV, with 64% of respondents overall having no desire to pay for sports content. However, a more positive finding for pay-tv providers is that 53% of current TV-based bundle customers agree that the TV elements of their bundle represent good value for money. As well as being split over paying for content, consumers also exhibit polarized attitudes toward payment models, as Chart 7 also shows. Asked which method they would prefer to use to pay for content, 28% opt for pay-as-you-go while 46% favor paying a subscription. Overall, the message seems to be that most people willing to pay a subscription for TV-based bundles are now doing so and the best way to capture the remainder of the consumer population may be via on-demand offerings, as Sky is seeking to do with NOW TV. 12

15 Chart 7: willingness to pay for TV and how to pay for it Q12. Do you agree with the following statement: My household is willing to pay to watch sport on TV? 50% Strongly agree Slightly agree Neither agree nor disagree Slightly disagree Strongly disagree 14% 12% 13% 11% Q17. Do you agree with the following statement: My household would prefer to purchase content on a PAYG basis rather than subscription basis? 28% 26% Strongly agree Slightly agree Neither agree nor disagree Slightly disagree Strongly disagree 18% 18% 10% 13

16 4. Internet behaviors are increasingly sophisticated yet consumers are apathetic and ill-informed about their broadband services Online services are disrupting traditional behaviors The connected home is redefining more and more consumer behaviors, as people access an expanding range of services via an ever wider array of devices. Laptop, notebook, desktop PC, tablet and smartphone are all used by at least 30% of respondents to access the internet on a regular basis, with gaming consoles also registering significant usage. And consumers are using this widening range of access methods to undertake a growing number of activities online, often replacing previous physical behaviors (see Chart 8). For example, three in four respondents now use online shopping at least once a week, and most use social networking at least once a month. Chart 8: online activities undertaken across all platforms Q14. Which of the following online services do you use? Online shopping Social networking iplayer Downloading content from app stores Free Wi-Fi offered by my broadband provider when outside Streaming music % Respondents 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Use at least once a month Use at least once a week Use daily 14

17 The impact of broadband on media viewing habits is equally profound. Almost half 49% of respondents say some members of their household spend more time on the internet than watching TV, and over one-third tend to watch time-shifted TV content on a personal video recorder or catch-up service rather than scheduled programming as it is broadcast. Given such findings, it s hardly surprising that over half of consumers say the internet has significantly changed the way they communicate with friends and family, and that 39% regard it as an outlet for their creativity (see Chart 9). Chart 9: the effects of the internet on consumers daily lives Q24. Do you agree with the following statement: The internet has significantly changed the way I communicate with friends and family? 39% Strongly agree Slightly agree Neither agree nor disagree Slightly disagree Strongly disagree 25% 22% 9% 6% Q24. Do you agree with the following statement: The internet is an outlet for my creativity? 33% 27% Strongly agree Slightly agree Neither agree nor disagree Slightly disagree Strongly disagree 18% 12% 10% 15

18 4. Internet behaviors are increasingly sophisticated yet consumers are apathetic and ill-informed about their broadband services Inertia and ignorance hold sway What may be more surprising is consumers relative lack of interest in the providers whose services enable these benefits. Consumers exhibit a high degree of apathy about their engagement with broadband propositions and selection of service providers, with more than two in three perceiving little difference between various broadband suppliers (see Chart 10). Even more surprisingly, almost 39% admit they don t know the advertised maximum speed of their broadband connection despite this featuring prominently in many promotional campaigns. Furthermore, while 34% of respondents use comparison websites when selecting broadband providers, 41% do not. Chart 10: customer views of broadband providers and their own service speed Strongly agree Slightly agree Neither agree nor disagree Slightly disagree Strongly disagree Q12. Do you agree with the following statement: There is very little/no difference between the service offered by the different broadband providers? 38% Q6. What is the advertised maximum speed of your broadband connection? Up to 2MBps 3MBps 6MBps 23% 23% 9MBps 16MBps 17MBps 24MBps 10% 7% 25MBps 40MBps 41MBps+ Don t know % Respondents 0% 10% 20% 30% 40% 16

19 with consumers simply wanting convenient services that work The perception that there s little differentiation between providers is reflected in a low historical propensity to shop around or switch. As Chart 11 shows, only 15% of respondents have regularly switched service provider in order to get the best deal. This finding further underlines the market s relatively muted price sensitivity, which is also evident in consumers ranking of convenience factors ahead of cost among their take-up drivers. Indeed, over a third of respondents have been with their current broadband provider for five or more years despite 46% thinking that changing their provider is not a complicated process. Overall, the message is that consumers greatly value the benefits that broadband brings to their lives, media experiences and relationships but so long as their access services enable them to realize these benefits, they are not interested in looking under the hood. The tipping point may come when their current bandwidths start to constrain what they want to do, such as streaming TV content simultaneously to several devices in the home. Until then, paying more for higher speeds will remain unattractive and inertia and apathy may continue to characterize their relationships with broadband providers. Chart 11: customer loyalty towards broadband providers Q8. How long have you been with your current broadband provider? 5 years+ 34% Q5. Do you agree with the following statement: My household regularly switches broadband provider to ensure we get the best deal? 38% 30% Strongly agree Slightly agree Neither agree nor disagree Slightly disagree Strongly disagree 2 5 years 33% 18% 0 2 years 35% 11% 4% % Respondents 0% 10% 20% 30% 40% 17

20 The UK residential market comprises a number of customer segments, each of which demonstrates unique traits Digital devotees Smart switchers Serious about sport 18 Segment 1: digital devotees 20% of total households Love technology, such as smart TVs Early fiber adopters Want internet and content on the move Are most affluent segment, likely to be young families Are very difficult to please, with a high propensity to switch Segment 2: serious about sport 15% of total households Love sport and willing to pay for it Have strong fiber take-up Embrace new content consumption habits, such as using catch-up TV Are likely to be older families Have high satisfaction with broadband providers Segment 3: smart switchers 14% of total households Regularly switch broadband providers Shop around for the best deal are price sensitive and highly informed Are not heavy internet users Are happy with broadband provider but likely to switch

21 Anti-bundlers Functional users Loyal bundlers Segment 4: loyal bundlers 17% of total households High bundle take-up Low switching intent Low interest in new technology Light users of online services, e.g., video Favor TV in the bundle, but basic options without sport Segment 5: anti-bundlers 15% of total households Low bundle take-up Uninformed internet users half don t know what speed broadband they have Low interest in new technology but moderate users of online services Unsatisfied and willing to switch Segment 6: functional users 19% of total households Lack affinity with new technology and low online service usage Only use internet when they have a specific reason for doing so Are least affluent segment; smaller, older households Have highest ownership of prepay mobiles 19

22 5. Segmentation reveals stark contrasts in attitudes towards bundle services and internet usage Segment 1: digital devotees digital devotees Segment 1: digital devotees 20% of total households Love technology, such as smart TVs Early fiber adopters* Want internet and content on the move Are most affluent segment, likely to be young families Are very difficult to please, with a high propensity to switch Digital devotees, who account for 20% of all UK households, are both the largest segment and one of the hardest to please. The internet is central to both their social and working life, and they are very interested in new technology, boasting the highest ownership of smart TVs and the second highest take-up of fiber-optic broadband. Compared to the other segments, digital devotees have the highest usage of online data and video services, and are more likely to want internet and content services on the move. This segment of consumers is also the most affluent, has the joint-largest average household size and is more likely to be young families. They are also markedly less loyal than the average, having the highest intention to switch provider in the next year, and the lowest proportion of households that have only ever had one broadband provider. Chart 12: digital devotees top 10 attitudes compared to other segments (% strongly/slightly agree) I like to watch TV programs/movies on a mobile device when I am on the move (i.e., not at home or at work) My household is very interested in new technology and gadgets and tends to get them before everyone else I want to be able to access and control devices in my home (e.g., heating, oven, video recorder) via the internet whilst I am out 10% 21% 18% 35% 59% 67% I need to access the internet when I am on the move(i.e., not at home or at work) I can be myself when chatting with people online in a way that I can t when face to face with people The internet is fundamental to my social life The internet is an outlet for my creativity Having the fastest possible internet connection is a status symbol The internet is very important for my household for working from home or running a business from home Investing in fiber based broadband is 80% a good use of government spending 44% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they outperform the responses of other customer segments. 16% 22% 21% 30% 31% 28% 33% 48% 53% 67% 66% 67% 20

23 In terms of bundle ownership, 81% of digital devotees take a package with voice, TV or mobile, 40% take fixed voice and broadband and 39% take TV triple-play. Interestingly, 50% of households in this segment use a laptop as their main device to access the internet, the highest across all segments. They also have the highest use of smartphones and tablets, and the lowest proportion using a desktop PC as main device. If they had to switch their provider, 58% would go for a faster broadband speed the highest proportion across segments. Chart 13: digital devotees likelihood of switching broadband providers in the next year (%) 40% 30% 20% 0% 32% 22% 16% 18% 12% Very unlikely Very likely Chart 14: digital devotees bottom 10 attitudes compared to other segments (% strongly/slightly agree) My household got home internet access later than many people I know There is very little/no difference between the service offered by the different broadband providers I could happily go for a month without internet access in my home My household tries to spend as little as possible on communication services 14% 20% 21% 32% 6% 10% 27% 47% Communication services are very difficult to understand and I find it hard to choose services/a package that suits my needs 17% 30% I only ever use a small number of websites that I am familiar with I would describe myself as a conservative person I don t understand what broadband speed really means and how it relates to using the internet I only use the internet when I have a specific reason to do so The internet should be very tightly regulated 19% to restrict what people can access online 56% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they underperform the responses of other customer segments. 10% 10% 17% 23% 24% 24% 31% 43% 21

24 5. Segmentation reveals stark contrasts in attitudes towards bundle services and internet usage Segment 2: serious about sport serious about sport Segment 2: serious about sport 15% of total households Love sport and willing to pay for it Have strong fiber take-up Embrace new content consumption habits, such as using catch-up TV Are likely to be older families Have high satisfaction with broadband providers The serious about sport segment accounting for 15% of all UK consumers love watching sport on TV and are ready and willing to pay for it. Like the digital devotees, they are very interested in new technology, resulting in the highest ownership of fiber-optic broadband and 3-D TVs. Behaviorally, this segment exhibits the highest level of non-traditional media consumption, with the highest premium TV take-up, and a large proportion watching catch-up and multi-channel TV services. Compared to the other segments, serious about sport is the second most affluent, has the joint-largest household size and is more likely to be made up of older families. As a result, members of this segment worry about what their household may see on the internet and think inappropriate content should be tightly regulated. However, their deep commitment to sports content contributes to a high level of satisfaction with their broadband provider and a relatively low intention to switch in the coming year. Chart 15: serious about sport top 10 attitudes compared to other segments (% strongly/slightly agree) My household is willing to pay to watch sport on TV My household enjoys watching sport My household is very interested in new technology and gadgets and tends to get them before everyone else The introductory pricing offer played a significant role in my choice of broadband provider I am very worried about what people in my household might accidentally see on the internet 15% 27% 24% 17% 37% 38% 43% 54% 70% 83% My household tends to watch TV programs on catch up TV or recorded on a Personal Video Recorder (PVR) rather than when they are broadcast 33% 47% The quality and functionality of the equipment (Wi-Fi router, TV box) that comes with a broadband service played a significant role in my choice of broadband provider 48% 66% I have a clear idea of how much data is used by different online activities (e.g., general web browsing, watching video) 28% 38% Getting a bundle of services from one provider is very important in order to save costs The internet should be very tightly regulated 62% to restrict what people can access online 46% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they outperform the responses of other customer segments. 54% 74% 22

25 The serious about sport segment exhibits very high take-up of bundled services with only 3% not taking a bundle at all, and just 5% taking only broadband and line rental. They have the highest fiber ownership, at 34%, and the second highest proportion saying they will buy it when it becomes available. Some 84% are happy with their broadband speed the highest proportion of any segment. This group also uses a wide range of devices to go online, with 36% regularly using a tablet and 47% using a smartphone to access the internet via Wi-Fi. Chart 16: serious about sport likelihood of switching broadband providers in the next year (%) 40% 30% 20% 0% 38% Very unlikely 18% 2 29% Chart 17: serious about sport bottom 10 attitudes compared to other segments (% strongly/slightly agree) 3 6% 4 8% Very likely My household would prefer to purchase content (e.g., movies, sport) on a pay as you use basis rather than a subscription basis There is very little/no difference between the service offered by the different broadband providers I could happily go for a month without internet access in my home 7% 10% 21% 29% 22% 31% I am in a relationship/have had a relationship that started online (online dating or meeting someone on another site) Communication services are very difficult to understand and I find it hard to choose services/a package that suits my needs 12% 18% 18% 30% My household tries to spend as little as possible on communication services My household mainly watches TV programs on the five traditional TV channels (BBC1, BBC2, ITV1, Channel 4, Channel 5) 27% 24% 46% 46% I don t understand what broadband speed really means and how it relates to using the internet It is complicated/very difficult to upgrade or downgrade broadband package with my current provider It is complicated/very difficult to 11% change broadband provider 26% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they underperform the responses of other customer segments. 8% 11% 17% 23% 23

26 5. Segmentation reveals stark contrasts in attitudes towards bundle services and internet usage Segment 3: smart switchers smart switchers Segment 3: smart switchers 14% of total households Regularly switch broadband providers Shop around for the best deal are price sensitive and highly informed Are not heavy internet users Are happy with broadband provider but likely to switch Smart switchers, accounting for 14% of the consumer base, regularly change providers to get the best deal. More than one in five of this segment has been with their current broadband provider for less than a year, and while they are relatively happy with their existing supplier, they have the joint highest proportion, 13%, saying they are very likely to switch in the next year. Smart switchers are relatively price sensitive, tend to use comparison websites, see little difference between providers and are willing to put up with inferior customer service in return for lower prices. They have a very clear idea of their home broadband usage, even though they are not particularly high users of online services. And they have the highest proportion of households using a desktop PC as their main internet access device, at 38%, and the lowest using a laptop, at 42%. Chart 18: smart switchers top 10 attitudes compared to other segments (% strongly/slightly agree) My household has regularly switched broadband provider to ensure we get the best deal I have a clear idea of how much data my household downloads/uses each month 12% 25% 27% 53% I have a clear idea of how much data is used by different online activities (e.g., general web browsing, watching video) 27% 50% I use comparison websites (e.g., uswitch, broadband choices) when choosing a broadband provider 31% 55% I am in a relationship/have had a relationship that started online (online dating or meeting someone on another site) 16% 27% My household tries to spend as little as possible on communication services The internet is a long way from fulfilling its potential to transform peoples lives The internet is very important for my household for working from home or running a business from home I am willing to put up with inferior customer service from my broadband provider if it means lower prices 22% 17% 41% 32% There is very little/no difference between the service 35% offered by the different broadband providers 29% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they outperform the responses of other customer segments. 40% 41% 61% 58% 24

27 In terms of bundle ownership, smart switchers tend to be fairly basic bundlers: of the four-fifths of this segment taking a bundle with voice, TV or mobile, 61% take a bundle of broadband and fixed voice and only 30% take TV triple-play, which is likely to include basic TV. Significantly, they have a high proportion of households trialing online services and then not using them, and below-average ownership of all the hardware devices asked about in our survey, apart from Wi-Fi routers. Chart 19: smart switchers likelihood of switching broadband providers in the next year (%) 40% 30% 33% 29% 20% 0% Very unlikely 16% 2 3 9% 4 13% Very likely Chart 20: smart switchers bottom 10 attitudes compared to other segments (% strongly/slightly agree) It is complicated/very difficult to upgrade or downgrade broadband package with my current provider I only ever use a small number of websites that I am familiar with My household enjoys watching sport I can be myself when chatting with people online in a way that I can t when face to face with people 10% 16% 17% 30% 26% 15% 28% 47% I want to be able to access and control devices in my home (e.g., heating, oven, video recorder) via the internet whilst I am out 14% 28% I like to watch TV programs/movies on a mobile device when I am on the move (i.e., not at home or at work) It is complicated/very difficult to change broadband provider 8% 16% 12% 25% Communication services are very difficult to understand and I find it hard to choose services/a package that suits my needs 13% 30% I don t understand what broadband speed really means and how it relates to using the internet 5% My household is willing to pay to watch sport on TV 27% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they underperform the responses of other customer segments. 9% 23% 25

28 5. Segmentation reveals stark contrasts in attitudes towards bundle services and internet usage Segment 4: loyal bundlers loyal bundlers Segment 4: loyal bundlers 17% of total households High bundle take-up Low switching intent Low interest in new technology Light users of online services, e.g., video Favor TV in the bundle, but basic options without sport Loyal bundlers, who make up 17% of all households, have a high affinity for bundled services, seeing the most value in them and having the highest bundle take-up of all segments. In general they have low interest in new technology, are happy with their current broadband speed and exhibit below-average usage of all online services apart from social networking. Their fiber ownership is lower than average, but they re relatively satisfied with their current broadband speed. This segment s strong loyalty is underlined by it having the lowest stated intention to switch and the highest proportion of customers who have been with their provider for more than six years. Members of this segment are also the least affluent and tend to be older than average. Chart 21: loyal bundlers top 10 attitudes compared to other segments (% strongly/slightly agree) Getting a bundle of services from one provider is very important for the convenience of having a single point of contact for customer services 55% 83% Getting a bundle of services from one provider is very important for the convenience of getting a single bill Getting a bundle of services from one provider is very important in order to save costs I am often online whilst doing something else, e.g., watching TV I am very happy with my broadband speed and don t think my household needs faster broadband 56% 53% 53% 59% 47% 72% 77% 82% My household would prefer to purchase content (e.g., movies, sport) on a pay as you use basis rather than a subscription basis 27% 32% My household mainly watches TV programs on the five traditional TV channels (BBC1, BBC2, ITV1, Channel 4, Channel 5) 41% 49% The internet has significantly changed the way that I communicate with friends and family Broadband is a cheap service relative to the benefits it provides 61% 64% 55% The internet should be very tightly regulated 55% to restrict what people can access online 47% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they outperform the responses of other customer segments. 73% 26

29 In terms of their bundle ownership, while loyal bundlers have the second highest take-up of TV in their bundles, they tend to favor basic TV packages, don t enjoy watching sport and have a high proportion saying they only watch the traditional terrestrial channels. Just 2% of this segment doesn t take a bundle the lowest proportion across the segments and 7% take only broadband and line rental. Chart 22: loyal bundlers likelihood of switching broadband providers in the next year (%) 60% 40% 53% 20% 0% 15% 19% 7% 6% Very unlikely Very likely Chart 23: loyal bundlers bottom 10 attitudes compared to other segments (% strongly/slightly agree) I am in a relationship/have had a relationship that started online (online dating or meeting someone on another site) My household enjoys watching sport It is complicated/very difficult to upgrade or downgrade broadband package with my current provider 9% 7% 19% 20% 17% 49% I have a clear idea of how much data is used by different online activities (e.g., general web browsing, watching video) 13% 33% I like to watch TV programs/movies on a mobile device when I am on the move (i.e., not at home or at work) I use comparison websites (e.g., uswitch, broadband choices) when choosing a broadband provider My household is very interested in new technology and gadgets and tends to get them before everyone else I could happily go for a month without internet access in my home My household has regularly switched broadband provider to ensure we get the best deal 4% My household is willing to pay to watch sport on TV 28% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments 6% 3% 10% Note: these responses are ranked according to how far they underperform the responses of other customer segments. 4% 12% 17% 14% 16% 33% 39% 27

30 5. Segmentation reveals stark contrasts in attitudes towards bundle services and internet usage Segment 5: anti-bundlers anti-bundlers Segment 5: anti-bundlers 15% of total households Low bundle take-up Uninformed internet users half don t know what speed broadband they have Low interest in new technology but moderate users of online services Unsatisfied and willing to switch Anti-bundlers, accounting for 15% of households, do not see the benefits of bundled services. They have a higher propensity to switch providers but believe it is complicated both to change broadband provider or modify a package with their current provider. Their bundle take-up is relatively low, and if they do buy a bundle it is likely to be a basic one. They are not particularly knowledgeable about or interested in new technology, making only moderate usage of online data and video services. Nearly 50% don t know the advertised speed of their broadband service. These consumers are both unsatisfied and willing to switch: they are the least satisfied of all segments with their current broadband provider and have the second highest intention to change providers. They also have the second lowest fiber ownership, at 22%, but the joint highest proportion (7%) using a tablet via Wi-Fi as their main internet access device. Chart 24: anti-bundlers top 10 attitudes compared to other segments (% strongly/slightly agree) It is complicated/very difficult to change broadband provider It is complicated/very difficult to upgrade or downgrade broadband package with my current provider 12% 18% 36% 56% Communication services are very difficult to understand and I find it hard to choose services/a package that suits my needs 23% 55% I don t understand what broadband speed really means and how it relates to using the internet I could happily go for a month without internet access in my home I am in a relationship/have had a relationship that started online (online dating or meeting someone on another site) 18% 12% 9% 21% 17% 36% The internet is very important for my household for working from home or running a business from home There is very little/no difference between the service offered by the different broadband providers My household tries to spend as little as possible on communication services 41% 32% 36% 29% 48% 42% Some members of my household spend a lot more 54% time on the internet than watching traditional TV 47% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they outperform the responses of other customer segments. 28

31 Of the 59% of this segment that do take a bundle with voice, TV or mobile, the majority are taking a basic bundle of fixed voice and broadband, and 25% are taking TV triple-play. Some 23% don t take a bundle, the highest of all the segments, and 18% only take broadband and line rental. They also have the lowest take-up of bundled TV. However, while they re anti-bundle, they re not anti-technology: they have the second highest desire both to access mobile internet and watch online content on the move. Chart 25: anti-bundlers likelihood of switching broadband providers in the next year (%) 40% 30% 20% 0% 32% 26% 13% 15% 13% Very unlikely Very likely Chart 26: anti-bundlers bottom 10 attitudes compared to other segments (% strongly/slightly agree) Broadband is a cheap service relative to the benefits it provides My household is very interested in new technology and gadgets and tends to get them before everyone else 22% 31% 44% 58% The quality and functionality of the equipment (Wi-Fi router, TV box) that comes with a broadband service played a significant role in my choice of broadband provider 38% 53% I am very happy with my broadband speed and don t think my household needs faster broadband The introductory pricing offer played a significant role in my choice of broadband provider I have a clear idea of how much data is used by different online activities (e.g., general web browsing, watching video) 36% 52% 29% 42% 21% 31% I have a clear idea of how much data my household downloads/uses each month 20% 32% Getting a bundle of services from one provider is very important for the convenience of having a single point of contact for customer services 25% 66% Getting a bundle of services from one provider is very important for the convenience of getting a single bill Getting a bundle of services from one provider 19% is very important in order to save costs 64% % Respondents 0% 20% 40% 60% 80% 100% Digital devotees Other segments Note: these responses are ranked according to how far they underperform the responses of other customer segments. 25% 67% 29