RETAIL CONVERGENCE IN EMERGING ASIA PACIFIC: CASE STUDIES, STRATEGIES AND SUCCESSES FOR MULTI-PLAY

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1 analysysmason.com RESEARCH STRATEGY REPORT RETAIL CONVERGENCE IN EMERGING ASIA PACIFIC: CASE STUDIES, STRATEGIES AND SUCCESSES FOR MULTI-PLAY ARIS XYLOURIS, MARTIN SCOTT and HARSH UPADHYAY

2 About this report Operators in emerging Asia Pacific are investing heavily in FTTx infrastructure. The way that operators price and bundle the services enabled by fibre networks will be a key factor in their potential success. This report explores the approaches that operators are taking to promote converged services and superfast broadband in their respective markets in emerging Asia Pacific. The report is based on several sources: data from Analysys Mason s Multi-play pricing benchmark 2Q desk research related to converged telecoms operators. GEOGR APH IC AL COVER AG E China India Indonesia Malaysia Philippines Thailand CASE STUDIES China Telecom Globe Telecom (Philippines) Maxis (Malaysia) Telkom Indonesia True Corporation (Thailand) KEY QUESTIONS ANSWERED IN THIS REPORT How should operators in emerging Asia Pacific design their retail FTTx offers, and which services can be bundled together to offer a holistic solution? Should FTTx offers focus on providing a fast, high-value standalone broadband offer, or should mobile network operators (MNOs) in EMAP bundle pay-tv and fixed broadband services to promote take-up of both? Under which circumstances do operators need to adapt their approaches to price-positioning, and what are the strengths of each approach? Which approach is best suited for each market? WHO SHOULD READ THIS REPORT Product managers and strategy teams working for fixed operators that are launching converged service bundles aimed at the retail fixed network market, or operators designing their response to those services launched by their competitors. Industry experts and observers seeking to better understand fixed operators product and pricing strategies. 1 For more information, see Analysys Mason s Multi-play pricing benchmark 2Q 2016: emerging Asia Pacific. 2

3 CONTENTS EXECUTIVE SUMMARY APPROACH 1: FOCUS ON HIGH-SPEED SIMPLICITY APPROACH 2: MAKE TRIPLE-PLAY THE ONLY HIGH-END OPTION APPROACH 3: FOCUS ON FIXED MOBILE BUNDLES APPENDIX ABOUT THE AUTHORS AND ANALYSYS MASON 3

4 Executive summary Operators fibre investments must be supported by a strong price-positioning strategy. Tiering services with IPTV works well for many players, but single, double and quadruple plays also have a place. Fixed infrastructure has historically been secondary in terms of investment to mobile infrastructure in many countries in emerging Asia Pacific, with investment in 3G and 4G, as well as in handsets and mobile data, historically driving growth. Consumer demand for data is now increasing beyond mobile capabilities and operators are committing to ambitious FTTx plans. The pricing and bundling of the services enabled by FTTx will be a key factor in their potential success. This report provides a detailed investigation of three significant approaches to price positioning that operators can adopt. Focus on simple, fast, fixed broadband (with or without fixed voice). This works well for initial differentiation for alternative operators, but typically represents only the first step towards further service convergence. Tie fibre services to triple-play bundles, so that one must be taken with the other. This strategy, which has been followed by Telkom Indonesia, can stimulate upsell and improve churn. Fixed mobile bundles may initially be niche, but are a good fit for operators with strong mobile assets that operate in markets where conditions are suitable for fixed investment. Figure 1: A summary of bundling strategies, by operator type ) +) + + Best-fit strategy Key Fixed Mobile Pay-TV Fibre + Source: Analysys Mason 4

5 Fibre will thrive in emerging Asia Pacific, but the optimal pricepositioning of such services is not trivial Fibre investments abound in emerging Asia Pacific, but the pricing and bundling of fibre services is complex, and different markets will have a different optimal solution. Figure 2: FTTP/B as a percentage of all fixed broadband, Indonesia and Malaysia and regional total, There is significant room for growth in the number of fixed broadband and IPTV connections in emerging Asia Pacific. ADSL coverage has been limited in many of the region s countries, and fibre is being positioned as a premium upgrade for ADSL areas, as well as a new opportunity for previously unconnected areas. In the next 5 years, there will be a major shift in the take-up of FTTx services in the region: by 2021, FTTP/B connections will account for over 80% of fixed broadband lines in emerging Asia Pacific. MNOs in emerging Asia Pacific face many of the same difficulties as their peers in other regions: growth in mobile revenue is slowing and markets are becoming saturated in terms of penetration. However. demands for investment continue, spurred by increasing mobile data traffic. The launch of FTTx services represents a way for these operators to defend, or even grow, their mobile subscriber base. The pricing of bundled services can be complex, and different approaches suit different operator types and market situations. Operators are starting to address the fundamental question of how best to position FTTx services as part of their consumer portfolio. 1 Data derived from Analysys Mason s Emerging Asia Pacific telecoms market: trends and forecasts Available at: 5

6 Triple-play bundles will work well for incumbents, but simpler, strippeddown single or double plays and quadruple plays work for other players Operators can position fibre in several ways, depending on market conditions and the type of operator that they are. Simple, fast, fibre-only naked or double-play bundles can prove an effective starting point for alternative operators or challengers. Operators can present fibre either as a premium service, or as a stripped-down this is all you need service. The Malaysian MNO Maxis has adopted this approach and the company will likely use fibre to complement 4G in the future. However, Maxis strong double-play will initially only appeal to a niche market and will be hampered by wholesale prices. Most operators that pursue such a route will want to establish a migration plan to support convergence. Incumbents and larger fixed operators are likely to have success selling IPTV services with fibre, as long as the price increments are not substantial. This strategy has worked in Europe and the Middle East and North Africa (MENA), and is being deployed in emerging Asia Pacific by operators such as Telekom Malaysia (UniFi) and Telkom Indonesia (IndiHome). Fixed mobile bundles may initially be niche, but are a good fit for operators with strong mobile assets that operate in markets where conditions are suitable for fixed investment or for operators with strong fixed assets and mid-strength mobile assets. China Telecom and True are taking this approach and it has also worked well for European players such as Telefónica. Figure 3: Bundling strategies, by operator type ( +) Starting from a basic fibre-only Suitable for altnets with access to their own infrastructure, or operating within favourable wholesale conditions, that seek to differentiate from their competitors. Examples include Digi, FASTWEB, Maxis and Superonline. Triple-play tiering This is a favourable approach for operators with high market shares that want to consolidate their position. Ideally, bundles should be priced at small increments above single-play offers. Operators pursuing this approach include BT, Telefónica and Telkom Indonesia. Fixed mobile convergence (FMC) Suitable for operators with fixed and mobile operations. This approach can reduce churn and may lead to rapid subscriber gains, but can require some sacrifice of margins. Examples include China Telecom, Deutsche Telekom and Free. Source: Analysys Mason 6

7 Recommendations 1 Solo broadband services and double plays can provide a short-term differentiator for some alternative operators, but such strategies need a migration plan for wider bundling in the long term. Simple service offers are an efficient short-term differentiator, particularly for operators that develop strong OTT partnerships. This can also be an effective counterposition to expensive multi-play services especially important in low-income markets. However, this strategy s long-term viability may be limited if its target market is too niche; service diversification should be considered as the market matures and a critical mass of customers is reached. 2 Tying IPTV together with fibre is a tried-and-tested method for generating interest in fibre in Europe and MENA, and this strategy is also likely to work well in emerging Asia Pacific. Tying fibre propositions together with triple-play bundles, so that customers only have access to one service if they take the other, provides operators with a long-term strategy for increasing fibre take-up. Consumers are often sceptical about the value of superfast broadband, and TV can help to make the value of NGA connections tangible. If an operator lacks the budget to differentiate their pay-tv service, partnerships or innovative UX may help. 3 Operators can gain revenue and market share through fixed mobile bundling, but margins must be protected. Fixed mobile converged (FMC) bundles can be an effective vehicle for upselling fixed services and upgrading customers to fibre. Although FMC has negatively affected mobile margins in Europe, mobile revenue growth continues in emerging Asia Pacific, and this may help operators to avoid significant complications. Operators in this region have the additional advantage of appealing to large households: converting large households to a single family contract tariff, through a combination of FMC and shared data plan tariffs, could decrease churn and grow mobile ARPU. 7

8 CONTENTS EXECUTIVE SUMMARY FOCUS ON HIGH-SPEED SIMPLICITY MAKE TRIPLE-PLAY THE ONLY HIGH-END OPTION FOCUS ON FIXED MOBILE BUNDLES APPENDIX ABOUT THE AUTHORS AND ANALYSYS MASON 32

9 About the authors Aris Xylouris (Analyst) s a key contributor to Analysys Mason's primary research for the Consumer and SME Services research practice, and manages our Connected Consumer Survey and Consumer smartphone usage series of research. His work involves in-depth coverage of issues such as consumer behaviour, convergence and bundling, TV and media, and mobile and fixed service pricing. He also specialises in statistics and primary research analysis. Aris is a trained economist, and before joining Analysys Mason he held internships as an economic analyst in the media sector. His wider experience includes quantitative forecast modelling and computer simulations using agent-based models. Aris holds a Bachelor in Economics from Athens School of Economics and Business, and an MSc in Behavioural Economics from Warwick University. Martin Scott (Principal Analyst) co-ordinates Analysys Mason's research initiatives related to media, TV, fixed broadband and convergence. He manages the Video Strategies and Fixed Broadband Services research programmes. Martin has held numerous positions within Analysys Mason during the last 10 years, including heading the company's Consumer Services, Data and Regional Markets practices. He also launched Analysys Mason's Connected Consumer and Consumer smartphone usage series of research. His primary areas of specialisation include telco TV strategy, OTT video and media, consumer smartphone usage, the bundling and pricing of multi-play services, including quadruple-play bundling, customer satisfaction and consumer-facing marketing strategy. Harsh Upadhyay (Analyst) Harsh contributes to Analysys Mason's Asia Pacific research programme, and is based in our Singapore office. His research focuses on market tracking, competitive assessment, data forecasting, next-generation services and consumer behaviour analysis in the Asia Pacific telecoms market. He also supports consulting projects and presents at industry events. Harsh's experience in the TMT industry is diverse, and he has a detailed understanding of the telecoms market in the region. He has previously worked with Frost & Sullivan and IDC as an analyst and consultant, and his clients include leading ICT firms and government bodies. Harsh holds a Master's and Bachelor's degree in Business Management. 33

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