FIXED MOBILE CONVERGENCE: CAN IT BE THE ENGINE OF RENEWED GROWTH IN EUROPEAN TELECOMS?

Transcription

1 EUROPEAN TELECOMS SUMMIT 2016 BUILDING BLOCKS FOR SUCCESSFUL OPERATOR STRATEGIES #AMTMT FIXED MOBILE CONVERGENCE: CAN IT BE THE ENGINE OF RENEWED GROWTH IN EUROPEAN TELECOMS? 6 OCTOBER 2016 KEREM ARSAL BREAKOUT SESSION SPONSOR

2 Our Convergence Strategies programme periodically releases forecasts and pricing data for fixed mobile convergence bundles The Convergence Strategies programme assesses network and retail strategies Multi-play forecasts and the fixed mobile converged (FMC) bundles pricing tracker are the basis for this presentation An FMC bundle is defined by benefit/discount and/or sale dependence. Key questions for today: How much take-up, where and why? How does pricing vary and evolve? What roles do (or should) pay-tv and noncore services play? How much does FMC contribute to retail revenue? 2

3 A second wave of FMC is coming to Europe, but it will be weaker than the Big Three FMC markets FMC accounts in fixed broadband,

4 Many factors act together as incentives and drivers for FMC take-up Household size and budget makers Integrated operator prevalence; consolidation; diversity of consumer choice Market structure Strong declines in ARPU experienced or expected Household structure Mobile competition Fixed-only broadband churn Exposed fixed-only players; MVNOconducive wholesale regimes 0 Mobile market share growth Strong fixed broadband and weak mobile; multi-sim FTTx strategy Pricing and affordability RoI acceleration; cross-selling by mobile discounts Recognisable discounts or benefits; accommodating margins 4

5 In Spain, all factors aligned, which has encouraged FMC take-up Large households in pursuit of cost-savings in a relatively collectivist culture All operators moved rapidly to consolidation; single fixed mobile leader Market structure Rapid decline of ARPU following the 2009 crisis Household structure Mobile competition Fixed-only broadband churn Jazztel and ONO grew rapidly, with no legacy to protect 0 Mobile market share growth Mobile players such as Orange are hungry for market share FTTx strategy Pricing and affordability All operators are focusing on FTTH coverage and take-up Increased price sensitivity; distinct discounts in flagship plans 5

6 In France, even the mobile disruptor had a stake in FMC Not as conducive as Spain or Portugal, but other factors are strong enough Household structure All four operators integrated, even the 'mobile disruptor' Market structure FMC pre-empted declines in ARPU before Free Mobile s and full-mvnos entry Mobile competition Fixed-only broadband churn 0 Mobile market share growth No real fixed-only operator left in the market Orange is facing multiple challengers Operators are focusing on FTTH coverage and take-up FTTx strategy Pricing and affordability Initial discounts very persuasive and still relevant; FMC bundles only a step change from triple plays 6

7 In the UK, the absence of a single incumbent leader and lack of discounts translated to slow FMC take-up Shared accommodation, one of the most individualistic countries No single incumbent until recently; competitive fixed broadband market Market structure Relatively healthy ARPU trends, which operators may hesitate to disrupt Household structure Mobile competition Fixed-only broadband churn Sky is a genuine candidate, but still inactive; Talk Talk has had limited impact; Virgin quad-play largely static FTTx strategy 0 Mobile market share growth Mobile players in need of share have little presence in the fixed market Pricing and affordability FTTx build-up still needs momentum Almost no discounts; some discounts came and went. 7

8 The impact of FMC on mobile markets is pronounced, particularly in postpaid segments FMC SIMs in postpaid mobile connections (excluding M2M) FMC SIMs in all mobile connections (excluding M2M) 8

9 Multi-SIM initiatives are key to impacting the mobile market SIMs per FMC account, 2015 US-like approach Explicitly multi-sim Head start with free SIM 9

10 Satisfaction score Satisfaction score European Telecoms Summit 2016: building blocks for successful operator strategies FMC s positive impact on mobile churn is widely reported; FMC is not only about postpaid migration and price Postpaid migration has accelerated in the Big Three FMC markets, but it is a consequence and not a driver of FMC. We talk about prices and discounts all important, but FMC customers seem to see additional benefits beyond price self-selection into FMC bundles Satisfaction scores on price are either closer or reversed, compared with the average novelty of discounts are decaying prices are sometimes rising discounts are sometimes difficult to see. Respondents overall mobile service satisfaction, by bundle type and country France Germany Poland Spain Turkey UK South Korea Converged Non-converged Source: Analysys Mason Respondents mobile service satisfaction with price, by bundle type and country France Germany Poland Spain Turkey UK South Korea Converged Non-converged Source: Analysys Mason Question: Scale 1-7, n = Other service aspects data allowance, data speed, customer service, price, voice/sms allowance and coverage. 10

11 Discount on standalone European Telecoms Summit 2016: building blocks for successful operator strategies At the entry level, discounts are highly varied and appear to be more about closing gaps Discounts can vary significantly, but the goal seems to be competitive prices for the mass market. Correlation between discount and price is generally weak due to variations in initial pricing. Vodafone s operations in Germany and Spain are an exception; the company s prices stand out for entry-level plans, and this is also reflected in the levels of discount. FMC discounts for basic plans (on standalone) PPP (USD) FMC prices for basic plans Source: Analysys Mason Source: Analysys Mason 11

12 Incumbents want higher ARPU from the high-end segments, where they have some room for differentiation Incumbents express premium pricing at advanced service tiers, with a few exceptions. PPP (USD) FMC prices for advanced plans 12

13 Bundling tactics are about more than price; they can help to target segments, pursue upsell and play to your strengths Highlight benefits to maintain ARPU In the Netherlands and the UK, operators give more mobile data (and more ) Make stand-alone services less attractive to encourage bundling MEO and NOS provide the highest fixed broadband speeds for triple-plays and FMC Reserve key services for FMC Movistar Spain reserves pay TV for FMC Select mobile plans in order to expand and narrow down targeted segments In Turkey, Turkcell uses all of its 4G plans to encourage FMC In the UK, TalkTalk keeps quotas low SFR is fully configurable; DT is now similar. 13

14 FMC in FBB European Telecoms Summit 2016: building blocks for successful operator strategies How important is pay TV for the take-up of FMC bundles? Mixed evidence: it depends. Too many outliers Pay TV s role in FMC take-up is moderated by triple-play tradition: France, Netherlands and Portugal: more than 75% of FMC with pay TV Building on a tradition. Operators can use FMC to leap-frog triple plays: Fixed broadband and mobile accounts for most growth in Spain, Italy and Turkey FMC and pay-tv in fixed broadband, % 80% 70% 60% 50% 40% 30% 20% 10% Light TV tactics used regularly Pay TV as a round of upsell and churn management. 0% 0% 20% 40% 60% 80% 100% Pay-TV bundles in FBB Source: Analysys Mason 14

15 What is happening to FMC prices? Is it all about discounts? Three short rules of thumb: Movistar Fusión ARPU, 1Q Q 2016 take a hit from one service, fence customer, grow with another minor price increases, along with upgrades, are probably acceptable find sources of differentiation at higher tiers. Effects of pay TV after acquisition and content investment Mobile often absorbs the discount, but average revenue per account (ARPA) can grow DT in Germany Anecdotes show that raising prices is possible with no real backlash Price increase, speed upgrade, some pay- TV improvements Movistar in Spain Source: Analysys Mason 15

16 What else do / will / should these bundles include? Perhaps the most difficult question is where next with FMC bundles? Currently, FMC bundles have more than the four core services but not exclusive to FMC but not specifically FMC. Are there limits to bundling? Risking one service too many Provoking aggressive pricing by stand-alone players Challenging sales and customer care scenarios. Category Service add-ons Content and services Extending connectivity Bundled product or service International call packages International roaming Speed boost, additional data Offer-specific content (for example, video and audio) Gaming Cloud storage Anti-virus software Home security Multi-device (for example, tablets); shared data Multi-screen access Wi-Fi out-of-home access 16

17 Increasing revenue potential European Telecoms Summit 2016: building blocks for successful operator strategies FMC has strong revenue potential, but there are challenges Addition of innovative services (exclusive to convergence) Designing services beyond core services for bundles based on converged experiences Addition of non-core services (not exclusive to convergence) Bundling non-core services to augment core services such as cloud, gaming and home security Core fixed and mobile services (converged experiences) Developing converged experiences by using core services such as multi-screen and unified communications Core fixed and mobile services (with benefits) Bundling core services with an emphasis on consumer benefits such as increased call and data allowances Need creativity; rethinking a convergent end user More for less should be avoided Uncertain demand and pricing challenges Good to change mentality, but still more for same Core fixed and mobile services (with discounts) Providing core services with an emphasis on savings for the consumer Discount mentality is unsustainable more/same for less Source: Analysys Mason 17

18 FMC will account for up to 20% of the total retail revenue in most markets in Europe by 2020 FMC will leave room for stand-alone mobile services FMC revenue in total telecom retail revenue Response has been tentative, but so has FMC take-up Some challenger pricing Considerations of me too. Mobile Net Promoter Score (NPS) leaders are still often stand-alone MVNO segmentation and challenger positioning works so far Despite its different dynamics, the US mobile market presents a curious case SIM/account ratios are much higher than the European FMCs (~3 in the USA, compared with ~1.5 in Europe). 18

19 Key takeaways 1 The second wave of FMC growth will be weaker than the first. Dynamics will not be as favourable as those in the Big Three FMC markets. Do not be surprised if you do not approach their levels. There will be room for stand-alone mobile services. 2 FMC bundles are not just about discounting. Price plays a key role, but customers recognise additional benefits from FMC, beyond price. Use bundling tactics for segmentation and upselling. 3 Think about the future and beyond core services. FMC bundles will remain vulnerable to price competition if they focus solely on discounts and the benefits for core services. Consider the limits of bundling and focus on FMC experiences.

20 Contact details Kerem Arsal Principal Analyst Boston Tel: Cambridge Tel: +44 (0) Madrid Tel: Manchester Tel: +44 (0) Dubai Tel: +971 (0) Milan Tel: Dublin Tel: +353 (0) New Delhi Tel: Hong Kong Tel: Paris Tel: +33 (0) London Tel: +44 (0) Singapore Tel: linkedin.com/company/analysys-mason youtube.com/analysysmason analysysmason.com/rss 20