BT this week outlined the new strategy for its consumer division, which encompasses the BT, EE and Plusnet brands. At the centre of the strategy is the theme of convergence, with several announcements in this area.

BT this week outlined the new strategy for its consumer division, which encompasses the BT, EE and Plusnet brands. At the centre of the strategy is the theme of convergence, with several announcements in this area:

  • BT is planning to integrate its separate fixed-line and mobile networks to build a single converged network for the whole of the UK by 2022.
  • BT is launching the UK’s first fully integrated consumer converged fixed-mobile tariff. Known as BT Plus, the tariff will target high-value customers by combining fixed broadband and mobile services into a single plan on one bill and offering a range of customer benefits, such as ultrafast speed guarantees and a ‘keep connected promise’.
  • EE is introducing a series of initiatives to utilise its mobile network to sell fixed broadband plans, such as the launch of the EE hybrid router, which provides both fixed and mobile connectivity. On the video front, a new TV app will be launched in Q3 2018, with a new flexible BT Sport offering due in July.
  • BT is set to become the first pay TV operator in the UK to launch Amazon Prime Video on its platform. It is also enhancing the BT TV multiscreen proposition by extending the BT TV app to a range of new devices.

BT also announced that EE will expand further into the smart home market, following strategic partnerships with Hive (Centrica) and Nest (Google). This builds on the operator’s existing agreements with Google, Apple and Amazon.

Our analysis

The UK currently lags other Western European markets in terms of convergence adoption

In Spain, Telefónica and Orange both reported that more than 70% of consumer fixed broadband customers are on converged fixed-mobile plans. Adoption rates are high elsewhere in Europe, too. In France, Orange announced that 60% of its consumer fixed broadband customers are on converged fixed-mobile plans, with Portuguese operator NOS announcing it had reached nearly 50% on the same metric.

By comparison, the UK’s longest-standing multiplay provider Virgin Media announced that only 19% of its fixed broadband customers subscribe to both a fixed broadband and postpaid mobile plan. In addition, BT and Sky both have substantial consumer fixed broadband bases, but a limited presence in mobile, with MVNO propositions only launched in the last couple of years. Conversely, Vodafone has a sizeable consumer mobile base, however, its fixed broadband base remains small compared to more established fixed broadband providers.

BT is best positioned to drive convergence adoption in the UK 

BT is the only UK operator that owns a nationwide fixed-line and a mobile network for consumer access. This enables BT to develop innovative propositions for its brands, and, more importantly, puts BT at an economic advantage. Sky and Vodafone are both limited by thinner margins on fixed broadband, because of a reliance on Openreach’s wholesale products. It is a similar situation for Virgin Media in mobile. Despite signing an improved MVNO agreement with BT in 2016, its unit economics are less favourable than the UK’s mobile network operators.

This provides BT with an increased level of flexibility in terms of its approach to convergence. IHS Markit believes that BT’s decision to focus its converged fixed-mobile offering on value-added benefits, such as double mobile data for converged customers, as opposed to following the discount-focussed approach set out by operators in France and Spain in the early 2010s, will be beneficial. Whilst BT’s approach will have a more modest adoption rate, evidence from other markets such as Germany – cited by BT as a model of good convergence practice – and the Netherlands shows that operators can still achieve meaningful uptake on these plans. For instance, KPN reported that 40% of its consumer fixed broadband customers are on converged fixed-mobile plans. KPN’s success can be attributed to its decision to place convergence at the centre of its sales channels, along with offering converged customers benefits such as a wider range of pay TV channels at no extra cost.

To drive convergence adoption, BT plans to continue to operate three brands (BT, EE, Plusnet) in the consumer market. The recent organisational restructure, which sees the brands combine under the leadership of former EE CEO Marc Allera, hints that the BT, EE and Plusnet will work more closely together in the future. This is evidenced in the company’s new retail strategy, which sees BT subscriptions sold in EE’s 620 retail outlets. BT is targeted at whole-home solutions, with EE focussed on more tech-savvy, younger consumers. There is likely to be some overlap between the brands; BT notes that 3 million households take both BT and EE products with 10 million households having a relationship with either BT brand.

Content aggregation becomes key differentiator for BT TV

BT TV is to integrate Amazon Prime Video in its set-top box user interface in June 2018, becoming the first operator in the UK to announce a partnership of this kind with Amazon. Prime Video will join Netflix, which was added to BT TV in 2014, and Sky’s Now TV, which is to be added to the platform in 2019. The move will make BT the only operator in the UK to provide single-device access to the most popular pay TV and OTT content. The addition of Amazon content, including Prime Originals, is a key differentiator for BT’s IPTV service, as its recent reciprocal content sharing deal with Sky and the announcement of a Netflix launch on Sky means that all four major pay TV operators in the UK will have a similar content offering.

The incumbent telco lost 16,000 TV customers in Q1 2018, the second consecutive quarterly loss for BT TV, following a decline of 5,000 in Q4 2017. The latest drop followed January price increases, while BT cited heightened competition as a key factor in the negative performance. The subscriber losses are the first for BT TV since its 2012 revamp, which saw it launch a new YouView-based platform and acquire exclusive premium sports rights for the first time, the latter move made in a bid to protect BT’s underlying broadband business following Sky’s emergence as a triple-play provider.

According to IHS Markit’s Connected Devices & Media Consumption surveys, more than half of BT TV customers already had access to an Amazon Video subscription at the end of Q1 2018. Although pricing and billing integration have not yet been clarified, the ability to access a large selection of popular content via one user interface will help drive value for BT’s existing customers. Prior to the integration of Amazon Video and Now TV, BT TV’s TV offering includes one third of the channels that are important to customers, according to the operator, and addressing this gap to offer a more complete TV service has been a key priority.

Further to enhancing its content proposition, BT TV is moving towards making its TV content available across a broader range of devices – it will soon become available on Samsung smart TVs, Apple TV and Google Chromecast, the first UK pay TV multiscreen proposition to launch on such devices. The BT Sport App is to also see a series of upgrades, including the ability to cast from mobile devices to TVs, which will be available to EE mobile customers at no extra data cost. The move signifies BT’s recognition of the growing importance of connected devices in and out of the home and consumer demand for video content across screen, bringing together its fixed, mobile and video businesses.