This analyst opinion highlights the importance and core benefits of bundling and partners’ content aggregation for service providers.
Omdia view
Summary
Bundling third-party entertainment content has become an integral part of service providers’ convergence strategies. New partnerships continue to arise, and existing relationships expand as entertainment content services become an important part of the consumer bundle proposition.
At the Network X 2022 conference in Amsterdam, industry professionals gathered to discuss telcos’ convergence strategies and the core benefits of partners’ content aggregation.
Bundling is trending, but subject to a strong regional disparity
According to the 2022 edition of Omdia’s Service Provider Fixed-Mobile Convergence Tracker, the overall penetration of fixed–mobile convergence (FMC) bundles is growing in most countries. Globally, Europe has the largest share of commercial-bundling-level convergence due to the concentration of FMC operators and growing broadband coverage, and price-based competition urges operators to offer inventive bundling propositions. Meanwhile, bundling penetration is nearly absent in Central & Southern Asia and Africa due to low broadband penetration and the high cost of fixed-line and entertainment content services, while the widespread availability of illegally distributed online content impedes the growth of both pay-TV and OTT segments. Operators rarely offer bundles, and their uptake is low as bundling remains affordable only to selected high-end customers.
Core benefits of bundling: a win-win situation for all
Content aggregation is beneficial for all parties involved, including service providers, content creators, and consumers. Bundling third-party content services help telcos to boost customer numbers and reduce churn through improved customer loyalty. In some markets with high mobile penetration, convergence has become an effective strategy to increase mobile subscription uptake. For example, Arcep (the French telecom regulator) reported that the number of converged SIM cards in France grew 3% YoY at end-1Q22 as operators offer an option to add multiple mobile contracts for each broadband subscription in an attempt to lock-in whole households, which in turn drives convergent SIM numbers up (Figure 1).
Figure 1: Converged SIM cards in France, 1Q20–1Q22
Source: Omdia, Arcep
In addition, bundling facilitates the growth of 5G and fiber penetration. Telcos use content services to promote fiber and 5G uptake as IPTV/OTT services are add-on components of high-speed mobile/fixed-line network access, adding significant value to telcos’ core services.
For example, Proximus—one of the largest telecoms operators in Belgium—is increasingly relying on third-party content aggregation, which has facilitated the growth of the telco’s triple-play (mobile, fixed broadband, and TV/OTT) customer base by 23% YoY at end-2Q22 (Figure 2). The telco uses its own TV platform Pickx for third-party entertainment content. In September 2022, the telco announced a new step in its collaboration, with Disney+ allowing its Pickx customers to pay for their Disney+ subscription by adding the charge to the Proximus telecom bill. Additionally, access to Disney+ was integrated into the Pickx All Stars and Pickx All Stars & Sports TV options.
Figure 2: Proximus Belgium converged customers, 1Q20–2Q22 (millions)
Source: Omdia, Proximus Belgium
Content creators also benefit from partnerships with telcos: they gain exposure to a wider audience when channeling their content via telcos’ distribution platforms. Meanwhile, consumers turn to buy multiple services in a package for convenience. They also often get a monetary gain as telcos heavily discount bundles to increase uptake. The use of direct carrier billing (DCB) platforms to allow fuss-free payment for third-party services also helps telcos boost customer retention rates. DCB is particularly appealing in developing markets with little or no access to banking services.
Content aggregation: hard-bundle “all-in” approach or soft-bundling with a great degree of flexibility?
Content producers and telcos use different models to offer their aggregated services. Some operators have taken a hard-bundle “all-in” approach and offer a mobile and fiber bundle topped up with various entertainment features on one discounted bill, which is valid for the whole duration of a bundle. The other operators prefer a soft-bundle approach and offer content services with the main tariff or as a bolt-on service. Moreover, content services can be offered for free or at a discount for the initial trial period.
When telcos start their partnership journey with content providers, they often turn to a soft-bundle approach to test the waters, letting customers pick and choose their services. As partnership relationships evolve and deepen, there is a tendency toward the permanent incorporation of OTT/TV services into operators’ existing tariff plans. By nurturing long-term exclusive partnership relationships, telcos and established content providers can negotiate better deals in order to achieve long-term business success for all parties.
Content aggregation or content creation. Can third-party content aggregation cannibalize telcos’ own content production?
There is a little risk of content cannibalization for service providers who produce very limited content of their own. However, service providers with extensive content production are often cautious about the risk of cannibalizing their own content services and are reluctant to provide a comprehensive range of potential third-party services. But overall, the associated benefits of offering a broad choice of partners’ services outweigh any risks of telcos’ own-content cannibalization. After all, partners’ content integration allows telcos to tap into revenue generated by third-party entertainment services rather than allowing free streaming of third-party content on telco’s networks.
What does the future hold for bundling? Bundles will move beyond pay TV/OTT
Telecom operators are delivering a range of financial services on their platforms, including digital payments and mobile money transfers. Meanwhile, telcos and financial services industry participants are ready for more strategic alliances.
At the Network X conference, Jim Casteele, Consumer Market Lead at Proximus Belgium, announced that in October 2021, Proximus Belgium launched Beats, a converged offer combining banking and telecom services. Customers who sign up for banking services can receive a customized banking and telecom proposal. Beats is a monthly subscription that offers customers the ability to combine banking services (i.e., accounts, cards, and insurance) with telecom services (i.e., fixed-line, mobile) as part of an overall package tailored to the individual customer’s needs.
Rapid deployment of 5G and fiber creates a solid foundation for new bundle elements which will go beyond traditional mobile and fixed-line services. We will see a rise in super-bundles composed of financial and insurance services, energy, and many other services that will appeal to different customer segments. Telcos will expand their partner channels outside the TMT sector, taking FMC to the next level.
Appendix
Further reading
Service Provider Fixed-Mobile Convergence Tracker – 2022 (November 2022)
Fixed-Mobile Convergence Global Overview: FMC is on the rise despite the economic downturn – 2022 (coming soon)
Telco Online Video Strategies (March 2022)
Fixed-Mobile Convergence Global Overview: 5G and fiber give a boost to FMC growth (December 2021)
Service Provider Fixed-Mobile Convergence Tracker – 2021 (October 2021)
Author
Diana Gorelik, Europe Service Provider Markets
