By Chris Cowan, Associate Director, Coleago Consulting

In mature markets such as the UK, communication services penetration, encompassing mobile, fixed voice and data and paid TV content, is reaching near saturation. 

To help defend hard won customer bases, many communications service providers are reshaping their business models to compete using multi-service bundles. 

Mobile operators in particular, faced with structural declines in voice revenue and SMS and the rising costs associated with meeting the rapidly increasing demand for data driven by smartphone and tablet penetration, are being forced to give up their mobile-only propositions in order to defend their customer bases from attack by multi-service bundle marketing strategies.

By adopting a bundled approach where consumers are offered all services under a single bill, operators are able to improve customer retention and, depending on the power of the bundle, acquire customers from service providers offering less attractive packages. 

BT is the big mover here making waves after investing heavily in both adding Premier League football content to its fixed broadband proposition and now moving aggressively to become a full mobile services provider with its bid for either EE or O2. 

Sky, the major paid content player in the UK, is expected to respond to BT’s move into its space, as is Vodafone, sparking numerous rumours around potential strategic acquisitions in the cable, content and fixed broadband markets, including the likes of TalkTalk and Liberty Global, the owner of Virgin Media.

Though these rumours have been hotly denied by CEO Vittorio Colao, it makes perfect strategic sense given recent European cable acquisitions such as Kabel Deutschland in Germany and ONO in Spain.

In the last results presentation, Vodafone CTO Steve Pusey indicated that its planned fixed broadband return to the UK market was primarily to defend its customer base and maintain its position in the UK mobile market. 

By buying a fixed/content provider, Vodafone would become a major converged telecoms and content player in the UK in one step. 

Whether or not the specific rumours around Vodafone’s UK acquisition ambitions turn out to be true, it seems highly desirable for Vodafone to try and replicate in the UK its behaviour in Europe, and either make a play for a fixed operator with content, or failing that construct partnerships to enable it to offer the quad play of services.

But what does this frantic quad play empire-building mean for mobile-only operators unable to finance similar multi-service ambitions? 

For Three and one of O2 or EE, it looks as though they will be left with primarily a mobile-only approach. 

Neither Three nor O2 has a fixed broadband offering (O2 sold their fixed broadband business to Sky), and EE is a distant fifth in the UK fixed broadband market with only a three percent share. 

If the quad-play bundles start to take market share, the mobile-only position is going to become more precarious, as none has the same scale of resources as Vodafone or BT to invest in building out a full quad-play business. 

Mobile-only operators will therefore need to act quickly and intelligently to maintain shareholder value.

They will need to consider seriously their strategic options as the competition for customers heats up, with price looking set to become a key battleground thanks to multi-service bundles allowing the service provider to aggressively price individual services within that bundle. 

With a hard won customer base exposed to greater competition and the prospect of reducing profitability for single product businesses, it might be that they are left with one of only two options – try and get bought out by a bigger player or merge. 

Not that this outcome should come as any surprise to the telecoms trend spotters out there who have been predicting industry consolidation on a large scale for some years.

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