By Gregory Pankert, Partner in Telecom & Information & Media & Electronics, Belgium, at AD Little
Fixed-mobile convergence has become a reality in Europe, driven by operators in markets with infrastructure-based competition and adopted by customers for its discounts.
Behind the nice take-up figures, however, there is a contrasting reality – operators face challenges in capturing the value creation potential.
Moving beyond discounting is critical to maintain differentiation and secure a positive incremental margin.
To do so, operators will need to deepen their understanding of how convergence affects customer segments and value contribution, and translate it into new go-to-market strategies.
Over the last years, in markets which suffered from down-tiering and cancellation of subscriptions due to the economic downturn, and/or in markets where price competition in the mobile market was intense, operators needed to find a way to further increase the discounts granted to end users in order to remain competitive.
Extending the scope of the discount to the combined offer enabled operators providing both fixed and mobile services to offer a higher face-value discount to the customer while creating an asymmetrical competitive advantage which could not be replicated by pure players (mobile or fixed).
Fixed infrastructure-based competition is also a major driver for fixed-mobile bundles.
In several markets alternative operators have translated heavy investments in NGA infrastructure into commercial success.
These markets are often characterised by the presence of strong cable operators that leveraged more progressive and success-driven investment roadmaps.
Incumbents therefore pushed fixed-mobile convergence as a way to compensate for worsening attractiveness in the fixed-broadband market.
Fixed-mobile convergence generally starts with discounted bundling of several products.
The discounts can be in the form of price or volume discounts.
Slightly more advanced bundles add basic convenience services such as single-invoice and single-customer service.
Some operators have started moving to “full” convergence, with an integrated solution for communication taking the form of basic technical convergence or home-services convergence.
Technical convergence leverages technology to seamlessly switch from fixed to mobile and vice-versa.
It covers functionalities such as a single number for fixed and mobile, a single voicemail, and access to all video/audio content on all devices with the full range of features.
So far, the substantial discounts have triggered or fuelled temporary price wars or market decline; hence the worry of many operators about entering a perceived value-destructive fixed-mobile convergence game.
Convergence is much more than bundling, and a fundamental review of product development, strategic marketing and customer experience management will make the difference in the long run.
Managing the unitary value contribution of each RGU is essential when designing bundled/convergent offerings and defining their discount levels.
Acquiring new revenue sources at incremental costs has been very efficient for operators entering either the fixed or mobile market with fixed-mobile bundled/convergent offerings.
Given the nature of the value drivers, the value potential is dependent on the operator’s initial position (e.g. access to network assets, market share in the core market) and the local market dynamics.
So far, fixed operators (whether pure or fixed and mobile) appear to have achieved the best results.
Their advantage is quintuple: higher legitimacy, higher barriers to switching, higher leverage in accessing mobile networks, higher value creation potential from churn reduction and better focus on the household.
Is the game over then? Not necessarily.
Fixed altnets (cable operators and fibre players) have been acquired recently by Vodafone and Telekom Austria, and are still for sale in several markets.
A complex reality
Fixed-mobile bundling figures often hide a more complex reality.
They tend to focus on measuring the number of households with fixed-mobile bundles.
They do not look into how many of a household’s SIM cards are included in the bundle.
Many are advocating a household view of the market, implying that the individual mobile-user view has lost relevance in a fixed-mobile bundled/convergent market.
We believe that reality is much more complex, and that a new hybrid view is required to properly address this market.
Nowadays, fixed-mobile bundles usually capture around 1.4–2.3 SIM cards per household, but then meet a ceiling and fall short of the initial targets.
Operators tend to define fixed-mobile bundling as the addition of an average number of SIMs to a fixed subscription, and make no/limited assessment of mobile and/or convergence behaviour patterns.
The mobile model in which individual behaviour translates into individual subscription is colliding with a fixed model in which the head of the household defines the fixed services for all household members.
Both realities will define the decision mechanisms in convergent households.
Fixed-mobile convergence deserves a refined segmentation approach with a specific go-to-market strategy.
It also requires specifically addressing emerging convergence behaviour patterns, such as follow-me content, unified communication, network/device seamless connectivity and pricing.
Ultimately, fixed-mobile convergence will constitute the ground layer for future growth as it is currently the unique way to strengthen customer ownership, and therefore secure an option to drive the home-digital transformation and capture value from the future development of the smart-home/smart-life services.