Does Bundling Still Work?

What comes next for service provider triple play or quadruple play bundles, which gradually have become the dominant way fixed network service providers package and sell their services?

The question might become more relevant for a wider number of service providers as the original value--churn reduction--loses its effectiveness. "Bundling is at a crossroads," says Matt Davis, IDC director. The problem is that bundling, which initially proved a strong weapon for combating customer churn, now is losing its effectiveness.

That was more true in the early years of the first decade of the 21st century, but has become less effective since perhaps 2008. “Saving money” once was the big draw, though.

Of 4,400 consumers surveyed by KPMG in 16 countries in Asia, Europe, and North and South America, 57 percent indicated attractive pricing attractive pricing was the most important driver in the decision for signing a bundled service contract.

Of those who do purchase bundled service packages, 75 percent did so primarily to take advantage of lower pricing. Only 12 percent acknowledged convenience as a factor.

How much churn protection now is provided is questionable, though. About  56 percent of survey respondents indicated that even if only one of the bundled elements they subscribe to were offered cheaper or better by another carrier they would readily break their contract and switch carriers.

Only 15 percent of respondents indicated that their current service package was 'sticky' and they would not consider switching.

"The popularity of service bundles in the Middle East is not just attributed to discounted pricing, but also to the convenience associated with converged billing,” said Hasan Sandila, IDC senior analyst.

In some cases, bundles can boost revenue or take rates. But for the most part, service providers have used bundles to combat churn by essentially locking customers into money-saving deals.

That works until virtually every competitor offers the same features and advantages. At least one study suggests the churn reduction is most clearly seen only under some circumstances, such as a recession that highlights consumer perceptions of, and need for, value.

In the next wave of development, bundles might emerge as ways of enabling additional features and services, or be provided in more-diverse combinations of services, Davis argues.

In some cases, the extension will be bundling of fixed with mobile or bundling of additional services to the traditional voice, video entertainment, Internet access triple play or the fixed network triple play with mobile service to form a quadruple play.

But Davis suggests change will be broader than that, moving beyond the offer of lower prices for bundle packages and towards “more choice” as well.

Globally, telcos and cable operators will see bundle revenue from bundles grow by 65 percent from $124 billion in 2012 to $205 billion in 2018, according to Digital TV Research.

Triple-play subscriptions will reach 333 million by 2018; up by more than 300 million since 2008 and up by 239 million on the 2012 total.

Still, in markets where bundling traditionally has been most widespread, the value of bundling is declining.

By most estimates, at least globally, the amount of fixed network services sold as part of a bundle will grow significantly. How much incremental value service providers will derive, at least in some markets, is the issue.

When every major supplier offers a comparable bundle, the value of any particular value is less.