Bundling - A legitimate means of competing in the telecom industry

Bundling - A legitimate means of competing in the telecom industry

Bundling of various products and services has been going on for ages – Remember KFC’s Chicken Zinger Meal? Similarly, bundling of services in the telecom industry has been present for a while - heard of Dual, triple and quad-play bundles? Bundling services has been a profitable tactic adopted by companies offering greater customer value and maximizing ARPU.

Australia, being one of the most competitive and mature telecommunications markets in the world, has the majority of its Telco’s like Telstra, TPG, and Vocus practising the bundles’ artistry.

While the concept of bundling is attractive, the question is, do customers want it? Why are these bundles provided? Why Telco’s drive a force to buy multiple services under one bill?  The answer to these questions embarks a win-win situation for both the consumer and the provider.

The idea of separate bill payment for multiple products seems excessive

Consumers benefit from bundling by receiving one bill for different services at a reduced cost, although the extent of this benefit depends on their individual preferences.

Locking subscribers into bundle services is a ubiquitous phenomenon

For Telco’s, bundling acts as a catalyst for growth because it is much easier to up-sell additional services than to gain a new customer. Bundles are offered at lower prices which encourages people to take more services from one provider, which in turn drives ARPU and can be used as a price discrimination strategy that allows Telcos to increase earning by obtaining more consumer surplus. 

Qualifying criteria of a Bundle

The Qualifying criterion does seem slightly baffling and is an example of how the bundles are being marketed. The message should be succinct and convey the benefits to the customers. Also, companies must ensure that the bundle offered is as per the requirement of the customers.

Bundling – Not as simple is it sounds

Bundling services does not guarantee success. Innovation is the name of the game in the industry, and companies need to ensure that the latest products and services offer a unique experience to the customers and compel them to opt for bundled products and services.

Competition is not just about the number of players; it is linked to the ability of the players to compete. How swiftly does the market react to bundling is critical. It is all about innovation which is dependent on its competitive attitude and the operators’ positioning in the industry. Mobile-only operators are likely to face stiff competition from integrated service providers and will to add further services to its existing services to stay in the field. As an example, we can look at TPG collaborating with Vodafone or Foxtel signing deals with content provider Netflix.

ALSO READ: ASX Telecom Reboot – Outshining Amid Crisis

Let us have a look a closer look at some of the ASX-listed telecom players practising the art of bundling:

Telstra Corporation Limited (ASX:TLS)

TLS, being the flag bearer of telecommunications in Australia, has been at the forefront of connecting Australians. The Company is engaged in providing a comprehensive range of telecommunications (internet, pay television and mobiles) and information services allowing it to cater to all the telecommunications needs of its different customer base.

Response to evolving customer preferences – Bundling

It is not just a one-off thing that drives the performance of a Company; instead, it is a cumulative effort of all the products. Telstra, with its worldwide presence, offers a broad range of bundles across several industries in the market. There is a comprehensive list of bundles available on TLS’ website that combines one core service with extra features and services like “Telstra TV + Unlimited Data” that combines TV and broadband services, or “Gaming + Unlimited Data” that combines games along with broadband wherein Xbox (Microsoft) and Telstra reflects their deep partnership. At the moment, there is a broadband plan that Microsoft has with TLS that gives access to those games on a subscription basis.

Bundles – Piece of pie in the overall proposition for customers & Company

During the six months ended 31 December 2019, there was an addition of 70,000 (an increase of 1.9% compared to prior corresponding period) retail bundles and standalone data service in operation (SIO), bringing total bundles and independent data customers to 3,733k.

Retail bundles and standalone data revenue fell by 1.8% to $1, 623 million mainly because of 4.2% ARPU decline to $72.72 from $75.90 (for half-year ended 31 December 2018) caused by competition and migration to in-market plans. Additionally, Retail standalone voice revenue declined by 28.3% to $342 million with sunken customer services due to standalone voice line abandonment and migration to bundles.

Stock Performance: On 12 May 2020, the shares of TLS last traded at $3.090, up 0.651% from its previous close. TLS has an annual dividend yield of 3.26% and a P/E ratio of 17.750x. The Company has a market cap of ~$36.51 billion and approximately 11.89 billion outstanding shares.

DO READ: Telstra Corporation Announced Foxtel Impairment Post News Corp Write Down

TPG Telecom Limited (ASX:TPM)

TPG is a telecom service provider offering various telecom services and offering multiple bundles provides to its consumers.

VHA + TPM - A stronger challenger to Telstra and Optus

To stay in the competition against stronger rivals, one needs to make sure that they innovate and add value to one’s customers. Given the background of the two companies, Vodafone Hutchison Australia and TPM both cater to different customers, so it is expected that their merger will prove to be a win-win situation for both of them. The Strategic rationale behind the merger it is to present a complete solution for customers by providing a highly complementary product offering across fixed-line and mobile which in turn will make them a tenacious opponent in the battle to be in the battle. On 7 May 2020, TPM and VHA have received final regulatory approval for a merger.

Bundling – A attractive shop for customers

Bundling of various telecom services helps to appeal to the customers and provides multiple options to choose the best offer that suits them. TPM offers different bundles like TPG Home Bundle inclusive of broadband (ADSL2) and Voice services (Home Phone Line). FTTB PLANS inclusive of broadband and voice services.

Bundles helped stem the loss of fixed voice

For the first half FY20 (period ended 31 December 2019), a decline of $20.5 million was observed in revenue from fixed voice services. This decline echo’s the fact that across the industry, usage of home phones is declining and the fact that standalone home phone services are being replaced by NBN services which bundle voice and data. Bundles helped to stem the loss of fixed voice and the revenue from data and internet was $1,066.5 million, which includes revenue from the bundled home phone voice for the consumer division.

Stock Performance: On 12 May 2020, the shares of TPM last traded at $7.200, down by 0.963% from its previous close. TPM has an annual dividend yield of 0.69% and a P/E ratio of 24.980x. The Company has a market cap of ~$6.75 billion and approximately 927.81 million outstanding shares.

We have seen two ASX-listed players working hard to stay in the battle, but there is another player in the market that also offers bundle to cater to the needs of its customers.

Australia-based Foxtel offers varied subscription-based television services that cater to regional and metropolitan areas. It provides a premium, live experience to entertainment, sports, news, and movies to its customers. Foxtel manages OTT service Foxtel and sports OTT service Kayo. News Corporation Ltd has a 65% stake in Foxtel while Telstra owns the rest.

The TV service provider which is accommodating consumers’ growing consumption of content also offers a broadband service in conjunction with TV services. Foxtel offers various bundles like Foxtel Plus Bundle, Unlimited Broadband + Sports HD that brings Broadband and TV all in one place.

 


Disclaimer
The website https://kalkinemedia.com/au is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) or engage in any investment activity under discussion. We are neither licensed nor qualified to provide investment advice through this platform. All pictures are copyright to their respective owner(s). Kalkinemedia.com does not claim ownership of any of the pictures displayed on this website unless stated otherwise. Some of the images used on this website are taken from the web and are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it below the image.

 

There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.

As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.

CLICK HERE FOR YOUR FREE REPORT!
   
x
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK