John Delaney
John Delaney (Associate VP, European Telecoms)

Today BT’s recently formed Consumer Division, headed by Marc Allera, announced the theme of its network and service developments for the coming five years: convergence. Moving from its currently separate fixed-line and mobile networks, BT will build one converged network for the whole of the UK, “delivering faster, more reliable connectivity for customers, and letting you contact your connected devices as easily as your friends and family.” BT aims to have a single core network, agnostic to access type, in place by 2022.

Ever since BT announced that it was to acquire EE, it has been obvious where the foundations of its strategy for competitive differentiation should lie. When the EE acquisition completed in early 2016, BT became the only UK operator that owned both a fixed-line and a mobile network for nationwide consumer access. Thus, BT gained the ability to differentiate itself by creating services combining fixed and mobile access, and inter-working them in ways that would be difficult to achieve without the control over both networks that ownership confers.

The term that has been applied for years to the idea of combining fixed and mobile is “convergence”. But so far, consumer convergence has largely been limited to bundling. Most commonly, the “quad-play” bundle has been formed by taking the “triple play” bundle of home telephony, home broadband and TV, and adding one or more mobile service plans to the bundle. BT got into quad-play in a limited way after it acquired EE, reviving the BT Mobile MVNO brand for consumers, and using it to market a range of quad-play bundles, primarily to existing customers of BT Broadband. But even in this limited manifestation of convergence, two years after BT and EE combined, the UK remains a laggard. At the end of 2017, we estimate that 3.4% of mobile connections in the UK were part of a quad-play bundle, compared with an average of 7.4% in Western Europe as a whole. Some countries are way ahead of that: in Spain the figure was 13.7%; and France was way ahead of the pack, with 27.2% of mobile connections forming part of a quad-play bundle.

Why is the UK lagging other European markets in convergence? It appears that supply and promotion are big factors. All four of the French mobile operators also have large fixed-line broadband operations, and have been promoting quad-play as a key element of their portfolio for many years. Telefonica started heavily pushing quad-play under the brand name Fusion as a tactic for stemming a haemorrhage of mobile customers in 2012. Less than a year later, Fusion had over a million subscribers. By the end of 2017, there were 4.4 million Fusion subscribers. It’s clear from the experience of the French and Spanish operators that when attractive fixed/mobile service packages are strongly promoted, they find an enthusiastic market.

Today’s announcements indicate that BT now means to shift up a gear, both in the scope of its convergent services, and in its promotion of them. As an early indication of things to come, Marc Allera announced “our first truly convergent service offering”: BT Plus. This provides households with the fastest available fixed-line connection, with all mobiles in the household upgraded to the fastest available 4G speed, with double data allowances at no extra charge. In the event of a fault on the fixed-line broadband, mobile data allowances immediately move to unlimited, including tethering. If it takes more than a few hours to fix the fault, BT sends the customer a 4G mini hub, for use until the fault is put right. BT is also developing a hybrid mobile/fixed router for launch in early 2019, enabling the cellular and wifi connections to combine for a speed boost where they are both strong, and to supplement each other in parts of the home where one of them is weaker.

We applaud BT’s commitment to strengthening convergence in its service offerings. We believe there is considerable pent-up demand in the UK for services that bring together fixed-line and mobile access. We also believe that as convergence develops in BT’s network, it will be increasingly possible to go beyond bundling to offer services that are neither “fixed nor “mobile”, but that work seamlessly irrespective of whether the user is at home or away. However, BT will need to exercise some caution as it grows the scale and scope of its convergent offering. Quad play, for example, is fine as a tool for competitive acquisition, because the acquired subscriber supplies net new revenue. However, although quad play can also be effective in strengthening retention of existing customers, it also dilutes the revenue gained from them. This is because the main reason most people go for a multi-play bundle is to save money: the price of the bundle is less than the sum of the individual service prices. BT will need to be clear about the objectives that it wants its convergent services to achieve, and to market and position them accordingly.

If you want to learn more about this topic, or have any question on European Mobility, please contact John Delaney.

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