Selling broadband, content and services

Which technologies and what services win you customers and can make money?

Gaining a customer can be an expensive process, particularly in competitive markets.  One option is to compete on price, and many operators do have very low entry-level tariffs, but this can result in margins that will not support multiple players.

In the UK today broadband is the second most common subject of e-mails in an MPs inbox after health.  The most hated company in the US provides broadband and content and service to over 27 million households, more than the entire UK market[1].

These can be taken as indicators of the impact that broadband has on all of us as well as the relative failure of the ISPs to provide a service that consistently meets customer expectations.

The involvement and emotional investment that we all have in broadband is an opportunity for retailers and wholesalers and the current levels of investment and activity in the UK market reflect that.  Building on our analysis in (A tale of broadband tariffs and take-up) we move further into the data supporting the hypothesis:

“ISPs in the UK can gain more customers and keep them for longer and get better margin if they offer services and content as well as suitable broadband.

The potential downside being the more points of contact with a customer the more opportunities to disappoint them.  Increasing revenue-generating units (customers) and living up to expectations and providing the services subscribers demand is challenging for any organisation.

To assess the potential and impact of services on an operator’s subscriber base we have analysed our own tariff and subscriber data on a global basis over the last fifteen years and reviewed a range of studies and surveys addressing the question of broadband subscriber churn with reference to bundles and additional services.

The results, while generalised, show strong support for the hypothesis and provide some concrete outputs that can be used to drive modelling and analysis for business plans and forecasts.

[1] Comcast Q12019 27,598,000, UK total fixed 26,969,000

Broadband technologies and services

Building a successful fixed broadband network operator is more than an engineering project.  Solving all the puzzles of provision and competition and profitability is a trick that not many manage.  The alignment of all the interests and priorities of a network operator with marketing, customer service and content company is difficult.  It gets even harder as the transition from small niche player to a company serving tens of thousands and even hundreds of thousands of customers occurs.

Driving sales and making a profit on those customers will be a mix of several strategies and imperatives.  There is a spectrum of choices in network and provision from closed and naked through to open with turnkey plug and play services.  Where an operator sits and where that is relative to the local and national market will be a central part of any success or failure.

As noted we are reviewing the proposition that more services supported by suitable bandwidth are a good way to gain and keep customers for operators and ISPs.

There are instances of operators where the hypothesis doesn’t hold or apply.  There are some ISPs that are able to prosper selling ‘just’ broadband.  They are often niche and with limited growth but they do exist.  Their data is included in the analysis in terms of tariffs, subscribers and technology offered.

Which technology?

Last time there was a mass technology upgrade in the UK, Fibre To The Cabinet (FTTC[1]) launched in 2010, the relative technology churn (by total lines) followed a well-established pattern.  An initial spike in percentage subscriber growth as FTTC started from a low base and absorbed pent up demand in the market followed by the decay in growth rate as customers added constituted a smaller proportion of the existing market.

Understanding the rate of this decay in the UK and being able to review it against the current shift to FTTP is useful and will help provide validation (or condemnation) for models projecting take-up, market share and ultimately the success or failure of a project and company.

While ‘superfast’ broadband (over 30Mpbs) didn’t achieve the penetration in the decade since introduction that many had projected it still prospered against the other, particularly older, technologies.  The same is happening with full fibre[2] albeit with a longer lead in time to the start of the mass adoption and growth we are seeing in 2019.

[1] We use FTTC to refer to VDSL but not Gfast

[2] ‘full fibre’ is FTTP/B.  Where we use ‘ultrafast’ we use the Ofcom/EC definition of 300Mbps down

Figure 1: Subscriber growth by technology in the UK – Q1 2018 to Q1 2019

As of mid 2019 the UK xDSL market is losing 5% of customers per quarter (averaged over the last four quarters) while FTTx still growing, adding 5.5% per quarter to subscribers on the same basis.  Full fibre is growing at 11.5% after 8 quarters in our databases[1].

Full fibre appears to be having a similar impact on the UK, in terms of the shape of the growth and adoption curves as FTTC did in the early days of that technology.  FTTC continues to add customers in the UK market although the technology footprint is now in decline.

[1] Full fibre as a widespread consumer product as opposed to niche products and markets

Figure 2: Technology churn in the UK – 2014 to 2019

Services and the role/s in gaining and keeping a customer

Gaining a customer can be an expensive process, particularly in competitive markets.  One option is to compete on price, and many operators do have very low entry-level tariffs, but this can result in margins that will not support multiple players.

The commonest approach is to differentiate on brand, content and services.  Services and bundles that provide the basis of that differentiation for most retailers allow room for higher margins across the various bundle elements a subscriber adopts.

There are a number of inducements and differentiators around the customer premises equipment (CPE), fixed IP addresses and or cloud storage and email as well as in-home wifi management and improving the customer experience with boosters for example.  We won’t use these elements [1]as differentiators in our analysis and tariff selection, just the big four:

  • Mobile
  • TV
  • Voice
  • Broadband (delivery technology and tariffs)

Again there are outliers and instances where our hypothesis does not hold.  Customer churn in and out can be net positive even with a dissatisfied user base.  Often they are in monopoly situations (either real or manufactured) where consumers have little or no choice. While it is in theory great for the company it is often hard to defend from regulators and competitors.

As noted we are focusing on the elements in ‘quad’ play services.  In fact, the ‘voice’ and ‘broadband’ components of a quad-play service, particularly in the UK, show very little impact statistically on variance in subscriber adds or churn, largely because they exist in almost all tariffs on offer.

[1] We also do not include wholesale or dark fibre in the analysis

Gaining customers with bundles

We have analysed our Global tariff and subscriber data over the last decade and, normalising for a number of elements[1], have compared the relative growth rates of operators who offer TV as a service and those who do not.

The data indicates that, worldwide, ISPs with a TV option/bundle added just under 0.8% more subscribers per quarter than those without, on average, over the last 10 years.

[1] Most significantly analysis conducted using purchasing power parity (international USD) and excluding special offers

Figure 4: Subscriber growth differential: tariffs and ISPs offering TV service bundle and those without

This is across 98 countries and over 600 ISPs and thousands of tariffs.

It should be noted that there could be other factors at play in the TV vs Non-TV ISPs and tariffs and to attribute this growth differential entirely to the ‘TV’ portion without further supporting evidence could be an error.

If we do the same operation for those with and without a mobile bundle we get a surprising, possibly contradictory result. The data indicates a quarterly differential of 0.6%in the favour of ISPs that don’t bundle a mobile service on average over the last ten years.

Figure 5: Subscriber growth differential: tariffs and ISPs offering mobile service bundle and those without

However, there is a large skew in the analysis, China. The success of China Mobile in shifting large chunks of their market onto full-fibre services has resulted in the relative saturation of the market.  Meaning the percentage changes today are relatively small while still being large enough to have a significant effect on the data globally.

Figure 6: Subscriber growth differential: tariffs and ISPs offering mobile service bundle and those without excluding China

When we remove China from the data we see an average over the last 10 years of a net positive 0.2% per quarter subscriber growth for operators offering a mobile bundle versus those that don’t.

We also see an increase in average growth if we remove China from the TV bundle analysis.  Over the last 10 years ISPs add, on average, 1% more subscribers per quarter with a TV bundle outside China.

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Table of Contents

  • Introduction
  • Broadband technologies and services
    • Which technology?
    • Services and the role/s in gaining and keeping a customer
  • Outcomes for the UK market
  • Conclusion
  • Appendix: Sources/references