Telco Multi-Play and Content Strategies

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1 THOUGHT LEADERSHIP Telco Multi-Play and Content Strategies APR 2016 Declan Lonergan, VP, Research As telecom operators extend their convergence strategies and launch multi-play landline/mobile/tv services, we examine the approach taken by a number of leading companies. We assess convergence propositions, network strategy, pricing, branding and commercial impact RESEARCH, LLC

2 ABOUT 451 RESEARCH 451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to over 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. NEW YORK SAN FRANCISCO LONDON BOSTON 20 West 37th Street 3rd Floor New York, NY P F Geary Street 9th Floor San Francisco, CA P F Gower Street London, UK WC1E 6HH P +44 (0) F +44 (0) Liberty Square, 5th Floor Boston, MA P F ABOUT THE AUTHOR DECLAN LONERGAN VP, RESEARCH Based in Dublin, Declan Lonergan is a vice president in charge of the Mobile Telecom channel for the 451 Research Mobility team, which was established in July 2014 with the integration of Yankee Group. Lonergan produces and manages research that improves service providers and technology vendors business results. He helps clients make critical decisions regarding the deployment and marketing of innovative mobile services. II

3 Key Findings End users are embracing multi-play. The primary reason most customers select bundled services is the promise of discounted prices. In a recent 451 Research user survey in the US among customers that already subscribe to a bundled service, 62% cited price discounts as the most important reason they chose a bundled service. Convenience was a distant second with 25% selecting it as the key factor in their purchase decision. Telcos are evolving their brands to convey FMC priorities. As they expand into converged fixed-mobile-tv markets, telecom operators are refreshing or in some cases completely changing their corporate brands. During the past 12 months several household operator names including Telecom Italia and TDC have changed their brands. These changes were driven by the companies strategic initiatives to expand in multi-play. The effects of the shift to multi-play will be significant and enduring. Fixed-mobile convergence (FMC) will require telcos to adapt their overall market strategies. Several will focus on winning and retaining high-value households, and reduce their focus on low-spending mobile-only customers. There will be increased emphasis on customer retention, and targeting the most profitable households. Overall the effects of multi-play will encompass networks, services, content, marketing and customer care. There will also be important financial implications, and multi-play will drive significant M&A actions. III

4 Executive Summary INTRODUCTION In 2015 global mobile service revenue totaled $997bn, according to 451 Research s December Global Wireless Subscriber Forecast. By 2019 we are projecting revenues of $1.07 trillion globally. Though there is growth potential, a large proportion of this will come from developing markets where mobile and smartphone penetration remain relatively low. For most telcos operating in mature and often highly competitive markets the prospects of significant growth in their legacy connectivity business are not particularly good. In this context, the need to diversify into new areas is more pressing than ever. The notion of diversification is not new for telecoms operators. Half-hearted attempts have been made before, most notably in relation to offering content and web services. But this was attempted at a time when revenues from communications and mobile data were growing strongly. In today s flat-revenue environment, the diversification imperative is more pressing, and in some cases becoming urgent. One of the areas several telcos are exploring as part of their overall diversification strategies is an expanded role in delivery of TV, video and content in general. Over the past couple of decades several operators have been involved in aspects of the content and media business. Some have partnered with large media houses to bundle content with their broadband and mobile propositions, thus playing the role of aggregators and distributors. On the mobile side, telcos have also (unsuccessfully) launched their own web portals, and several operators continue to bundle specific content types with mobile subscriptions typically including a music offering. A recent example is Three UK s deal with Deezer, which we wrote about in Telcos have also experimented with different advertising models, but with limited success. We recently examined how telcos are taking different approaches to the content business, focusing on eir (previously Eircom) in Ireland, KPN and T-Mobile in the Netherlands, and OTE in Greece. In this report we dive deeper into the multi-play issue. We discuss how telcos are migrating from offering stand-alone landline and mobile services and moving toward operating in a competitive landscape dominated by multi-play featuring mobile, landline and TV/video. The report includes a review of major developments in telco content strategies encompassing video and TV content, as well as the commercial, competitive and financial impact of the shift to multi-play. The primary geographic focus is the European market, where the rate of migration toward integrated telcos with convergence strategies is particularly rapid and impactful right now. METHODOLOGY Our research and findings are based on discussions with leading telecom operators concerning their strategic and network planning, as well as their product strategies and recent commercial performance. The companies covered include Bouygues Telecom, KPN, Orange, TDC, Telecom Italia (now operating as TIM), Telefónica and Vodafone. In the US we also include references to AT&T, T-Mobile and Verizon. Later in the report we assess in detail the FMC strategies of three of the most active players in Europe: Orange, KPN and Telefónica. We focus heavily on Europe within this report because this is the region most affected by FMC over the past couple of years. It is also the region that has seen the highest level of M&A driven by telcos FMC strategies. Toward the beginning of the report we also include end-user survey data from the US, which illustrates consumers attitudes toward bundled services. Reports such as this one represent a holistic perspective on key emerging markets in the enterprise IT space. These markets evolve quickly, though, so 451 Research offers additional services that provide critical marketplace updates. These updated reports and perspectives are presented on a daily basis via the company s core intelligence service, 451 Research Market Insight. Forward-looking M&A analysis and perspectives on strategic acquisitions and the liquidity environment for technology companies are also updated regularly via Market Insight, which is backed by the industry-leading 451 Research M&A KnowledgeBase. IV

5 TELCO MULTI-PLAY AND CONTENT STRATEGIES Emerging technologies and markets are also covered in additional 451 Research channels, including Business Applications; Cloud Transformation; Data Platforms and Analytics; Datacenter Technologies; Development, DevOps and IT Ops; Enterprise Mobility; European Services; Information Security; Internet of Things; Mobile Telecom; Multi-Tenant Datacenters; Networking; Service Providers; Storage; and Systems and Software Infrastructure. Beyond that, 451 Research has a robust set of quantitative insights covered in products such as ChangeWave, Voice of the Enterprise, Market Monitor, the M&A KnowledgeBase and the Datacenter KnowledgeBase. All of these 451 Research services, which are accessible via the Web, provide critical and timely analysis specifically focused on the business of enterprise IT innovation. For more information about 451 Research, please go to: V

6 Table of Contents 1. END-USER SURVEY RESULTS 1 Figure 1: Price Is the Dominant Driver of Bundled Service Adoption Figure 2: Phone and Internet Are Top Purchase Channels for Bundled Services Figure 3: Monthly Spend on Bundled Services Varies Widely COMPANY DEEP DIVE 1: ORANGE TARGETS FMC LEADERSHIP IN EUROPE 4 CONVERGENCE TAKES OFF STRATEGY THE 451 TAKE ON ORANGE S FMC STRATEGY COMPANY DEEP DIVE 2: KPN SHARPENS FOCUS ON HIGH-VALUE FMC HOUSEHOLDS 6 STRATEGY FMC PROGRESS FUTURE DIRECTION THE 451 TAKE ON KPN S FMC STRATEGY COMPANY DEEP DIVE 3: TELEFÓNICA SPAIN FOCUSES ON TV AND FMC 8 THE 451 TAKE ON TELEFÓNICA S FMC STRATEGY FMC DRIVES TELCOS DEEPER INTO CONTENT 9 KPN, T-MOBILE COMPETE ON OTT TV EIR ACQUIRES SETANTA SPORTS OTE FORKS OUT FOR EXCLUSIVE SPORTS RIGHTS VERIZON DEVELOPS ORIGINAL CONTENT THE 451 TAKE ON TELCOS CONTENT STRATEGIES VI

7 TELCO MULTI-PLAY AND CONTENT STRATEGIES 6. BRANDS EVOLVE TO CONVEY FMC PRIORITIES 12 FMC RE-BRANDING OTHER DRIVERS THE 451 TAKE ON TELCO RE-BRANDING IMPLICATIONS OF FMC FOR TELCOS 15 COMPETITION CUSTOMER SEGMENTATION SERVICES PERFORMANCE METRICS NETWORKS M&A REGULATION CONCLUSIONS AND RECOMMENDATIONS FURTHER READING INDEX OF COMPANIES 19 VII