One Size Doesn't Fit All When It Comes to Selling Bundled Voice, Data and Video Services: New Diamond Convergence Report

One Size Doesn't Fit All When It Comes to Selling Bundled Voice, Data and Video Services: New Diamond Convergence Report

With $18 to $23 Billion at Stake, Communications Service Providers Must Build New Capabilities to Deliver Profitable Bundled Services to Distinct Market Segments

CHICAGO, Aug. 7 /PRNewswire/ -- Communications service providers counting on consumers to embrace their bundled offerings of fixed and wireless phone, DSL broadband, and video services beware: one size doesn't fit all, according to a new report by consulting firm Diamond Management & Technology Consultants, Inc. (NASDAQ:DTPI).

Cable operators like Comcast and the Regional Bell Operating Companies (RBOCs) see the convergence of these various services as an important source of growth, noted Hamilton Sekino, a partner in Diamond's telecom practice. He calculates that approximately $18 to $23 billion in enterprise value is in play as RBOCs and cable providers bundle services to compete for increased market share in the U.S.

"Profitably delivering bundled services -- the so-called triple and quadruple plays of various voice, data and video offerings -- will require that providers build significant new capabilities," Sekino contends. "It will take targeted marketing, customer-centric offerings, new organizational models, and technology innovation to be successful," Sekino said. "But the companies that succeed can reap great margins, profitable long-term customer relationships, and significant market share.

"A key question these companies must answer is, 'will customers go for it?'" Sekino said. "There isn't a monolithic market. Different consumer segments have far different attitudes about what they're willing to buy, from whom, and at what price. The answers will drive billions of dollars in investments."

Diamond's Telecom practice conducted a market survey among U.S. consumers to develop a greater understanding of consumer attitudes toward various convergent offerings. The report is available via an e-mail request to: convergence@diamondconsultants.com

Respondents in the study came from five groups representing more than 50 percent of U.S. households, from large families with children (Young Accumulators), Mainstream Families, successful, childless singles and couples (Mid-Life Success) to Affluent Empty Nesters and hip, young singles in large metropolitan markets (Mainstream Singles).

Respondents shared their views on three convergent offerings: a cable company "triple play" of fixed, voice, data and video services; an RBOC triple play of fixed and mobile voice and data services and a "quadruple play" of fixed and mobile services that included voice, data and video.

Who is Interested in Convergence?

Diamond's analysis revealed that more than one-third of all respondents were interested in bundled services. Almost 22 percent of all respondents expressed interest in a TV/Internet/fixed phone bundle from a cable operator. Only 15 percent favored a fixed phone/wireless phone/Internet bundle from a phone company. A quadruple play of fixed and mobile services that included voice, data and video primarily appealed to two specific customer segments. Young Accumulators and Mainstream Families were the only segments where one- third or more of the respondents voiced an interest.

Who is the Preferred Quadruple Play Provider?

The competitive field for the most lucrative convergent offer looks fairly wide open at the moment. Fifty percent of all respondents did not single out a preferred provider, while about 30 percent favored cable companies and 20 percent preferred an RBOC alternative.

Convincing consumers to switch from one quadruple play provider to another may prove to be a challenge. For example, 46 percent of cable modem users preferred cable operators as their quadruple play providers. Only eight percent said they were willing to switch to an RBOC.

"Broadband access appears to be an 'anchor' product that gives certain providers an advantage in the quadruple play sweepstakes," Sekino said. "RBOCs and cable providers should step up their efforts to increase their broadband penetration to establish a beachhead for their quadruple play offers."

What are the Key Drivers of Adoption?

Significant, but not surprising, was the finding that savings were the most important motivation for consumers (41 percent) to adopt a convergence service offering. That news suggests that providers run the risk of cannibalizing their current revenues and suffering from price erosion if they discount bundled services. However, 35 percent were attracted to integrated features such as unified fixed/mobile voicemail or being able to use a single handset at home (with unlimited minutes) and in the cellular network.

"Providers should avoid offering pure savings through mass marketing," Sekino said. "By offering innovative integrated features, providers should be able to counter some of the price pressure that comes with bundling services, particularly if they deliver targeted sales propositions to less price- sensitive customer segments that place a high value on innovation."

What are the Key Barriers to Adoption?

Another reason to avoid promoting convergence offerings purely as a savings opportunity is that consumers are skeptical about provider claims. One in three respondents said they might not purchase bundled services because they were skeptical about any possible savings. Inertia is another issue: almost 25 percent of the respondents admitted they simply wouldn't take the time to investigate the possibility of a better service option. Skepticism about the value of integrated features and concerns about switching costs were voiced by 20 percent of the respondents.

"High-end customers in particular told us they need tangible incentives to switch providers," Sekino noted. "Providers will have to deliver simple, compelling messages through their direct communications and sales channels if they hope to capture market share. And they will need to simplify their provisioning and customization processes if they expect their bundled services to take off."

What is the Expected Bundled Discount?

Pricing bundled services profitably will be a challenge, but Diamond found it was also a necessity. Eighty-eight percent of survey respondents across all segments expect some kind of discount for buying triple play or quadruple play bundles. In fact, while expectations about discounts varied, 30 percent of the respondents wanted a minimum discount of 30 percent.

The disparity in expectations among different consumer segments is important. Households that were already high spenders of telecom services were more likely than low-spend households to expect discounts of more than 15 percent. Similar expectations applied to broadband users, as compared to dial-up Internet users.

"Cannibalization is a real concern. The way around the high expectations of higher-spending customers might be to add non-pricing elements like integrated features to the offers targeted to those groups," Sekino said.

What is the Timeline for Adoption?

It appears there is already significant pent-up demand for bundled offers. A majority (52 percent) of respondents said they are willing to purchase bundles within the next six months. While telecom spending and Internet access type factors did not seem to impact adoption rates, Mainstream Families and Singles were the most likely early adopters.

"Providers can minimize their customer acquisition costs by identifying and targeting the most likely early adopter segments," Sekino said. "But they should move quickly. There's a first mover advantage in capturing the most attractive and profitable customers."

Expect RBOCS and Cable Operators to Take the Initiative

Service providers have a big task ahead of them if they expect to deliver winning triple play and quadruple play offers. For example, the largest cable operators have already initiated a 20-year joint venture with Sprint Nextel as a means of providing mobile services.

"Every provider will need to develop their own 'convergence roadmap' to reach their goals for convergence offerings," Sekino said. "A structured and bottom-up approach is required to ensure that resources across the organization are properly aligned and efforts are focused on convergence initiatives around marketing, product development, organization and technology."

The Diamond telecom consultant points to four key priorities:

-- Marketing - Marketing initiatives like detailed and cross-product
customer segmentation and "test and learn" marketing campaigns to gauge
interest in various offers and pricing models are important. Cable
operators, for example, will need new insights into wireless usage
behavior to best price their quadruple play offers, and have to test
different pricing offers before launching on a large scale.

-- Product Development - Sekino recommends that RBOCs and cable providers
develop a multi-dimensional scoring tool to prioritize product
development initiatives, based on such dimensions as market size,
revenue potential, development costs and technology risks. Once those
priorities are set, providers will have to move quickly. "Quadruple
play providers will have to shorten their time to market without
risking a premier customer experience if they hope to capture an early
lead among profitable early-adopter customers," Sekino cautioned.

-- Organization - Sekino recommends that providers break down traditional
organizational silos and reorganize their sales, marketing and customer
care groups around customer segments, rather than products. A
customer-focused organization might determine that a wireless-only
bundle would the most profitable offer to fixed line customers, even if
that offer cannibalized fixed-line revenues. Stand-alone product groups
could also stand a shake-up. Focusing existing product development
teams on collaborative convergent product development can stimulate
innovation and shorten product development lifecycles.

-- Technology - Winning service providers can best develop and deliver
integrated products and services through highly scalable service
generation and delivery platforms, Sekino noted. That requires
adherence to industry standards, cooperation with large developer and
vendor communities, and strategic partnerships with experts in core
technologies such as seamless mobility. On the IT infrastructure side,
providers will also need to build a convergence customer data
repository, with information from multiple CRM databases and network
switches, to provide a single view of customer profitability and usage
across different products. Service providers will also need a common
Internet Protocol (IP) core network to deliver seamless mobility across
multiple access networks.

"Convergence is one of those 'must-take' opportunities that can spell the difference between leading or leaving the market," Sekino said. "The stakes are high, and the competitors who carefully consider consumer attitudes and create a clear roadmap to meet consumer demand will have the upper hand."

About Diamond

Diamond (NASDAQ:DTPI) is a premier global management consulting firm that helps leading organizations develop and implement growth strategies, improve operations, and capitalize on technology. Mobilizing multidisciplinary teams from our highly skilled strategy, technology, and operations professionals worldwide, Diamond works collaboratively with clients, unleashing the power within their own organizations to achieve sustainable business advantage. Diamond is headquartered in Chicago, with offices in Washington, D.C., New York, Hartford, London and Mumbai. To learn more, visit http://www.diamondconsultants.com/ .

Contacts:
David Moon
Media Relations
+1.312.255.4560
david.moon@diamondconsultants.com

Margaret M. Boyce
Investor Relations
+1.312.255.5784
margaret.boyce@diamondconsultants.com

Source: Diamond Management & Technology Consultants, Inc.

CONTACT: David Moon, Media Relations, +1-312-255-4560,
david.moon@diamondconsultants.com , or Margaret M. Boyce, Investor Relations,
+1-312-255-5784, margaret.boyce@diamondconsultants.com , both of Diamond
Management & Technology Consultants, Inc.

Web site: http://www.diamondconsultants.com/

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