About 10 years ago, Faultline wrote a report on the economics of quad play. We hardly sold any (about 20), and the reason was, one of our resellers told us, was that “quad play” was old hat.
The truth is that quad play is very much “new hat” and this report was perhaps a decade ahead of its time. People made the mistake of thinking that being familiar with the term meant they understood it, and back then lots of people were using the term simply as a catch phrase, so it was deemed to be time we moved onto the next catch phrase.
We remember trying “Double triple play,” which was voice, data and video on both fixed and mobile lines. It didn’t catch on as a catchphrase, and yet today the major issue is the manner in which mobile networks handle video – since the avalanche of video that is hitting them is causing real concerns for their future. The last of these SIX services is still not something networks are comfortable with today.
The truth is that quad plays are a lot of effort, putting four separate services into a single bundle, handling help desk centrally, putting support teams together, and doing tons of contractual work to set bundles up – and yet if you are not in a quad play bundle war, they are of limited benefit, simply making it tough to churn, once you rely on all four services from one single operator.
Despite multiple mergers over the past decade between owners of one type of network and another, and the rise and rise of the number of players that have all four services, the idea of an actual Quad play has still not quite taken off. There is a tendency to cross sell between the services rather than create a genuine quad play – one example of this was Virgin in the UK pushing its cheap mobile options to its cable homes, which also took the triple fixed play – home voice, home broadband and TV.
It has been doing this since 2006 with almost no success, until suddenly in the last few years and in particular the past year, where Liberty Global’s experience in quad play has seen it jump from 15 per cent of its customer penetration, to 21 per cent in the UK this year.
So despite this potentially being on the agenda and in the planning stage for almost a decade for many players, the UK has only just now followed France, with lock stock and barrel, every player sprinting for the quad play. The true quad play means a single bundle making up discounts for taking all four services from a single operator, but many of these will remain simply cross selling arrangements, using the power of multiple CRMs to push other discrete services.
We always measured this by how many clicks it takes you from the home page of the website, to get to a quad offering. At one point in Comcast in the US, it was on the home page. Today that page features the fixed line triple play it calls Xfinity.
The French market is an extreme version of this, with Iliad’s Free offering cellular add-on purchases to customers for ridiculous prices, with deals going down to €2-a-month for cellular. But it is the success at Virgin that has caused the UK war, and now it is being chased by EE, Vodafone, BT and the latest entrant this week in TalkTalk.
TalkTalk walks the talk
The latest blow in a war that TalkTalk has only just entered, is that it will take a mobile virtual network operator (MVNO) from O2, dumping the one it already had with Vodafone, and it will add this to its partially wholesaled, partially unbundled broadband offering.
TalkTalk is only a little over a year into pushing video. It acquired Tiscali, which itself had bought a London based IPTV business called Homechoice, and it waited patiently for the arrival of YouView, the new UK broadcast/broadband hybrid service, whereupon it took all those historic TV rights and pushed them into a TV service that comes free with a broadband line.
BT was next to follow suit, but has yet to add the cellular element, something everyone knows it is now working on with an EE MVNO. This makes TalkTalk the disruptor in the UK that Free has been in France. The lesson from France is that in 30 months Free has acquired 9.5 million cellular customers.
If you have not looked at the UK operator market, TalkTalk came out of a startup cellular reseller called Carphone Warehouse. That business grew on the back of cellular retail contracts and a reputation for finding consumers the best cellular package, regardless of which operator was selected. In the late 1990s it came up with a premium phone model for free broadband in the dial up era and has since acquired a number of ISPs, and then the two businesses split – retailer and operator. Today, after an abortive attempt to merge with Best Buy in Europe, Carphone Warehouse is a $5 billion European wide retail business, and TalkTalk has a separate public listing on half of those revenues, around $2.5bn, built around 4 million broadband homes.
The pecking order for broadband in the UK goes BT with 7.4 million broadband lines, and quite a few more as fibre or unbundled or sold wholesale, taking its total to over 18.6 million. Next in line is Sky with 5.3 million, Virgin with 4.5 million, and TalkTalk with 4 million.
However TalkTalk has added almost 1 million TV customers since the launch of YouView two years ago, way ahead of any rivals, and as it moves into cellular we can see it following closely the lessons from Free, making the MVNO connection really cheap. So far it has not expressed any desire to harness a second SSID in its home gateway Wi-Fi, but it has been using a Huawei gateway for the past two years and should be able to support a rollout of a 2nd SSID easily. The device uses 802.11N WiFi, so it could follow down the precise same route as Free, offering Wi-Fi First handsets. In fact if TalkTalk does NOT go down that route, it simply won’t be able to compete.
So far, after years of running an MVNO, TalkTalk doesn’t do much talking and has just 350,000 mobile customers. If it wished to innovate and disrupt at the Quad pay level it will need to accelerate its mobile customer acquisition rate and in order to do that it is already offering a bundled first free SIM with every broadband account.
Vodafone last week stood up at its results conference and threw its hat in the ring for both home broadband and talked loosely about TV services also being bundled with the broadband line, and this would make yet another quad play or at the very least cross selling across four services.
The French story
We noted that Vodafone is impatient to have fixed line support for its cellular services in all of its major markets and that the UK remained the weak spot in this fixed line strategy. Having fixed lines allows it to build out Wi-Fi offload and to backhaul cellular small cells in its four major home markets of Germany, Italy, Spain and the UK, where it respectively holds 5.2 million, 1.8 million, 2.7 million fixed lines and in the UK a meagre 62,000. Our take is that Vodafone will go straight for fibre in the UK, with perhaps a secondary ADSL/VDSL offering wholesale via BT.
Back in early October headlines focused on BT moving back its quad play launch until deep into 2015, due to some technical difficulties it was having on WiFi Voice. It has an MVNO with EE, having been the only fixed line incumbent in Europe to be stupid enough to sell off O2 its mobile operation to Telefonica back in 2004. BT’s operation is clearly supposed to be WiFi First based and therefore price disruptive.
Since then the story broke that EE is also chasing the Quad play. For the uninitiated, EE is the largest cellular operator in the UK, a merger of Orange and T-Mobile, created to overturn the lead that O2 and Vodafone enjoyed in the UK. It has the backing of Orange, which is strong in TV in its own country, Poland and in Spain while its other parent Deutsche Telekom has pay TV operations in Germany, Croatia, Greece, Romania, Hungary and Slovakia. Collectively in TV these two businesses are almost as powerful as BSkyB or Liberty Global.
The other issue is that Orange has the experience of surviving the triple play wars in France, the only the place in Europe which grew up habitually offering free TV to broadband customers. The result of this is that it uses “boxes” which typically offer a full triple play in a broadband gateway acting as a set top, a VoIP controller as a matter of course. In France the four telcos – Orange, SFR, Bouygues Free – and are now fighting it out with Homespot Wi-Fi undermining cellular pricing as well.
This EE service in the UK will be backed by a device and software from Netgem, in its first deal in the UK. It naturally hopes this will be an invasion of the French way of doing things. Netgem was the traditional set top supplier to SFR and has a great understanding of hybrids, especially mixing one broadcast service with one over the internet and adding VoIP and an advanced pay TV UI.
This will give UK homes a taste of what’s on offer in France, with a second layer of OTT services offered directly from the cloud to portable devices with the same viewing on them. The box has 1 TB of storage and four tuners to reach up to four TVs, and up to three further portable devices can have access to video simultaneously with the TVs.
The EE service will come to market with 70 free to air broadcast channels plus a neat 24 hour replay feature, as well as additional online delivered on-demand channels and more than 10,000 TV series and movies, all for under £10 a month for existing EE phone customers.
This week the news has broken that Vodafone will also partner with Sky, something that we suggested when we revealed the Vodafone broadband plans a few weeks back. Vodafone has had a long relationship with Sky for video content on mobiles and will no doubt find Sky willing to negotiate on channels locally. In other markets Vodafone has been a Netflix reseller, and it looks like it will initially line up reselling agreements for Sky Now, Netflix, and other OTT services, for a quick start in video.
It seems like many of these same incumbents are positioning themselves for similar battles in Italy, Germany and Spain, having already shaken up the French market. 2015 seems to be the UK’s turn to discover just what Quad play can do to an operator landscape – our feeling is that not much of it is good (for the companies), but failure to stay in the race is even less thrilling. The whole thing is great for consumers.
The outlook for both the existing Freeview channels in the UK, with multiple broadcasters such as ITV and Channel 4 in advertising wars in the Free to Air market, and for 3 Group, the fourth placed UK MNO, which has no fixed line strategy that we can see in the UK, must be seriously in question.
Meanwhile in the famous French quad play battle, SFR has escalated its offering, working with the fibre part of the Numericable network, even before their merger is signed off. It has a new box and offers internet speeds of 200 Mbps over the Numericable network, but under the SFR brand. The new SFR offer will be priced at between €30 and €42 depending on the precise package, and it is is roughly 10 times the speed of its old ADSL lines.
SFR will offer TV from Numericable with 67 channels, supporting picture-in-picture and the ability to simultaneously record two streams to a 500GB hard disk, as well as give access to a 30,000-strong VoD catalog. The box will naturally also provide access to SFR services such as home-security offering and cloud-storage. The box supports HD, has 802.11ac and is called “La Box TV Fibre” with a mobile plan with 5GB or more of data. The phone additionally offers the Canalplay streaming TV service, Napster mu-sic, iCoyote traffic warning system, SFR games, LeKiosk magazines and newspapers and the mobile app of sports newspaper l'Equipe. This Quad play offer can be bought by any one of 8 million homes within the Numericable footprint.
Copyright © 2014, Faultline
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