©Johnnie Pakington/BT
BT
is to mount a fresh challenge to mobile operators with cut-price
bundled offers using its broadband network and the 4G spectrum it
unexpectedly acquired last year.
BT
will offer households a TV, broadband, and fixed and mobile telecoms on
combined tariffs – the so-called “quad play” bundle that is
increasingly popular in the US and Europe.
It will launch offers for businesses towards the end of the year,
according to people familiar with the situation, before focusing on the
consumer market.
Those people say the central proposition is around data – taking the
group’s fixed-line superfast data connections into the mobile market. BT
is in early talks with handset makers about supplying devices,
according to people familiar with the negotiations.
Analysts see the strategy as partly defensive. BT wants to reduce the
loss of its lines in homes, which have been in decline for many years
with people increasingly forsaking fixed-line calls for mobile.
Offering an additional service has been proved as a way to strengthen
customer loyalty, if only because people are less inclined to move a
large number of services at one time to different suppliers.
But there is an offensive element to the mobile strategy, at least as
far as the traditional mobile operators are concerned. They see the
prospect of BT’s strong telecoms brand swinging in with disruptively low
prices to entice customers to its premium broadband packages.
Quad play potential
The British market for quad play services is relatively small, with
less than one in 10 households with fixed-line broadband also taking a
mobile service and most of those signed up by Virgin Media.
But the option of offering such bundles is becoming important in European markets, even to the extent of influencing M&A activity. Telecoms groups such as Vodafone have aggressively pursued fixed-line businesses while media companies such as Liberty Global are adding mobile.
Large incumbent operators such as Holland’s KPN already offer quad play, which chief executive Eelco Blok says has boosted firepower in winning and retaining customers.
Analysts at Espirito said BT was “well placed to do similarly” and
convert its 9.7m residential customers to additional mobile services.
Espirito estimates that BT could win “several million mobile customers
over the next few years”, offering about 5 per cent of revenue market
share and adding 1-2 per cent to BT’s growth.
Disruptive deals
As on the continent, BT can innovate in both
technology and tariffs to win mobile customers. Over time the company is
expected to upgrade existing WiFi “home hubs” linked to its broadband
network with so-called “femtocell” technology – in effect creating a
small mast (or “small cell” in industry parlance) in the home that uses
the 4G spectrum acquired for £200m in the government auction last year.
“How disruptive can BT be?” said analysts at Berenberg. “BT has form
in using non-core products like BT Sport to defend its core products
like broadband. We believe that it could take the same approach with
mobile.”
Berenberg points out that fixed voice minutes on BT’s network have
halved in the past six years, and estimates that two-thirds more would
be lost by 2020. This is equivalent to £600m of high-margin revenue. “In
our view, BT’s mobile opportunity is a disruptive offer aimed at
defending its eroding fixed-voice revenue stream.”
And that – with the potential to
cross-subsidise bundled offers on services – means lower prices for
customers and a headache for mobile operators. Although there are scores
of cheap branded offers using their networks on a wholesale basis –
from virtual operators such as Tesco and Asda – none has the brand or network that BT can leverage.
For example BT could offer an unlimited voice/SMS Sim for as little
as £3 per month, with £4 per month charged per gigabyte of data,
according to Berenberg analysts. “If BT can defend 30 per cent of the
high-margin £600m voice revenues that we expect it to lose by 2020, it
could be worth as much as £2bn in value.”
It is not just cheap Sim-only deals, however. A range of pricing
options is expected from BT, including longer-term contracts that come
with expensive smartphones, and mobile data bundles covering the home.
BT has not yet detailed its plans, only saying that services would
build on a “strong WiFi presence”, while otherwise using EE’s network.
Further details are likely to be confirmed after its full-year results
on May 8.
Rival response
Mobile executives say it is difficult to gauge the impact of BT on
their businesses until its packages are revealed. Indeed, analysts still
question how disruptive they will be for the mobile industry.
How
disruptive can BT be? BT has form in using non-core products like BT
Sport to defend its core products like broadband. We believe that it
could take the same approach with mobile
- Berenberg analysts
UK
mobile prices are some of the lowest in Europe, and the concept of quad
play has not yet taken root, with only Virgin Media backing the
strategy. Meanwhile, even if BT managed to sell mobile to half its
broadband customers, that would account for only a single-digit share of
the overall market.
But given existing pressures on revenues in the sector, mobile
executives admit that the additional competition from a fifth mobile
player with its own network is unwelcome and could put further pressure
on prices.
BSkyB
may also need to respond by adding mobile to create its own quad play
offers. The recent talks about commercial deals between Sky and Vodafone
have been seen by analysts as partly a response to the threat to both
groups from a BT that spans the telephony, internet and TV markets.
It remains to be seen whether the average British household wants all
these services bundled into one tariff – but this is a question that
the former British telecoms incumbent is not afraid to explore.
