diamond fixed mobile onvergence

8/8/2019 Diamond Fixed Mobile Onvergence

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insight

The growing maturity of the telephone and telecom industry, the often

dramatically declining profitability of wireline, the growth of competition

and deregulation, and the consequent saturation of markets have

forced fixed and mobile operators to search for new sources of growth.

With the emergence of new technological innovations, there is renewed

enthusiasm for fixed-mobile convergence among beleaguered and

thin-profit operators. But will potential customers value convergent

propositions?

Driving Adoption of Fixed-MobileConvergent PropositionsA Consumer Perspective

By Maria Pecorari and Milan Sallaba


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Testing Two Fixed-Mobile

Value Propositions . . . . . . . . . . 3

Identifying Attractive Market Segments . . 7

About the Firm . . . . . . . . . . . . . 9

About the Authors . . . . . . . . . . 10

table of contents

introduction Fixed-mobile convergence is back on thestrategic agenda of telecommunications

operators worldwide. After years of

hype and unfulfilled grand visions, recentadvances in technology and network

asset integration are finally providing

new opportunities for the development of

convergent value propositions. Operators

now are looking seriously at fixed-mobile

convergence as a new way to grow revenues

in mature telecom markets.

While the industry and technology

perspectives of convergence are much

debated, the crucial perspective of the

consumer is less explored and understood.

Do consumers value convergent offers

enough to buy? Which features are most

valued? What are the barriers to adoption?

Findings from a DiamondCluster quantitative

market survey of UK consumers1 shed

new light on these fundamental questions.

Although the research focuses on the UK

market, the key conclusions will be relevant

for a wide range of mature markets.

The message from consumers is clear: the

simple bundling of fixed and mobile services

as they exist today has limited potential,

and will be met with inertia and high

discount expectations. However, sceptical

consumers are coming round to the notion

of convergence. Pricing, integration of VoIP

and other feature innovations will be key

to driving uptake of convergent offerings.

That insight has powerful implications for

operators. They need innovative pricing

strategies to differentiate the convergent

propositions from their unbundled competition.

In addition, operators need to innovate in

the area of service quality, focusing on

simple features that improve the basics

of the user experience, such as providingsuperior mobile reception indoors

and enabling seamless integration of

applications across devices.

Integration of Voice Over Internet Protocol

(VoIP) into convergent offerings is another

important feature to consider, particularly as

VoIP penetration grows and related services

become more user-friendly.

Convergent offerings need to meet

consumers high expectations for servicereliability and handset choices since they

appear unwilling to downgrade on these

purchase criteria.

Finally, these offerings need to be

targeted to discrete consumer segments

that show the greatest propensity to

purchase fixed-mobile offerings. The good

news for operators is that our research

has determined that the segments most

attracted to convergent propositions haveabove average telecom spend. However,

operators need to uncover new consumer

insights to identify those segments that

most likely will be early adopters of their

convergent offering, tailor the offering to

the needs of each segment and identify

competitive barriers to protect their most

vulnerable segments from the convergent

propositions of other operators.For more information contact:

Mark Keeley, Partner (US)

[email protected]

Milan Sallaba, Partner (Europe)

[email protected]

1. Survey of a representative sample of 610 UK

consumers, mobile and internet users, aged 1655,

conducted June, 2005.


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Testing Two Fixed-Mobile

Value Propositions

DiamondClusters survey of 610

consumers in the United Kingdom focused

on uncovering their views on two fixed-

mobile concepts that capture the keycomponents of convergent propositions

(Figure 1):

A packaged offer of fixed voice, mobile

and internet access with a single

contact centre, a single bill and a single

web site to manage bills and queries.

The benefits tested were simplicity

(all fixed and mobile services bundled in

one, single customer service interface)

and cost-savings (price discount on the

packaged services).

An integrated offer, requiring a

broadband connection at home. In this

concept, a single, dual network handset

works as a standard mobile device whenoutdoors and routes traffic through the

broadband connection when at home.

Calls from the mobile are priced at fixed

line rates when at home. Value-added

services include a single voice-mail,

a single address book and a personal

diary accessible from all terminals. The

benefits tested were a better consumer

experience (in particular, improved mobile

reception at home), value-added features

and cost savings (fixed rates for mobilecalls from home).

Components of Convergent Propositions

Key attributes:

Better service

Value-added features

Cost savings

Integrated proposition

Terminal

Integration

Product

Integration

b

Degree of integration

Complex

ityofDelivery

Key attributes:

Simplicity

Cost savings

Packaged proposition

CustomerService

IntegrationService

bundling

a

Figure 1


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Expected Packaged Proposition Savings

What would be the minimum discount on your total bill

for you to consider the packaged offer?

20%

8%

19%

22%

16%

5%

1%

Note:Do not know=9%

% Respondents

1-5%

510%

1015%

1520%

2025%

2530%

>30%

Figure 2

Price Pressures on

Packaged Concepts

Consumers did not appear to see compelling

value in the simple bundling of fixed andmobile services. To overcome the

inconvenience of switching providers

(a barrier to adoption more significant than

the actual cost of switching), consumers

would have to see a value proposition that

included significant cost savings and clear

value-added features.

If the value-added features are few, then

the size of the expected cost savings needs

to be significant. In the tested packaged

proposition, 20 percent of consumerrespondents said they would expect a cost

saving of at least 30%. Forty-seven percent

would expect a cost saving of at least 20

percent on their overall bill for them to

consider the service (Figure 2).

The price sensitivity of consumers puts

some serious limitations in building a

business case for convergent propositions

that only offer limited improvement to or

differentiation in the user experience. The

value lost on up-front selling costs and price

discounts could significantly offset the value

created through increased usage and loyalty.This would be an issue, in particular, for

incumbent operators, while challengers could

be satisfied with lower margins and adopt

more aggressive pricing strategies.

Another key barrier to adoption is consumers

scepticism about whether the packaged

proposition would deliver real savings or

even be suitable for their usage profile

(Figure 3).

Barriers to Adoption of the Packaged Proposition

For which of the following reasons would the packaged offer

not be attractive to you, if any?

27%

30%

36%

41%

52%

% Respondents(multiple answers)

Sceptical aboutthe real savings

Inconvenienceof switching

Sceptical about fitwith my usage needs

Want toshop around

Cost ofswitching

Figure 3


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This scepticism can be explained by a market

that already is populated with a variety of

competitive, unbundled pricing propositions

tailored to different usage needs.

Operators need to be innovative in their

pricing design to differentiate their

convergent offers from their unbundled

competition in ways that will drive uptake.

For example, mobile operators could use

large minute bundles to aggressively displace

an incumbent operators fixed revenues in

combination with unlimited on-net calls

to create group effects. A critical factor

for successful operators is the ability to

determine the right price levers to find the

optimal trade-off points between re-price

effects on one side, and increased usage

and loyalty on the other.

Integration of Customer Service

Alone Would Not Drive

Convergence Uptake

Although consumers value integratedcustomer service features, these alone

would not be a purchase driver. Among

these features, having a single bill or a single

web-site for bill management are more

appreciated than having a single call centre

number, pointing to the importance

of cost management considerations over

other customer service criteria.

Feature Innovation is Key

More consumers would find the integrated

proposition more attractive than the

packaged proposition: 41 percent and

32 percent respectively. Consumer interest

in the integrated proposition was driven

by its clear cost benefit (mobile at fixed

prices when calling from home) and by

value-added features. Consumers most

appreciate simple value-added features thatimprove the basics of the user experience

such as improved mobile reception at home

(Figure 4). Indoor mobile reception is still a

prevalent issue for many households and is

set to continue with the introduction of 3G

services. This is a real opportunity for dual

mode handset propositions if they can deliver

on their promise to transfer fixed and mobile

traffic seamlessly across networks.

Because consumers do not perceive much

value in a simple bundling of services, feature

innovation will be essential in differentiating

convergent offerings. Innovation around

applications may further help operators to

mitigate consumers discount expectations.

Most Valued Benefits of the Integrated Proposition

How attractive is the following benefit to you?

2.5

3.0

3.5

4.0

Scale: 1= Not at all attractive, 5 = Extremely attractive

4.5

Fixed ratesfor mobile

calls at home

Improved mobilereceptionat home

Singlenumber

Singleaddress book

Multipleusers for

the service

Singlehandset for

all calls

Singlevoicemail

Singlediary

All consumersConsumers finding the "integrated" proposition attractive

Figure 4


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Consumers Will Not Downgrade

on Service Quality or on Choice

Not surprisingly, 94 percent of the most likely

adopters of the integrated propositionwould buy this service only if it was reliable.

While this may appear an obvious finding,

it does reiterate the importance of rolling

out stable offerings. It also indicates

potentially longer adoption timelines for

integrated offerings than operators would

expect, as consumers are more likely to

wait and see before adopting a service

with which they have no previous experience.

Consumer respondents foresee longer

adoption timelines for the integratedproposition than for the packaged

proposition, even though the integrated

proposition is more attractive.

Furthermore, 75 percent of consumers

said that their decision to purchase an

integrated proposition would be influenced

by the available handset choice (Figure 5).

Integrated propositions that do not

meet consumer requirements for service

reliability and choice are likely to perform

poorly in the market. Consumer demand

for high quality service will be particularly

relevant for convergent propositions based

on terminal integration or on content and

application integration. In the case of

terminal integration, given that attractively

priced, reliable dual mode WiFi[2] handsets

are only expected to be rolled out broadly in

2006, convergent concepts based on handset

integration appear unlikely to significantly

penetrate the market in this period.

Fixed line Number Stickiness

Among the most likely adopters of the

integrated proposition, only 22 percent

would be very likely to give up their fixedline number, while 27 percent would be

somewhat likely to give up their fixed line

number (Figure 5).

Consumer preference towards keeping

a fixed line number is an advantage for the

fixed line incumbent as it limits the scope

for challengers to fully displace the

incumbent through convergent offerings.

However, loyalty to a fixed line number

may gradually diminish as consumers

become more familiar with competitors

integrated propositions.

Attitudes Towards the Integrated Proposition

Which of the following statements applies to you, if any?

22%

51%

86%

27%

24%

8%

% Respondents(multiple answers)

I would consider

the service onlyif it was reliable

Handset choicewould affectmy decision

I would give upmy fixed line

number

Current dual mode handsets are based on Bluetooth, not on WiFi technology.

Strongly appliesSomewhat applies

Figure 5


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Know Your Customers

There is a variety of appetites towards

convergent propositions in the market.

DiamondClusters research identified four

distinct segments (Figure 6). The most likely

adopter of convergent propositions is the

technophile segment. This segment is

comprised of early adopters of technology,

with a younger age profile (late teens to mid

30s), predominantly male, with higher than

average broadband and VoIP penetration,

above average cable penetration, above

average mobile spend and predominantly

on mobile contract. Another segment

likely to adopt convergent offerings, the

convenience seekers segment, is more

likely to be in a household with children

and has a late 20s to mid 40s age profile.

Similar to the technophile segment,

these consumers tend to be above-average

mobile spenders.

Identifying Attractive

Market Segments

Operators need to add new insights to their

existing segmentations to understand each

groups distinctive needs and appetitestowards convergent propositions. Tailoring

their offers to segment-specific needs

(e.g. need for high broadband speed or need

to keep in touch with the rest of the family)

would help differentiate an offer in the mind

of the consumer and mitigate some of the

price pressure on the offer.

To build greater understanding of consumer

attitudes towards convergence, operators

should consider targeted cross-sellingactivities on their base. This approach

would have two advantages: to capture

consumers at times when they are

more likely to reconsider their existing

providers, and to build direct experience

with consumer responses to specific

convergent propositions.

Customer Segmentation by AttitudesTowards Convergent Propositions

Integration

Attractiveness of Conversion Propositions*

Sample average

14%

17%

18%

24%

Sample average

27%

0%

10%

20%

30%

40%

Expected cost

of savings

1 2 3 4 5

Convenience

seekers

Technophiles

Value

seekersDiscount

seekers

Un-bundlers

(*) 1: Not at all attractive, 3: Somewhat attractive, 5: Very attractive

Figure 6


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Do Not Ignore Potential

Disruptive Impact of VoIP

Seventeen percent of surveyed UK

broadband consumers reported that theyhave VoIP services. Their profile is relatively

broad in terms of age, employment, income

and telecom spend. The highest VoIP

penetration is in the technophile segment

at 25 percent.

While consumer penetration of VoIP is

rapidly increasing, the degree and speed

of revenue cannibalisation by VoIP is still

unclear. However, new features are helping

to overcome some of the limitations on the

user friendliness of VoIP.

If VoIP proves to be successful in migrating

a significant share of voice traffic, and given

the price attractiveness of VoIP, operators

would be incentivised to launch mobile +

VoIP + broadband services leveraging VoIP in

their price positioning. This approach could

be either an offensive or as a defensive

move. These services could be launched by

operators with both fixed or mobile assets

or through partnerships (e.g. a fixed line

challenger partnering with a mobile network

host with an MVNO deal). However, this

could, in turn, accelerate the process of

revenue cannibalisation by VoIP; thus careful

positioning of VoIP next to premiumvoice services is required. In this scenario,

the disruptive impact of VoIP could be

very significant.

Operators should monitor changes in

behaviour of early adopter segments,

as a process of revenue erosion through

VoIP not only in fixed, as already experienced,

but also in mobile, may be happening on a

grand scale soon.


9/12

DiamondCluster International (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,

DiamondCluster works collaboratively with

clients, unleashing the power within their

own organizations to achieve sustainable

business advantage. DiamondClusteris headquartered in Chicago, with offices

across Europe, North America, the

Middle East and South America. To learn

more visit www.diamondcluster.com

About the Firm


10/12

Milan Sallaba,a telecommunications

industry partner in DiamondClusters

London office, has over a decade of

consulting experience focusing on thetelecom, consumer electronics, media and

entertainment space. His client support

spans strategy development, operational

launches and improvement programs.

As a widely acknowledged industry

expert, he is regularly called upon as a live

commentator for television news channels

including the BBC, CNN and Sky. His

commentary and bylines have appeared in

many international publications such as The

Financial Times, CNN.com and 3G Mobile.Milan has contributed significantly to

developing and delivering value at client

engagements across Europe and Asia.

Maria Pecorari is a principal with the

telecommunications industry practice in

DiamondClusters London office. Maria

has extensive experience as an advisor tosenior management and in serving in key

interim management positions at telecom

operations across Europe, Asia, and Africa.

Her expertise focuses on corporate

strategy definition, commercial strategy

development, pricing, offer design and

the execution, launch and turnaround of

telecommunications operations.

SueLi Lew, Adriana Guerrero, Max Heimann,

Laurent Bensoussan, Santiago Argelich and

Hamilton Sekino of DiamondCluster also

contributed to this report.

About the Authors

0


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2005 DiamondCluster International, Inc. All rights reserved

US

DiamondCluster International, Inc.

Suite 3000 John Hancock Center

875 North Michigan Ave. Chicago, IL 60611

T (312) 255 5000 F (312) 255 6000

www.diamondcluster.com

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Europe

DiamondCluster International, Ltd.

10th Floor, Orion House

5 Upper St. Martins Lane

London WC2H 9EA

T + 44 20 7959 7700 F + 44 20 7959 7710

www.diamondcluster.com

For more information contact:

Mark Keeley, Partner (US)

[email protected]

Milan Sallaba, Partner (Europe)

[email protected]

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