Competitive bundling

Competition is a strong market driver for improving a telco`s value proposition. Besides the proliferation of basic products and services, competition also brings about the offering of bundled products and services. Bundled services offer the customer significant value such as a one-stop solution, simplification of the purchasing and billing processes and overall improvement in customer service.

The key to successfully launching a bundled offering lies in its simplicity.

While telecommunications bundling is sweeping through global competitive markets that are driven by competition, it is not sweeping through SA. Furthermore, the ability or inability to offer bundled services is an important benchmark for defining the competitiveness of a telecommunications market.

What is bundling? Why bundle? When will we have bundled telecommunications offerings in SA?

So what is bundling? As is often the case, if one speaks to different operators, one receives different answers. Bundling is taking discrete products and services that can be offered across common or separate platforms, and creating a new market offering.

A study of competitive markets shows that product and service bundling has undergone change. Bundling is not cobbling together disjointed products and services. It is about defining value propositions and then building the market offering using the core products and services as building blocks.

Historical bundled services were price-based; this was followed by the single bill concept that offered simplicity regarding billing. Today the bundles are built around simplicity. Building bundled offerings using price as the only glue may well work in semi-competitive markets but it does not work in highly competitive markets where migration from one service provider is relatively painless.

The key to successfully launching a bundled offering lies in its simplicity. The easier it is for customers to understand the offering, the easier it will be for them to make a value judgement. Complex bundled products and services that carry a whole set of different pricing and usage rules will ultimately be short-lived.

The benefits that telcos see are reduced costs, moving more product and services, keeping the customer through service lock-in. The customer sees the telco as offering a one-stop solution, simplification of the purchasing and billing processes and overall improvement in customer service.

We have not yet seen significant movement by the major operators in bundling products and services in this country. All the operators offer a range of discrete products and services but no single operator has launched bundled offerings that are positioned strongly in the market.

In some instances, regulation prohibits an operator from offering bundled services, especially when that operator is the infrastructure provider to service providers with which they directly compete for business. For example, it may well be construed as unfair competitive behaviour were Telkom to bundle basic services together with value-added services and position this as a unique market offering. In theory, Telkom would be using its monopolistic position and market power to distort a competitive VANs market.

In the last three months, MTN and Vodacom have launched a range of different products and services built around the prepaid concept. Such proliferation of products and services is characteristic of a mobile operator undergoing transformation from serving the business/upper residential markets to serving a mass-market. Nevertheless, have MTN and Vodacom missed an opportunity for bundling? I would argue yes. Both MTN and Vodacom can offer bundles that include voice, data and Internet access. Image the simplicity of receiving a single bill that itemises your voice and Internet access charges.

The lack of offering such bundles may well be the gate through which the third cellular operator enters the market. But watch this space, MTN and Vodacom may well close this open gate rather promptly.

The service provider industry in SA can play a pivotal role in furthering the concept of product and service bundling. However, this would require a radical rethink of their value and role in the telecommunications industry. Just image the situation where the cellular service providers or Internet service providers were able to offer basic telephony services on behalf of Telkom or a second network operator. These service providers, which understand and practice the concept of customer service, would develop a range of bundled products and services that would benefit the customer.

I suspect that true bundling will only be seen once we have a competitor to Telkom. Until then the ability to improve the value proposition of many of the operators will be limited. Telkom and Vodacom could well offer bundled fixed and mobile services but if MTN was excluded from offering a similar offering then MTN could claim that Telkom is unfairly favouring Vodacom. If a second network operator was licensed then MTN could offer bundled fixed and mobile services through its service providers in competition to that offered by Telkom/Vodacom.

Until Telkom gives up its monopolistic position, the consumer will, broadly speaking, not benefit from the concept of bundled offerings. So roll-on time and the introduction of competition to Telkom.