Fascinating… After the 5+ year wrangle with Government that was the radio spectrum auction and with 4G services finally rolling out across the UK, now Vodafone follows EE’s lead in launching home broadband and TV services. It’s a nod of appreciation to BT, the only other telecoms operator to have successfully launched a TV service in the UK and offer (genuine) competition to Sky and Virgin, albeit at significant cost. But what do mobile operators want with TV…?
Throughout the 1980s, 90s and early 2000s mobile operators enjoyed an ever increasing position of strength in the market as the orchestrators of the portable connectivity device in your pocket. Until the first iPhone was released in 2007, no other organisation knew more about you when outside your home – your communications, your most dialled numbers, your location, financial transactions, … But since the App Store and touch interface operation systems, the role of the mobile operator has diminished to that equivalent of the Highways Agency – on hand every 18-24 months to address connectivity needs, but otherwise resigned to an infrastructure maintenance role, allowing the car’s on-board computer to do the rest.
As the market has saturated, the mobile value proposition has evolved in two ways – first the entry of rich content and OTT comms providers (e.g. Whatsapp, Skype, Viber) diluting the value of the mobile component of the communications bundle, and second the commoditisation and standardisation of pricing which in turn has further eroded value from MNOs. The challenge for operators is that as a consumer facing brand, their perceived role has shifted from that of essential communications provider to a financing model for new handsets – i.e. I walk into the Vodafone store to negotiate a good deal on my handset, rather than talk through my communications needs. And all this at a time when bandwidth constraints are increasing, spectrum scarcity is posing a significant challenge, and operators are struggling to keep up with the underlying cost of maintaining QoS on their networks.
So where now for operators… well according to Vodafone and EE the answer lies in home broadband and TV…
Mobile has long been sitting on but yet to fully exploit the opportunities of M2M (or what you and I might call the Internet of Things). The term Internet of Things is really a catch-all for anything that isn’t yet connected to a network – a watch, a fridge, your clothes, a UPS delivery vehicle, you name it. But as the hype around IoT distills into tangible business opportunities, it’s the in-home applications that appear to be winning most traction; ironically beyond the reach of the assumed default IoT network providers, the mobile operators. The first significant opportunity is in smart meters and in September 2013, Telefonica and Arqiva were awarded licences to become the communications providers underpinning a UK-wide smart metering network collecting and transmitting data between homes and providers. This gives them a desirable head-start in the in-home IoT connectivity race.
For Vodafone and EE, the onus is on them to respond with an offer that can win share in the in-home connectivity market, not that they will be able to necessarily penetrate the Government licences for smart meters, but so that they have the opportunity to underpin the future connectivity requirements of IoT which will most likely flow through a broadband router. Today that market is dominated by the incumbent fixed line operator BT (31%), with Sky (20%) pushing a bundled premium content proposition, Virgin (20%) pushing a superfast proposition and TalkTalk’s budget proposition rounding off the 4 main players (15%). But as all these providers have found, up-selling subscribers to anything beyond a basic DSL connection has proved difficult when competing on ‘speed’ and price alone.
BT’s dramatic ramp-up of their TV activity in 2012 following the successful acquisition of Premier League rights is fundamentally driven by the need to drive their position in broadband. I’m not going to describe their TV proposition as a loss-leader because that would do a dis-service to the excellent work they’ve done in launching channels and securing valuable content deals across Sports, Movies and drama. But their TV P&L can take the hit in order to provide security to their fixed line business.
And that’s exactly what Vodafone and EE are trying to do… unlikely to be coupled with headlines announcing content deals significant investments in premium rights, but underpinned by a strong OTT or IP-delivered content offer to drive broadband adoption. According to Ofcom’s latest CMR, nearly 1/4 UK households now take a bundled TV and broadband package.
So is TV just a Trojan horse to make Vodafone a relevant player in the in-home connectivity market? Well of course it’s not as simple as that. There are a number of advantages to TV as a complement to both a broadband offer and Vodafone’s own challenges as a telecoms provider of diminishing consumer significant (listed below). But there is a longer term imperative that mobile operators are suitably positioned to take advantage of the IoT opportunity.
Advantages of TV for Vodafone:
- A content proposition may be perceived by the consumer as more immediatley valuable and relevant than a pure comms offer;
- By offering a bundled proposition, Vodafone and EE will be able to cross promote between product lines and drive retention through bundled pricing models (which has been previously unavailable for them), increasing stickiness and reducing churn;
- Let’s not forget that content carries a far greater share of wallet in the home than connectivity, and through a TV proposition both Vodafone and EE can tap into this;
- TV increases ‘touch points’ with the consumer allowing for both promotional reach and a feeling of engagement from the Vodafone brand;
- And finally, TV will provide Vodafone and EE with deeper insights into their consumers and a richer data set to help shape future propositions.
Notice in none of this have I referred to the potential for mobile + broadband or mobile + TV bundling, quite frankly because it doesn’t work… just ask Virgin. Less than 1% of UK households currently take a mobile + broadband bundle according to Ofcom, and that figure is down since 2011. The real value here is in winning a slice of the valuable in-home connectivity market.