Bundling, Differentiation, Alliances, and Mergers by svc79829

VIEWS: 8 PAGES: 22

									  Bundling, Differentiation,
   Alliances, and Mergers

           Johannes M. Bauer
        Michigan State University
First Transatlantic Telecom Industry Forum
     Montpellier, November 22, 2005
                Agenda


   Convergence
   Bundling
   Differentiation
   Alliances and mergers
   Synthesis

                            2
       Morphology of convergence


   Technological convergence
   Markets: convergence in
    substitutes and complements
   Organization, ownership
   Regulatory convergence

                                   3
             Convergence triggers


   General purpose technology
   Policy changes
       Telecom Act of 1996
       RBOC entry into long distance
       Reduced unbundling obligations
       DSL declared information service
   Corporate strategy
                                           4
         Convergence and divergence


   Integrating forces
     Telecom+computing=telematics
     Telematics+media=multimedia

     Fixed+mobile+Internet


   Disintegrating forces
       Specialization, differentiation

                                          5
     Convergence, competition, strategy


   Convergence in substitutes
       Intensifies competition
   Convergence in complements
       Reduces intensity of competition



                                           6
         Convergence economics


   Critical tension
     High sunk costs
     Commodification


   Strategic responses
     Bundling, differentiation
     Alliances, integration, mergers



                                        7
                   Bundling

   Stabilization of willingness to pay
   Creation of entry barriers
   Approaches
       Pure bundling
       Mixed bundling
   Supplier and consumer benefits
       Reduced churn, single bill

                                          8
            Effects of bundling

                 Pure bundling
               C1          C2     C3
Service A      100         70     30
Service B       60         70     120
Bundle         160         140    150

                Mixed bundling
               C1          C2     C3
Service A      100         80     30
Service B      10          100    140
Bundle         110         180    170

                                        9
            Competitive positions


   Telcos lack video delivery
       Joint marketing with DBS
   Cable lacks mobile presence
       Joint ventures with mobile
   Wireless, BPL, new entrants
    lack key assets, competencies
                                     10
          Suppliers of bundles


   IXCs and ILECs (local, LD)
   Rural LECs triple play pioneers
   Major ILECs and cable MSOs
   Some bundling by energy
    companies (public power)

                                      11
                  Case 1: Qwest

Options             #1          #2          #3          #4
Local               X           X           X           X
Long distance       X
DSL                             X           X
DirecTV                                     X
Wireless                                                X
Regular            $45.99     $70.98 $122.97          $65.98
Bundled intro      $40.99     $45.98 $92.97           $60.98
Bundled regular    $40.99     $65.98 $112.97          $60.98
                    Prices for Nebraska as of November 15, 2005
                                                                  12
        Case 2: SBC Communications


Options         #1           #2           #3          #4
Local            X            X           X            X
Long distance    X            X           X            X
DSL                           X                        X
DISH Network
Wireless                                  X            X
Savings/month   Up to        Up to       Up to        Up to
                $2.96        $3.00       $5.00       $11.00
                     Prices for Michigan as of October 1, 2005
                                                                 13
                Case 3: Comcast


Options            #1           #2           #3          #4
Local              X             X                        X
Long distance      X             X                        X
Internet                         X           X            X
Digital cable      X                         X            X
Wireless
Savings/month     $10.00      $10.00       $10.00      $15.00

                        Prices for Michigan as of October 1, 2005

                                                                    14
             Pricing of bundles


   Promotional bundles
     Offer significant savings
     Typically expire after one year


   Regular bundles
       Relatively low savings
   Mixed bundling prevalent
                                        15
                 Diversification

   Carriers with network constraints
       Mobile carriers, power utilities
   New entrants
       Google, Yahoo, Microsoft
       Skype, Nintendo
   Effective competitors
                                           16
      Sprint Nextel Vision Multimedia


   Radio and TV services
         20 SIRIUS Mobile radio channels
         On-demand radio (e.g., NPR)
         CNN, Fox, Weather Channel, GoTV
         Streaming radio (Rhapsody)
   Comic strips, games
                                            17
            Mergers and alliances

   Active or defensive strategy
   Significant mergers
       SBC + AT&T = the new AT&T
       Verizon + MCI
       Cingular + AT&T Wireless
       Sprint + Nextel
                                    18
       U.S. mobile market structure

100%                                                    Others
                                                        Bell South
90%
                                                        GTE
80%
                                                        Air-Touch
70%
                                                        Bell Atlantic
60%
                                                        SBC
50%
                                                        Alltel
40%
                                                        T-Mobile
30%
                                                        Nextel
20%
                                                        Sprint
10%                                                     ATT
 0%                                                     Cingular
       1998   1999   2000     2001    2002    2005*
                                                        Verizon


                            Source: FCC (1998-2003); *2005 estimated
                                                                        19
                        Alliances


Participants                  Purpose
SBC−Yahoo; Verizon−Yahoo;     Co-branding of Internet access
Bell South−Yahoo
SBC−EchoStar;                 Sale of satellite broadcasting
Verizon−DirecTV; Bell         service
South−DirecTV
Sprint Nextel PCS−Real        Mobile broadcasting and
Networks; Sprint Nextel       streaming content
PCS−SIRIUS; Verizon−MSN
Comcast, Time Warner Cable,   Quadruple play services, next
Cox Communications,           generation mobile multi-media
Advance/Newhouse              services

                                                               20
          Overall assessment


   Complicated patterns of
    industry transformation
   Two principal types
   Convergence economics
   Integration and disintegration

                                     21
                   Synthesis


   Convergence strategies
       Bundling
       Diversification
       Alliances and mergers
   Competitive impacts?

                                22

								
To top