Pipeline Publishing, Volume 4, Issue 2

	This Month's Issue:
	Keeping Customers

All-or-Nothing: Raising the Stakes on Customer Retention in an N-Play World

By Lars Wahlstrom and Steve Bamberger

The triple-play is hot. And no wonder — bundled services are the ultimate win-win. Customers like the price savings and simplicity. Providers like the higher margins, share-of-wallet, and lower churn. Virtually every cable company and traditional telecommunications company now offers a triple-play of voice, data, and either mobility (for the phone companies) or video (for the cable companies). And with Verizon and AT&T rolling out IPTV and the cable companies offering mobility services, n-play has reached the tipping point.

N-Play Growth

The opportunity shows no sign of abating. While 27% of US households have all three triple-play products, only 3% to 4% actually purchase those products as a bundle.¹ This gap will close quickly. AT&T has offered quad-play in limited markets since 2004; Verizon, building on its commitment to FiOS, plans to launch quad-play by the end of this year. The cable companies are major players, as Comcast, Cablevision, Time Warner, and Cox have begun to roll out quad-play service in test markets. Time Warner Cable demonstrated its mobility services at The Cable Show in Las Vegas in May, complete with access to its video content. By 2010, 39% of US households are expected to have triple or quad-play services, according to an IDC study.²

For consumers, bundled services offer a killer benefit — cost savings. Indeed, the overwhelming majority of customers are influenced by price in selecting an n-play bundle — twice as much as any other factor. Service providers are happy to surrender the cost savings in exchange for greater share of the customer’s communications business and the lower risk that the customer will jump ship.

The research shows that once customers choose a bundle of services, they’re hooked. According to the Yankee Group 2005 US TAF Survey, customers of bundled services from the local phone company are 13% more satisfied and from their cable company are 25% more satisfied than their a la carte customer counterparts.³ IDC found that two-thirds of bundled customers say that they had no plans to switch providers.⁴ Among households with bundled voice and data services, only 5% would be likely to switch local phone providers in the next year, compared with 10% of average U.S. households.⁵

Bundled customers spend more with their providers, too. Double-play customers spend between $61.19 and $96.35, and triple-play customers spend an average of $124.39 a month.⁶ These loyal, high-spending customers are also the perfect targets for premium data and content services. The

With Verizon and AT&T rolling out IPTV and the cable companies offering mobility services, n-play has reached the tipping point.

British youth of today will spend on average £4,320 (or more than $8,500) on ringtone downloads to their mobile phones over the next 15 years!⁷

Indeed, it seems that triple-play customers have reached nirvana. They get a better price and reward their provider with a greater share of their spending and higher loyalty.

The All-or-Nothing Customer

Unfortunately, the formula is not quite that simple for providers. If Comcast loses a data services subscriber to Verizon, it may also lose the television service — depriving it of its long-standing tie to that customer and any opportunity to recapture the business. If AT&T loses a mobility subscriber to Time Warner Cable, it may have no further tie to that customer at all. (In the next five years, 30% of U.S. households will have completely cut their wireline service with their local phone company.⁸) In short, n-play services dramatically raise the stakes on each customer. If simple bundling is about capturing “share of wallet,” n-play services are about “all or nothing.”

N-play services are relatively new, but customers already buy them like commodities. (When price is the #1 factor in selecting a provider, no other conclusion is possible.) But that also means that the differentiators — when they emerge — are going to have a disproportionate effect on the market. Let’s call this the iPhone effect.

As of this writing, Apple’s iPhone has already had over a million inquiries. Even if only half of those customers end up buying… and even if only half of those customers don’t already have Cingular (the exclusive wireless carrier of the iPhone),… that still suggests 250,000 short-term defections to Cingular for the iPhone when Apple releases it on June 27. If these customers like the phone and stick with Cingular (now part of AT&T), the company

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