Telecom Carriers Resort to Bundling Due to Alarming Drops in Prices

Telecom carriers have been involved in aggressive price wars due to intense competition in the communications market. The prices of most services have fallen by 10 percent every year even while their adoption increased by around 15 percent. This makes it difficult to create a defendable and profitable niche within the market because dozens of competitors can deliver the same service. Telecom carriers see a way out of the situation with service bundling. Apart from reducing customer churn, it enables carriers to provide commoditized services at prices higher than the market value. Bundling can also help save costs in areas of bill statement creation, paper, printing, and postage.

This Frost & Sullivan research service provides an overview of and outlook for the U.S. communication service markets. It provides the prospects for various segments including wireless, local wireline, long distance, international long distance, cable and satellite TV, and burgeoning satellite radio. The study illustrates the analyses with graphs comparing revenue, subscribers, cell sites, and employee growth. Trends in market size and share are also included.

Wireless Steals the March over Wireline Services

The biggest trend in the communications market is the replacement of wireline with wireless services. In 2002, with the enabling of number portability, customers could keep original phone numbers even after transferring them to different carriers. When this scheme was announced, 800,000 wireline consumers switched to wireless numbers. With only 100 million consumer home phone lines, the wireline market is receding rapidly.

Wireless services can capitalize on e911 location-based capabilities to win over customers that are averse to mobile services because of safety concerns. Service providers can also make handsome profits by pursuing wireless Internet applications such as the hugely successful data-only broadband wireless. Although the revenue was threatened by price-based competition, the wireless segment has been able to stay profitable mainly because of economy of scale. While the average price per minute dropped from 43.9 cents to 10.3 cents, the minutes per user grew from 140 to 483.

Internet Services Become a Major Money Spinner for the Market

Internet services follow at the heels of wireless services in terms of growth. While it is not growing quite as rapidly as wireless in terms of new subscribers, broadband replacement of dial-up is causing Internet access revenue to increase faster than wireless’. This is because its prices are too low for the value proposition and most consumers would pay much more for Internet access. "Carriers should charge by speed to increase current pricing and competitors would be wise to compete on speed instead of price," notes the analyst.

Even though Internet services’ increase in subscriber numbers is not as impressive as its revenue contributions, it is not anything to be dismissed either. "At the end of 2003, about 21.2 percent of U.S. households with cable TV had subscribed to cable modem broadband Internet access - that is roughly 16.1 million users," says the analyst. The Internet is expected to penetrate more than 85 percent of households in the United States in 2010 at million homes a year, and thereby, generate huge revenue for the communications market.