The Quad-Play Balancing Act
Understanding the Business Model
By Michael Dargue and Jennifer Lin
Service providers continue to invest heavily to build quad-play bundles, many with high hopes for lower
churn and better margins. The value of these bundles to customers and service providers is yet to be
proven. However, with increasingly share of the market, quad-play bundles cannot be ignored.
August 2015
The Quad-Play Balancing Act
Introduction
Quad-play bundles have been available since the mid-2000s, although their presence was
limited to relatively few countries. Since these early bundles, the landscape in both fixed and
mobile markets has been transformed by the proliferation of smartphones, increasing
product substitution with over-the-top (OTT) content delivery options, and operator
consolidation. With global quad-play subscription growth at a CAGR of 25% between 2014
and 2019, hesitant service providers must reevaluate their strategic position towards
bundling.1
Quad-play bundles combine fixed broadband, fixed voice, and paid TV services with mobile
voice and data services. Like dual-play and triple-play predecessors, the quad-play bundle is
a calculated effort on the part of service providers to reduce churn, increase revenue, and
claim greater market share. This report illustrates the key factors that service providers must
consider to address this nascent market.
Today’s Quad-Play Market
Based on the experience of selected Western European markets, consumer demand for quadplay bundles not only exists, but can also redefine a broadband market. In 2014, over 30% of
wireline broadband subscriptions in Portugal and Spain were quad-play bundles (see Figure
1), a percentage that is expected to increase to approximately 60% over five years.2
High levels of quad-play adoption, however, are not universal. In 2014, the five largest quadplay markets in Western Europe accounted for approximately 60% of all quad-play
subscriptions; France alone comprised over 25% of global quad-play subscriptions.
Neighboring operators in the UK and Germany also offer quad-play bundles, but have yet to
see the level of penetration among quad-play leaders. In the US, where quad-play bundles
have been offered for almost a decade, penetration is just 1.5%.
1
2
Ovum
Ovum
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The Quad-Play Balancing Act
Figure 1.
Quad-Play Bundle Subscriptions
Sources: Ovum, Ofcom
The success of a quad-play bundle, however, relies on more than high consumer uptake. That
uptake must be primarily driven by untapped consumer demand for connectivity solutions at
a different price point, rather than by consumers simply seeking lower prices for the services
they already purchase separately. French and Spanish households often save upwards of 20%
through bundling; the US, by contrast, offers savings closer to 2%.3 The business decision to
discount, and to what degree, remains an open question.
Challenges to the Quad-Play Bundle
Although marketed as the next step in the bundling evolution from triple-play, the quad-play
bundle challenges how service providers coordinate, package, sell, and enable services. Fixed
service providers offer households all-you-can-eat subscriptions, but mobile operators often
charge individuals based on usage. Operators must effectively segment customers according
to both their fixed and mobile preferences. Customers expect consistent service and standard
billing, but inter-operator agreements that provide a quad-play service are subject to revision,
putting margins at risk.
Furthermore, these providers still face the inherent risks of product bundling, including the
cannibalization of existing revenue streams, particularly that of the still growing triple-play
market.
3
Ofcom
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2
The Quad-Play Balancing Act
Figure 2.
Benefits and Challenges of Quad-Play, Compared to Dual- and Triple-Play
Does the Business Case for Bundling Stack Up?
The value of quad-play bundles has been a source of controversy. Some service providers
suggest that quad-play bundles are only relevant to “high-end” markets with sufficient wealth,
where upsell and cross-sell opportunities are more lucrative. Others question quad-play
bundles more fundamentally.
Tele2’s CEO, Mats Granryd, has argued, “The buying patterns [for fixed and mobile services]
are completely different…in places we have launched 4G, the mobile service is in fact a great
replacement for the fixed service.”4 Ronan Dunne, the CEO of O2, shares a similar skepticism
of quad-play bundles, stating that price cuts and a quad-play bundle is neither a value-add
nor a potential source of differentiation among quad-play providers.5
These disagreements reflect the difficulty in quantifying the long-term returns on a quad-play
investment. Reduced rates of churn may be indicative of high cannibalization, as loyal
customers receive discounts on services they would have already purchased separately. The
gains may also be temporary as more operators develop their quad-play products.
For some service providers, interest in quad-play bundles is likely to go beyond a desire to
lessen inter-operator churn. The traditional fixed and mobile value chain is already under
threat from a new wave of competitors.
Alternative OTT content providers can be used as a cheaper substitute to Pay-TV services, and
in July 2014, over 40% of American homes did not have a landline.6 These developments
challenge the value of the bundled components, but it is also an opportunity: the quad-play
4
MobileWorldLive
London Evening Standard
6
TIME
5
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3
The Quad-Play Balancing Act
market may be a way to segment customers effectively so that the cross-selling and up-selling
of products can combat these declines.
Quad-Play Value Propositions
The structure of a quad-play bundle can discount prices relative to purchasing the core
services on their own, include extra services or products, or provide a combination of
discounts and extras. At its core, the choice of structure will determine the bundle’s ability to
price differentiate among customers, reducing threats such as cannibalization or product
substitution, and achieve economies of scale.
Figure 3.
Quad-Play Value Proposition Comparison
Effective bundle design must be able to mediate the costs and benefits of cannibalization,
changes in churn, the amount of upsell, the costs of integration, and economies of scale. The
number of moving components requires detailed analysis to achieve a deeper level of insight
into the market.
For long-term success, bundles must be able to adjust for evolving consumer habits and
preferences, new services, and a changing competitive landscape. Today’s customers may
look to premium TV content and superfast broadband capabilities as fundamental sources of
differentiation among quad-play bundles; tomorrow’s customers may not.
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The Quad-Play Balancing Act
Identifying Quad-Play Opportunities
The development of a quad-play bundle is a significant investment. A service provider may
need to pursue acquisitions and partnerships to provide all four services, integrate
technologies and systems, coordinate marketing, and develop new models to understand
consumer behavior.
Given that latecomers to the quad-play market may lose access to the resources necessary to
provide a quad-play bundle, the ability to identify when and where quad-play opportunities
will emerge is key to success in this space. In our experience, factors that service providers
can use to identify the quad-play opportunities have included:
1. Availability of network access through acquisition, leasing, or wholesale purchases.
2. The wealth of the region, where upsell and cross-sell may have a larger impact.
3. The degree of competition for market share, where mature markets may have seen
aggressive competition among service providers.
4. The availability and cost of premium content and potential value-add perks.
5. The ability to segment customers efficiently, such that bundling may be better able to
price differentiate among consumers.
Past Market Experiences: Churn and Margins
Reported reductions in churn in the quad-play market have been substantial: in France,
Orange reported 3% less churn among its quad-play customers, relative to its other
broadband customers; in the UK, Virgin Media has a quad-play churn rate that is half of that
of its triple-play products.7 While impressive, these reductions in churn may not be causal:
quad-play may simply attract pre-existing low-churn customers. Furthermore, competition
within the quad-play market is still growing and initial churn reduction may disappear as more
operators enter the market.
Not all of the quad-play bundle is good news either. While 1% of those who purchased digital
TV as a standalone service switched providers, 3% subscribers of digital TV bundles switched.8
A UK consumer survey found greater customer satisfaction with quad-play bundles, yet a
future propensity to switch roughly equivalent to that of triple-play bundles.9 Another UK
data point is TalkTalk’s recent quad-play bundle, which has found considerable success in
attracting new customers, but at an implementation cost of over £10M ($15M USD) more
than expected.10
7
Mobile News, Wall Street Journal
Ofcom
9 Ernst and Young (2014)
10
FierceWireless
8
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The Quad-Play Balancing Act
Churn and margin benefits therefore deserve considerable scrutiny by any operator looking
to launch a quad-play service. Quad-play business cases are often finely balanced, and
miscalculation can be costly.
Conclusion
In conclusion, while the ability of quad-play to deliver lower churn and better margins remains
unclear, there is no doubt that quad-play bundles have the capability to disrupt fixed and
mobile markets. Because of this, they cannot be ignored – their impact will be felt across both
fixed and mobile markets. Winners in this space must continuously monitor the market,
assess where and when quad-play emerge, and develop the optimal propositions ahead of
time. Service providers must strategize far in advance to be ready to attack or respond when
quad-play opportunities arise.
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6
Cartesian is a specialist provider of consulting services and managed solutions to leaders in the
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specific challenges faced by executives in these fast-moving industries. Combining strategic
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Cartesian has supported fixed and mobile operators develop strategies for product bundling
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 Opportunity sizing, competitive analysis and business case development
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