Bundling and unbundling in telecoms

There are “only two ways to make money in business: one is to bundle; the other is unbundle,” according to Jim Barksdale when he was CEO of Netscape.

The quote is relevant for the telecoms sector. Revenue from core services is essentially flat. We are forecasting growth of just 1.7% CAGR in Western Europe for the period 2022-2027 [link].

The response of most operators to this is to both bundle and unbundle.

Taking bunding first.

In the consumer market, operators are trying to justify higher prices by bundling in more products. Verizon is a good example of this [link] – the 5G Get More plan gives the customer access to content, like Disney+ or Hulu (along with some other benefits), in return for a higher monthly fee (USD90 vs USD60 for the entry-level unlimited plan).

The strategy for the business market is not strictly bundling, but it is similar - selling more services to the same customers. Almost all of the business divisions of major telecom operators are following this approach and trying to sell more cloud, security and other IT services. For example, Comcast discussed its plans to expand its IT portfolio at its recent analyst event [link]. Virgin Media O2’s recent press release [link] outlines a similar plan.

But operators are also unbundling.

Analysys Mason Partner Charles Murray talked about the structure of the mobile sector in one of our recent podcasts [link]. He doesn’t frame his ideas in terms of unbundling, but they can be thought of as such – potentially not just separating the network and services layer, but going further (for example, giving a greater role to neutral host type providers while eliminating duplication of networks in low traffic, rural areas). A full version of Charles’s presentation can also be found on our YouTube channel [link]. It is an interesting and provocative take on the state of the sector.

We have seen some, more limited versions of this unbundling of a telecoms operator for a number of years. Many operators have spun off tower divisions. Polkomtel went further in its 2021 deal with Cellnex, which includes active infrastructure and backhaul assets, as well as passive infrastructure [link].

The new investment structures for fibre networks, with operators participating in a joint venture is perhaps not unbundling, as they are new entities, but examples of a new structure.

The mooted sale of Vodafone’s IoT division [link] and the possible sale by TIM of its B2B services division [link] are further examples of unbundling the traditional telecoms organisation.

The two trends of bundling and unbundling aren’t contradictory and may even be complementary. A services company may be better placed to bundle connectivity with IT services than a network operator. The same may be true in the consumer market – it may be simpler for a brand focused on consumer services to bundle entertainment or devices with connectivity than it is for a traditionally structured telecoms operator.