Broadband Tariff Trends: Operators sacrifice margins for “stickiness”

Internet service providers around the world are finding that broadband alone is not enough to attract and retain customers. Price stagnation and the decline in sales of basic standalone broadband is leading an increasing number of operators into the arena of bundled services. This is one of the main conclusions from Point Topic’s latest analysis of 250 broadband operators across the globe.

‘Customers are being offered good value with these bundles,’ says Pamela Varley, Analyst at Point Topic, ‘but the operators are having to cut their margins to the bone to provide them.’

In early 2007, Point Topic upgraded its Operator Source Service into an online database which allows broadband tariff information to be compared across over 250 operators worldwide every quarter. Now in its second edition on this basis, the Broadband Tariff Benchmark Report highlights the industry’s move to bundled services and the big savings they offer customers.

For example, in Western Europe, the standard DSL double-play offer (broadband and voice) is now marketed for an average of USD 58 per month, which is only USD 6 on top of the average standalone broadband service at USD 52. In general, the standard DSL double-play bundle is between 11% and 20% more expensive than the average broadband-only package. ‘Despite the limited extra revenue, operators find they have to offer bundles because it’s a great way to increase stickiness, that is, to retain customers’, says Pamela Varley.

The picture with cable broadband shows more variation. Here double-play bundles set customers back by an additional 10% to 35% compared with a broadband-only service. One reason could be that many cable operators have focused on offering TV, with broadband and voice services becoming part of their portfolio much later. We expect cable bundled prices to come down eventually to match those of DSL bundles.

The monthly charges for the basic cable broadband packages rose in Q2 2007 for the first time since 2005. This recent move brought cable much closer in line with the average price for basic fibre optic (FTTx) broadband services and widened the gap compared with DSL. On average, basic entry-level DSL and FTTx tariffs remained stationery, with no movement since the previous quarter.