Strategy Analytics: Consumer broadband "safe" in the bundle, despite recession

By Ben Piper
Director, Multiplay Market Dynamics Research for Strategy Analytics

Perhaps more than any other single issue, the effect of today's historically challenged economic environment on consumer household entertainment and communication spending seems to be at the top of the list for service providers. Strategy Analytics has just completed a study measuring the extent to which economic and budgetary factors influence household expenditures on communications and entertainment.

Our research confirms the hypothesis that, in times of economic hardship and scaling back, consumers are more prone to forego activities outside of the home (such as vacations, meals out, movies, etc), than to drastically change their core home entertainment and communications bundle.

A few key takeaways from our U.S. Survey:

Americans have not drastically modified their home broadband spending in the past year, nor do they intend to do so in the upcoming one. The vast majority of those surveyed said they had kept their broadband spending virtually unchanged in the past year (77 percent), and did not foresee any changes in the upcoming twelve months (83 percent). When questioned on their willingness to eliminate or scale back on home broadband, only 4 percent of respondents indicated that they would drop the service completely, implying an impressive 96 percent "keep" rate for broadband.  

While few are willing to do away with it completely, nearly half of respondents said they would scale back their Digital Pay TV spend if economic circumstances so dictated. Whereas only 6 percent of respondents said they would drop their digital pay television completely. Forty eight of those surveyed indicated that, if necessitated by household economics, they would scale back on their digital pay television spending. This implies that premium channels and tiers are most at risk. 

Fixed Voice is surprisingly safe: over three quarters of respondents said they intended to leave their fixed voice spending unchanged in the upcoming year. Despite wide publicity about "cord cutters"-those eliminating fixed home telephone in favor of mobile voice-our research indicates that 83 percent of Americans intend to leave their spending unchanged in the next year; 12 percent said they would reduce their spend.

Mobile voice not at Great Risk. Mobile voice, similar to home broadband and digital pay television, showed a low "drop rate," with only 9 percent of respondents saying they would drop the service completely if they had to reduce home entertainment/communications spend. One-third of those surveyed, however, indicated a willingness to reduce their service to a lower tier, if necessary. 

Mobile data is the service most likely to be dropped by consumers, if forced to cut back on household communications and entertainment expenditures. An impressive 43 percent of respondents said they would eliminate their mobile data service, if economic circumstances dictated.  Only thirty-five percent of those surveyed indicated that they would leave their data service unchanged. Although casual use observations might suggest otherwise, our study indicates that mobile data is a service nearly half of those surveyed viewed as more of a luxury than a bare necessity-such as broadband or voice. 

While bundling does create customer "stickiness" and mitigate churn, our research shows that its "insulating" effect is more pronounced in some services than others. Overall, unbundled broadband customers were twice as likely as standalone or non-bundled customers to drop their service altogether;  Bundled Pay Digital television were over two times less likely to drop their digital television service, and 18 percent more bundled customers than unbundled would leave their digital television service unchanged.

While the relative "safety" of the bundle should come as welcome news to service providers, it would be unwise for any to rest too comfortably on its laurels.  Survey research conducted by Strategy Analytics in Q2'08 (to be reprised in Q3'09) showed that, despite high stated satisfaction levels, US multiplay consumers displayed a high propensity to churn service providers when provided a compelling price discount and/or service improvement.