Monday, June 20, 2005

Bundling Analysis by DSL Prime

from DSL Prime: "Meanwhile, someone at Verizon came up with a very smart response to all those questions about SBC's $14.95/month for the first year. Last week, Verizon offered a free month if you signed up online, a savings of $29.95. This week, they made headlines by offering a three month $19.95 price on a one year contract. That saves $10/month, or $30 in total - five cents more than last week's offer. SBC's offer is exciting news if they extend it to the 5M present customers as well, just another gimmick likely to raise churn if they don't offer a good deal to everyone.... Entire departments at every telco try to find choices and plans that convince you to spend more money than you intend or you expect from the advertising, as anyone knows who has purchased a mobile phone in most countries. FTC Commissioner Orson Swindle complained at PFF Aspen, "Neither my wife nor I can understand our phone bills, and we both have advanced degrees." That's why analysts look to the ARPU, average revenue per user, because the telco pricing is too complicated for an MBA to understand. ... Promotional pricing has several advantages beyond the good publicity it generates. It maintains revenues unless existing customers get fed up and leave. A $10/month reduction for all SBC customers, for example, reduces revenues by $600M/year; it would have to yield 50% more customers, at least, to be income neutral. The same promotion for a million new customers costs only $100M. CFO Rick Lindner is proud that his company has an ARPU much higher than the "advertised price," pointing out how many customers are drawn in by a low price claim but wind up spending much more. Martin Geddes is more blunt, "The top priority for every telco marketing department is to obfuscate the real price of the product."... I'm working on a deeper analysis of DSL pricing, starting from the $8-12/month marginal cost to serve a customer. Adding pricing from around the world, it looks like the competitive DSL price would be $20-$25 most places this year. Carriers charging less than $20, outside of India and China, have a low margin business, although payoffs from reduced churn, preventing cable VOIP losses, and other revenues could compensate. In the U.S., where video costs are high, that won't add to profit before the end of the decade. China Telecom and British Telecom, who don't need to buy a program schedule from Hollywood, have better prospects of some video profits."

No comments: