Battle of the Bundles


A flurry of deals with direct-broadcast satellite providers has given the top five U.S. phone companies an early lead over cable in delivering bundles that marry voice, video and data services. Cable’s reply: Enjoy it while it lasts.

By forging resale agreements with DirecTV Inc. and EchoStar Communications Corp.’s Dish Network in 2003-2004, the telcos filled in the missing video component of the long-anticipated bundle. Phone providers BellSouth Corp., SBC Communications Inc., Sprint Corp., Qwest Communications International Inc. and Verizon Communications Inc. now offer customers discounts from $5 to $30 per month on an array of telephone, high-speed Internet and digital video service combinations (see examples on page 45).

Customers are responding. Verizon says 56% of its customers now buy at least a two-product bundle, up from 43% at the end of 2003. SBC says 61% of its residential customers have bought bundles, up from 44% in 2003. (Included in their bundle tallies are customers who buy a combination of local and long-distance phone service.)

But the phone companies aren’t alone in pursuing a sort of Holy Grail of telecommunications. Reports of rising bundled penetrations from MSOs suggest there’s momentum building on the cable side, too. And with cable companies now launching alternative residential phone services en masse, a full-out battle of the bundles is poised to begin. “I think our industry is really well positioned right now,” says Nancy McGee, Adelphia Communications Corp. senior vice president of marketing and a former marketing executive with Qwest predecessor, U S West.

Operators say there’s reason for optimism. Several point to Cox Communications Inc., which stepped ahead of its peers by launching residential and business phone service on a large scale in the late 1990s. With its “triple play” offering, Cox has racked up steady growth in bundle penetration. The percentage of customers buying a two- or three-product bundle rose 30% from June 2003 to June 2004, reaching 2.5 million, or about 40% of Cox’s 6 million total customers.

Today nearly half of the MSO’s new customers buy at least two products, says vice president of product marketing David Pugliese. “Six years ago they would have just called in to order cable TV,” he says.


Not every MSO is as experienced in selling phone service as Cox. Cable’s mainstay product bundle is the so-called “double play” combination of video service plus a discounted high-speed Internet connection. The typical deal, offered by Comcast Corp., Time Warner Cable and others, is a monthly discount of roughly $10 on Internet service for customers who also buy video. It’s far less elaborate than some of the phone-wireless-video-data combinations that prevail among phone companies, but it works.

“It’s like in baseball. Triple plays are rare but exciting,” says telecommunications industry analyst Bruce Leichtman. “But double plays are a common part of the game.”

Some say the fascination with multiproduct bundles and complex assortments of pricing options obscures a more fundamental fact about selling bundles. Without a strong customer relationship to start with, it doesn’t matter how many ways products can be stacked together and discounted.

“I think the customer has to be very happy with the company generally, so the service you provide across all the products they’re purchasing from you — billing, customer service, all those kinds of things — have to be done well and meet or exceed the customers needs,” says Adelphia’s McGee.


Discounts alone don’t guarantee success, either. Customers may expect a business to provide a discount when they buy more products, says Edward Rogers, president and CEO of Toronto-based MSO Rogers Cable, which has been selling product bundles for six years. But he says convenience is just as important.

“What we’ve found is that a consolidated bill — with one customer-service rep who can handle that bill, and one technician who goes into the house and is able to do all things — that’s appreciated and valued by all customers,” he says.

Phone companies are working toward a similar goal. In February, Verizon began including DirecTV charges on the same bill that lists telephone, long-distance and digital subscriber line fees. SBC includes Dish Network charges on its phone bills, too.

For telecommunications providers, bundles do more than just elevate average revenue per customer. Cox has told analysts that churn levels associated with its three-product customers are 44% lower than in homes with just video.

In Canada, where Rogers Cable is one of the few MSOs to offer a wireless phone component, Rogers says bundles display a triple-play benefit of their own. “One, bundling does give you the ability to upsell products,” he says. “Two, it does reduce churn; and three, customers appreciate the company recognizing that they deserve a discount.”