Bundling Idea Survives Even After AT&T Divides

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The news of AT&T Corp.'s four-way breakup last week called into question the concept of selling bundled packages of telecommunications services to consumers.

"Frankly, we do view this restructuring as a reversal of strategy," Salomon Smith Barney Inc. analyst Jack Grubman wrote in a research report last Wednesday. He also said AT&T did not give its bundling strategy enough time to work.

But some say the death of the telecommunications bundle has been greatly exaggerated.

"This is no sign that bundling hasn't worked," B.G. Marketing Inc. president Barbara Sullivan Roehrig said of AT&T's breakup plans last week. "It's a sign that the AT&T Broadband stock is very undervalued."

AT&T Broadband has every intention of continuing to bundle voice, video and data, senior vice president of marketing Doug Seserman said. "We're still very bullish on the concept of bundling."

Seserman denied that consumers have rejected bundles.

"Across the board we've seen strong take rates" for bundled offers of video and long distance in market trials including Dallas and Tacoma, Wash., he said, though he would not provide specific numbers. The challenge has been in scaling such bundles across AT&T's markets.

In ongoing bundling trials, Seserman said, AT&T Broadband has found that consumers are interested in packages that provide choice and value. But the company also learned along the way that bundles are complicated to execute. Challenges include billing integration, provisioning and customer care.

In the future, AT&T Broadband's main focus will be on offering bundles of those products it sells. It will then look to create joint packages that involve other divisions, such as the wireless unit.

"We'll look to co-market with the other divisions as they make sense to their business plans and to our customers," Seserman said. For example, AT&T Broadband may promote its digital cable, high-speed data and telephone services through AT&T Wireless Services retail stores, as it has in previous market trials.

AT&T was taking an unfair beating over its bundling strategy last week, said Cox Communications Inc. vice president of marketing Joe Rooney.

"The [AT&T] Broadband group is still intact, and they'll have the opportunity to sell a bundle of video, voice and data to consumers, which is what we're doing," Rooney said. "AT&T's split really shouldn't affect anyone's plans to do bundles."

Whether bundling itself is enough to attract customers to new cable products remains a debate topic for marketing analysts. Dove Consulting managing director Bob Davis said it's important for cable operators to understand why consumers are motivated to switch companies before launching a bundle that includes new services.

Cable operators that lose video customers to new broadband service providers that offer multiple service may need to attribute those losses to customer dissatisfaction, rather than the lack of a bundled offer, said Davis. Most MSOs would do well to stay on the telephony sideline and concentrate on their core businesses and emerging digital and interactive television products, he said.

AT&T is an exception, Davis added, because it is a strong telephone-business brand.

However, Horowitz & Associates president Howard Horowitz said broadband-service providers that offer a combination of voice, video and data products will be a source of increased competition for cable. That's because the ability to sell all three lines makes overbuilding a cable incumbent more potentially profitable than in the past.

While cable operators "don't have to rush" to offer bundled services, it should be in their strategic plan, Horowitz said. Studies that Horowitz released earlier this year suggest that 68 percent of consumers would be interested in bundled communications packages that offer a 10 percent price cut on their current services.

Bundling is most attractive when customers can get a discount, Sullivan Roehrig said.

"The consumer is much more educated than they were even a few years ago," she said. "There needs to be a monetary incentive."

Seserman likened bundled telecommunications products to the insurance model.

"If you add a second service to your insurance policy-home and auto, or a second car-you should get a break on your monthly fee," Seserman said.

Davis agreed that research shows price can compel consumers to switch to a bundled service offering, but added, "It's so difficult to compete on price, especially with long distance becoming such a commodity."

In focus groups, consumers often express strong interest in bundling, Sullivan Roehrig said, "but when the rubber meets the road, they get scared by the higher monthly bill." However, the ability to pay a single bill instead of two or three appeals to consumers who are increasingly pressed for time, she added.

Although cable companies have long talked about the convenience of a single bill for bundled services, most operators, including AT&T, still don't offer a single-bill option. And once they do, MSOs will likely offer their customers the choice of multiple bills.

"Some consumers want separate bills," Seserman said, so they can expense their high-speed Internet service to their employer, for example.

Cox is testing single bills for bundled services with employees in three markets, Rooney said. It plans to roll the single bill out to consumers by the end of this year or in early 2001.

But Cox will continue to offer a multiple-bill option to reduce the possibility of sticker shock and allow customers to spread payments across different parts of the month.

"The bundled bill is the icing on the cake," Rooney said. "The cake is the great products and the good value."

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