Survey: Customers Want the Bundle

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Bundling a handful of telecommunications services into one
streamlined package with one bill from a single provider is becoming the preferred model
for companies and homes expanding into high-speed data, Internet access, Internet-protocol
telephony, advanced cable services and more, two recent studies by The Strategis Group
found.

The studies -- "Branding and Bundling: Business
Telecom Services" and "Branding and Bundling: Consumer Telecom Services" --
reflect the growing interest in bundled services by consumers, business and
small-office/home-office (SOHO) markets as telecommunications companies, multimedia
companies and cable operators expand their services.

That demand is prompting a consolidation of billing
statements and a push toward single-source providers.

More than 600 households and 400 telecommunications
managers were surveyed over a 10-month period, with 93 percent of consumers reporting an
interest in some type of bundle and 25 percent expressing interest in a bundle of all six
services they were asked about.

"Bundling is the way the market is moving, and people
will get more used to bundled services from one company," said James Mendelson,
analyst for The Strategis Group and the report's lead author.

The business sector displayed the highest interest in
bundled services. A total of 66 percent of the businesses surveyed showed a high interest
in bundling, while 33 percent preferred a bundle of six "core" services: local
and long-distance telephone services, Internet access, enhanced data services,
cellular/personal-communications services and paging.

The consumer market, however, is close behind: 63 percent
of consumers surveyed said they are interested in purchasing bundles with at least two
services, with cable TV as the staple service, according to the report.

Cable is the biggest draw: 71 percent of respondents want
video bundled with other services, Mendelson said. Internet access is also a key component
to bundled packages, with 58 percent saying they would want it in their package.

"Consumers showed a high interest in bundled services,
and the main service consumers want in a bundle is cable TV. For cable companies, this
means digital TV and high-speed Internet access can complement each other more," he
added.

Technology, which is reducing the capital-investment costs
of offering multiple services, is driving the interest in bundled services both at home
and in the business community.

The report noted that 88 percent of all respondents used
three or more telecommunications services and subscribed to an average of four core
services per household, including cable television. That average has nearly doubled in the
past three years, according to the report.

Price discount is the main reason why 78 percent of the
consumers surveyed said they would choose bundled services from a single-source provider.
A close second is reputation and reliability, with 75 percent saying these would be
reasons to bundle.

Receiving a single bill ranked third on the list, with 58
percent indicating that this was the main reason why they would choose a bundled service.

Yet Mendelson pointed to nonpricing issues -- such as
emerging trends in the migration to bundled services by businesses and consumers -- as
other significant factors. These are rapidly supplanting price discounts as the primary
reasons for businesses to bundle their services, he said.

"Nonprice issues are jumping up in importance. Small
businesses just don't have the time or the skills to manage all of these new services, so
they're asking to have the services managed. One bill and one source is becoming as
important as price," Mendelson noted.

The promise and delivery of bundled services is an issue
with consumers, as well, and a speed bump to the widespread use of bundled services, the
report stated.

"Consumers want to see a bundled service with one or
two services and then move up the food chain once a trust is established and the provider
proves it can deliver on the promise. Then we'll see a gradual increase in bundles,
instead of all six or seven at once. They're taking a cautious approach," Mendelson
said.

For companies such as AT&T Corp., trust is the
operative word in their bundling strategy.

"Trust in a reliable brand name is critical in the
bundling decision because some consumers have issues with all of their services being
provided by a single source," AT&T Broadband & Internet Services senior vice
president of marketing Doug Seserman said.

AT&T, Seserman noted, is aggressively pursuing bundling
as a marketing strategy through trials in select cities, albeit prudently.

"A significant investment in the infrastructure, such
as customer and billing databases, is needed before bundling becomes widespread. And we
just don't know exactly what products consumers have. But both the business and consumer
sides of bundling have excellent potential," he added.

Bundled services do have their problems. The report noted
that "substantial" structural barriers, such as billing and network
efficiencies, are hindering the move to bundled services.

For example, collecting data from multiple networks that
operate on different systems with different software is a huge problem, and it could
require costly new billing systems.

Bundling has its share of organizational challenges, as
well, the report found.

"Currently, telecommunications companies are organized
around product groups, regional offices and vertical-market niche groups. As a result,
service bundling requires a great deal of coordination between various groups,"
Mendelson noted in the report.

Consequently, coordinating an efficient deployment of
bundled services is getting the attention of multiservice providers such as AT&T.
"It gets back to the investment in human performance. Bundling needs strong teamwork
across all functions to work, and it's very operational-intensive," Seserman said.

Selling the bundle is a hurdle, as well, with brand
awareness being critical to the success of bundled services, the report pointed out.

AT&T generated the highest brand awareness, with 38
percent of the respondents saying they would make it their first choice for bundled
services. MCI WorldCom Inc. and Sprint Corp. followed with 7 percent and 6 percent,
respectively.

The interest in bundled services for business fluctuates
wildly, the report noted. For example, 66 percent of businesses showed interest in bundles
of two or more services, yet 34 percent expressed no interest at all.

Of the companies preferring bundled services, the single
point of contact topped the list of reasons why they would choose bundled services. It was
followed by single bill, price discount and integrated network.

"Business is ready for bundling. They want the
guaranteed delivery of the promise of bundled services, and they are more used to it than
consumers," Mendelson said.

Despite the appeal of bundled services, questions remain in
the business sector about the upsides of bundling, exemplified by the report's feedback on
the overall benefits of bundling among business consumers. On a 10-point scale, the mean
benefit score was just 5.6 among all respondents, showing that bundles don't have
universal appeal yet.

But 25 percent of the large firms surveyed see bundling as
"extremely beneficial," and 47 percent of the firms interested in bundling are
"highly likely" to purchase a particular bundle, the report concluded.

The majority of consumers continue making their purchases
the old-fashioned way -- one product at a time.

"Consumers see the value in bundles, but they don't
make purchase decisions based on bundling: They make them one product at a time,"
Seserman said.

The Strategis Group is a Washington, D.C.-based
market-research and consulting group.

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