Is the Convergence Party Over for European Operators?

Telecom operators continue to promote opportunities from converged services. Orange says convergence is the “bedrock of its strategy”, and Vodafone claims to be a “converged connectivity leader”.

Convergence usually refers to multiple services sold together, such as broadband, mobile and TV. It can also include smart home, security, cloud gaming or financial services. It’s a well-trodden path for operators motivated by the prospect of improving loyalty and driving higher spending (see Insight Report: Operators’ Convergence Strategies Evolve Beyond Discounting to learn more).

Converged services initially saw strong growth. For example, in Spain, Telefonica’s Fusion offer reached 2.6 million customers in just one year. But more recently I’ve noticed some metrics have been falling. So I decided to delve deeper to see what was going on.

As a pioneering convergence market, Spain was a good place to start. Telefonica counts 4.6 million converged customers, but this has fallen for nine consecutive financial quarters and is now lower than it was four years ago. Similarly, rival Vodafone saw a fall in seven of its past eight quarters and Orange witnessed decline in five of its past six.

In Germany, Deutsche Telekom said that 63% of branded contract mobile customers take a converged services product. But this is unchanged from 2022, suggesting uptake has stalled. Tellingly, the operator no longer reports the number of customers using its flagship converged offer, MagentaEins — the last figure was 5.4 million in June 2022.

Vodafone Germany only added 85,000 new converged customers in 2022. However, its performance was hit badly by the botched implementation of a new IT system following changes in regulation. With these issues nearly resolved, the coming quarters will show us whether 2022 was part of a longer-term slowdown or just a temporary blip.

The UK has long since fallen behind in converged services; this can be traced back to BT’s decison to spin off its mobile arm in 2001 as a way to reduce debt. Major industry moves such as Sky’s home broadband push, BT’s purchase of EE and the merger of Virgin Media and O2 are helping to make up lost ground. But growth still seems hard to come by. BT said that the share of households taking both fixed-line broadband and pay-monthy mobile has been flat for two years.

Growth is also slow in France, where market leader Orange has almost 6 million converged customers. This figure is only inching up by a few thousand each year, and its share of consumer broadband customers also taking a mobile plan has been flat for more than four years. Orange France points to lower churn among converged customers and growth in average spending, but it’s hard not to think that customer intake has hit a ceiling.

Some markets, however, are still showing healthy growth. In Italy, Vodafone saw converged customers jump more than 10% to 1.3 million in 2022. Fellow operator TIM saw its share of fixed-line broadband customers taking a converged offer rise to 37%, an upward trend it expects to continue.

Belgian operator Proximus is also doing well. It added 52,000 new converged customers in 2022, passing a total of 1 million. It said that 64% of customers take both fixed-line and mobile services, compared with 61% in 2021 and 58% in 2020. Local rival Orange expects its recently approved acquisition of cable operator Voo to generate stronger competition, helping it achieve a group-wide ambition to grow converged customers by an average of 5% each year between now and 2025.

Overall, convergence in Europe is a mixed picture. Operators remain as committed as ever, but customer adoption in some mature markets has largely stalled. It’s hard not to think progress has failed to match the years of telecom hype.

But is the party over? Not according to Telefonica. The operator says it still sees room for customer growth, although it admits that its strategy has evolved to focus more on value.

In recent years, the Spanish company has strengthened its converged offers with more data, faster speeds and additional content. In May 2022 it launched the Mi Movistar portfolio, which bundles non-traditional telecom services including home alarms, healthcare, energy, connected cars, insurance and finance. This now represents more than a quarter of all its converged customers. Average revenue per converged user is on the up, if only slightly, nudging 1.3% higher in 2022 to €90.4 per month (see Instant Insight: Telefonica Results, 4Q22).

Deutsche Telekom told me that it’s shifting its marketing focus toward contract mobile plans for families and fibre broadband. The operator still sees convergence as an opportunity to boost household spending, but emphasis on this appears to have been dialled down.

In the UK, convergence is positioned as more of a premium product than in other markets. BT expects that its decision to install EE as its flagship consumer brand will boost uptake, pointing to higher spending thanks to the sale of more premium products such as full-fibre broadband.

In January 2023 CCS Insight published its latest operator forecast for the UK, including a new approach to tracking convergence. We predict that by the end of 2027, 45% of all households will be converged — here defined as taking a home broadband service and at least one contract mobile connection from the same provider. This is compared with about a third of households today.

Our survey from 2020 revealed several reasons why people in the UK are buying broadband and mobile separately. More than four in 10 said they prefer to choose the best provider for each service; 20% said they didn’t want to be tied to just one operator; 18% thought it was cheaper; and 13% said it was too much hassle to get signed up. Clearly, there are still barriers to adoption.

To sign-up the next wave of converged customers, operators need to be more ambitious. The benefit of convergence is a seamless experience throughout an operator’s service, but this feels years away from becoming reality. Many of today’s efforts seem to be based on little more than cross-selling mobile and fixed-line services. I’d like to see much more original thinking, with new products and services, greater flexibility, different routes to market, new payment options and improvements in customer care.

Convergence is indisputably here to stay, but its momentum has plateaued. It’s time for operators to evolve their strategies to the next level.

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