OECD report on "Broadband Bundling: Trends and Policy Implications" analyses bundling strategies for high speed data services in OECD countries
Posted in: Research at 28/02/2011 16:00
Abstract: Bundling can provide both benefits and drawbacks to broadband customers. In general, bundled services are less expensive when purchased together and consumer surplus from one good in the bundle can help "subsidise" another less-valued element. Bundling also allows the integration of products in a way that benefits consumers.
In other cases bundles can lead to situations where customers are worse off. Consumers may be required to purchase a bundle which contains one product they value and others they do not. Bundling also raises some significant concerns regarding transparency and consumer "lock in". Bundles may make it difficult or impossible for subscribers to switch providers of certain bundled services and not others.
An OECD data collection of over 2 000 offers of stand-alone and bundled services from 90 firms across 30 OECD countries reveals that broadband services in the OECD are overwhelmingly sold as mixed bundles, allowing users to choose among stand-alone offers or bundled services. Of the 90 operators surveyed, 77% allow users to buy stand-alone broadband service. 17% tie broadband service to a fixed-line voice service and 4% require a television package to obtain broadband access. Only 2% of the offers surveyed required subscribers to take a triple-play service to have broadband.
Broadband bundles are typically sold with a significant price discount over stand-alone prices. The average bundled discount compared with buying the services separately is USD 15 (PPP) per month or 26%. The average price of a triple-play bundle across all countries and operators is USD 65 (PPP) per month, while the median price is USD 59 PPP. The average entry-level price for a triple-play bundle is USD 41 PPP per month.
Consumers often consider the incremental cost of adding broadband to an existing phone and television subscription. The minimum incremental cost of adding broadband service to an existing service ranges from USD 0 to 37 (PPP) across countries in October 2009. Overall, the average incremental price of broadband once a user already has a phone or cable line is USD 15 (PPP). This is, on average, a 32% reduction off the minimum stand-alone price available in the market.
Figure 10. Minimum incremental price of adding broadband to voice services
October 2009, USD PPP
Note: The combined prices shown in the graphic represent the minimum price for voice and data services, either from the same provider or from different providers if the price is lower. Ireland has a double-play package from UPC which is slightly less expensive than a simple fixed line subscription from Eircom.
While there can be significant benefits for consumers who take bundles, the complexity of communication offers and bundles has made it increasingly difficult to understand and compare service prices and characteristics. A lack of transparent information about services and their prices makes consumer price comparisons more difficult and leads to market inefficiencies. Bundled services can also lead to consumer lock-in for sub-optimal service choices if subscribers are not able to switch providers easily and with minimal expense. Regulators should take steps to ensure that switching is as simple as possible for consumers by addressing any procedural, financial or relational switching barriers.
Incremental improvements in consumer broadband valuations can lead to higher broadband take-up and its resulting network effects in the economy. Boosting the perceived value of broadband (e.g. willingness to pay) to USD 25 (PPP) would make broadband a part of an optimal service mix in all OECD countries assuming consumers will pay the average OECD price for stand-alone voice and video.