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Bundling, Differentiation, Alliances, and Mergers

Bundling, Differentiation, Alliances, and Mergers. Johannes M. Bauer Michigan State University First Transatlantic Telecom Industry Forum Montpellier, November 22, 2005. Agenda. Convergence Bundling Differentiation Alliances and mergers Synthesis. Morphology of convergence.

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Bundling, Differentiation, Alliances, and Mergers

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  1. Bundling, Differentiation, Alliances, and Mergers Johannes M. Bauer Michigan State University First Transatlantic Telecom Industry Forum Montpellier, November 22, 2005

  2. Agenda • Convergence • Bundling • Differentiation • Alliances and mergers • Synthesis

  3. Morphology of convergence • Technological convergence • Markets: convergence in substitutes and complements • Organization, ownership • Regulatory convergence

  4. Convergence triggers • General purpose technology • Policy changes • Telecom Act of 1996 • RBOC entry into long distance • Reduced unbundling obligations • DSL declared information service • Corporate strategy

  5. Convergence and divergence • Integrating forces • Telecom+computing=telematics • Telematics+media=multimedia • Fixed+mobile+Internet • Disintegrating forces • Specialization, differentiation

  6. Convergence, competition, strategy • Convergence in substitutes • Intensifies competition • Convergence in complements • Reduces intensity of competition

  7. Convergence economics • Critical tension • High sunk costs • Commodification • Strategic responses • Bundling, differentiation • Alliances, integration, mergers

  8. Bundling • Stabilization of willingness to pay • Creation of entry barriers • Approaches • Pure bundling • Mixed bundling • Supplier and consumer benefits • Reduced churn, single bill

  9. Effects of bundling Pure bundling Mixed bundling

  10. Competitive positions • Telcos lack video delivery • Joint marketing with DBS • Cable lacks mobile presence • Joint ventures with mobile • Wireless, BPL, new entrants lack key assets, competencies

  11. Suppliers of bundles • IXCs and ILECs (local, LD) • Rural LECs triple play pioneers • Major ILECs and cable MSOs • Some bundling by energy companies (public power)

  12. Case 1: Qwest Prices for Nebraska as of November 15, 2005

  13. Case 2: SBC Communications Prices for Michigan as of October 1, 2005

  14. Case 3: Comcast Prices for Michigan as of October 1, 2005

  15. Pricing of bundles • Promotional bundles • Offer significant savings • Typically expire after one year • Regular bundles • Relatively low savings • Mixed bundling prevalent

  16. Diversification • Carriers with network constraints • Mobile carriers, power utilities • New entrants • Google, Yahoo, Microsoft • Skype, Nintendo • Effective competitors

  17. Sprint Nextel Vision Multimedia • Radio and TV services • 20 SIRIUS Mobile radio channels • On-demand radio (e.g., NPR) • CNN, Fox, Weather Channel, GoTV • Streaming radio (Rhapsody) • Comic strips, games

  18. Mergers and alliances • Active or defensive strategy • Significant mergers • SBC + AT&T = the new AT&T • Verizon + MCI • Cingular + AT&T Wireless • Sprint + Nextel

  19. U.S. mobile market structure Source: FCC (1998-2003); *2005 estimated

  20. Alliances

  21. Overall assessment • Complicated patterns of industry transformation • Two principal types • Convergence economics • Integration and disintegration

  22. Synthesis • Convergence strategies • Bundling • Diversification • Alliances and mergers • Competitive impacts?

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