European consumers value broadband more than sex, claims a study commissioned by Liberty Global, details of which were published this week.
The inference that European consumers prefer surfing the web to other leisure-time pursuits does not, in truth, rest on strong foundations in the data supplied by the AT Kearney report, Viewed through the Lens of the Consumer: Value Creation in the Telecommunications Sector.
According to AT Kearney, consumers surveyed across the eight markets studied – except Poland and Switzerland for some reason – said they would have to be paid more to give up their home broadband than a range of other items, including, in order of importance to them, sex, holidays, favourite TV channels and chocolate.
Among 18-29 year-olds, the average bribe required to give up home broadband for a year was €32,500, while older consumers were happy to give up their WiFi for €9,000. The payments required to give up sex – presumably also for a year – were not revealed.
To be fair to Liberty Global, it shied away from leading on the sex statistic in its press release on this report, primly preferring to headline with the finding that European consumers of broadband and WiFi services care more about network quality and coverage than they do about the price.
According to the study’s authors, consumers value ‘collective’ benefits of their home broadband – defined as such things as coverage, network quality and innovation – the most, with 38% citing these as the characteristic of their service that they find most valuable. This is followed by ‘individual’ benefits – such as speed and bundle size – which were highlighted by 33% of respondents. Price, meanwhile, was ranked as the most important factor for just 16% of people, with flexibility cited by 13%.
Extrapolating from the study of how much people would require in monetary compensation to give up broadband, the study also – somewhat tortuously – came up with the conclusion that the value consumers place on broadband exceeds the price they actually pay many times over.
In Germany, where the gap was greatest, consumers pay an average of €400 a year for fast internet but would require median compensation of €50,000 to give it up, a multiple of 119 on the price they pay.
The report also finds that there is a positive relationship between price levels, investment and benefits delivered to society from fast broadband. The authors speak about a virtuous circle where positive revenue generated by higher prices create headroom for investment, which in turn impacts on further revenue generation.
The authors maintain that the top 10 EU countries in terms of relative price levels outperform the bottom 10 across all proxies for benefits to society – including online education, shopping, e-government services, cloud computing and big data analytics – used for the study.
The subtext of all this is that European regulators might want to think about quality of broadband rather than price as a measure for the effectiveness of their policymaking.
It is obviously in the interest of Liberty Global to promote the idea that investment in broadband creates value for Europe’s economy, something it has done many times. The idea that price should not be the only measure of the success or failure of competition policy is one that the cable industry collectively also has an interest in promoting.
Multi-play – a concept that Liberty Global did more than most to promote as the basis for a successful network business model – has in many cases led to cutthroat competition between competing providers who seek to undercut rivals in one part of the play in order to promote sales of their core offering in another part, as well as cutting prices overall simply to win market share and achieve scale. Therefore telecom operators historically have sometimes thrown in TV more or less for free to build up their broadband base. Bundling strategies lead in many cases to lower average revenue per revenue-generating unit.
Regulators meanwhile welcome competition because low prices are seen to benefit consumers. In some cases, they take additional steps to promote what they see as the best interests of the consumer by forcing network providers to open up to rival services. Cable operators such as Liberty Global have taken issue when this is applied to them, arguing that attempts to force cable operators to open up their networks in certain markets on the same basis as historic incumbents is politically motivated rather than based on a clear analysis of competition.
European and national regulators have also often taken issue with consolidation of cable networks to achieve national scale – as they have with the merger of mobile and fixed telecom operators – on the basis that this may have a negative impact on competition.
For companies such as Liberty Global, making the case that they need to be able to secure a return on the huge investment they make in digging and laying networks to provide competition to incumbents, this kind of regulation is self-defeating.
It is however be something of a jump to claim that German consumers would be willing to pay over a hundred times their current subscription price for decent quality broadband, something we are slyly invited to infer from the AT Kearney study. In fairness, the authors of the report know this, and Hans Boezel, principal, communications, media and technology practice, AT Kearney, admitted that “capturing the ‘real’ opinion of customers is always challenging”.
Cable operators have a good case for arguing that they should be able to consolidate to give them scale to compete with telcos, but European regulators are always likely to use price as a key metric in judging the effectiveness of competition policy. No amount of sexing up the dossier is going to change that.
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