Product bundling here to stay

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 30 Oct 2008

MTN's acquisition of Verizon Business saw the Competition Commission inundated with concerns around MTN's ability to now bundle mobile and land-based network products and services.

According to Tembinkosi Bonakele, of mergers and acquisitions at the commission, competitors are concerned the merged entity will have an increased ability to converge products, giving the mobile giant a significant competitive advantage.

However, the competition authority dismissed these concerns, saying the entire market is moving in the direction of converged products and an MTN-Verizon team cannot be disregarded because of it.

Allied Technologies (Altech), reportedly the company actively contesting the deal, already offers products that are bundled. One of the more recent announcements from Altech is that it will offer Neotel consumer products and expects to bundle them with some mobile, or gift option. Admittedly, Altech's converged products are the offspring of channel partner deals.

Vodacom also plays in a partner space, with the company offering a DSTV package. On the international front, AMD and Blizzard Games have penned a deal that will see the bundled distribution of graphics cards and games. iTalk Cellular offers gaming consoles with a mobile contract.

The bundling of products and services has become something of an industry value-add. “This is not a market without controversy. There will always be someone with a complaint,” adds Bonakele.

The way it goes

According to BMI-TechKnowledge analyst Fezekile Mashinini, product convergence is a growing trend. “Service providers are positioning themselves to take advantage of what will possibly be a growing market in future.”

He says the MTN-Verizon deal is, in a way, MTN's response to Vodacom Business, the Telkom subsidiary's Internet service provider arm. “The global mergers and acquisitions trend is driven by a need to have a large enough market share in each segment in which you operate,” he adds.

MTN sees the trend of bundled products growing across industries in the local market and concurs it is a reaction to increased competition.

According to Pieter Verkade, chief marketing officer at MTN, in order to retain current customers, attract new customers and retain product differentiation, companies start seeking alternative options to differentiate their product offerings in the marketplace.

He cites MTN's recently released SME product offering, MTN4SME. “Packaging specific, yet like-minded products, as a bundle offers the SME business owner convenience, one central point of contact, an account manager who understands their business's communications needs, and one integrated bill at month-end.”

Convergence everywhere

According to World Wide Worx strategy MD Steven Ambrose, ICT consolidation, through mergers and acquisitions, as well as the subsequent convergence of products, is something the industry can expect to see more of over the next few years. “The MTN-Verizon deal will be the first in a series of operator consolidations in the South African market.”

Both Mashinini and Ambrose agree with the Competition Commission's decision to pass the deal to the Competition Tribunal.

They say that, while product bundling is definitely an opportunity for MTN, the company did not need Verizon to be able to do this. “It could have done it with MTN NS anyway, since they hold the same licence [class ECNS] as Verizon,” says Mashinini.

Ambrose adds that MTN gains no additional capability from the purchase of Verizon; rather it gains scale. “Vodacom Business, MTN, Internet Solutions are all playing in the same space. There will be competitors that will scream; however, they must understand that this will be the way the industry goes in the future,” he concludes.