Daiwa EuroTelcoblog No. 40: Friday 14th May, 2004 - An ISDN-buster bundled with IP telephony
An ISDN-buster bundled with IP telephony
It has been interesting over the past few quarters to see the stimulus to the broadband market coming from the introduction of lower-cost, lower-speed DSL products in certain European markets. This was particularly graphic in the KPN (rating 4 - UNDERPERFORM) Q1 results on Monday, where the new EUR25/month 384kbps product accounted for 63% of the very strong net adds number. It was interesting to see the apparent churn from higher cost, faster products, and also to see a 0.5% contraction in the ISDN line count. We can only speculate as to what role if any, the cheaper DSL products played in this decline in ISDN, but it is nevertheless interesting to observe a decline in ISDN coinciding with the arrival of DSL priced at a level only 15% higher than that of ISDN.
In our results note on Swisscom (rating 4 - UNDERPERFORM) from Wednesday, we made a vague allusion to an interesting product pipeline from Cablecom, and here's the first example, released last month. The hispeed 100 (http://www.cablecom.ch/en/internet/hispeed/bundle.htm) is a bundle of a 100kbps cable modem service with IP telephone service, for a total cost of CHF50 ($38) per month, and is aimed directly at the ISDN market. The company's estimate of combined monthly access and call charges for a typical ISDN customer is CHF70 (CHF43 for access and CHF27 for calls), suggesting that the Cablecom bundle can save consumers CHF20 per month. As with its previously-launched VoIP product (which now has over 27,000 users), national calls are at a flat rate of CHF0.03 per minute at all times (per second billing, versus Swisscom which uses minute rounding), with the usual discounts on international calls.
The ISDN base of Swisscom (and many other European operators) has been remarkably stable, adding 1,000 lines in Q1, for a total of 925,000, or 23% of Swisscom's total line base. Plugging in the ARPU which Cablecom ascribes to ISDN subscribers suggests quarterly run-rate revenues of CHF194m currently for Swisscom (equivalent to 17% of the reported external revenue of the fixed line division in Q1), at what we believe to be a very healthy margin. We plan to monitor the development of the Cablecom product closely, as we think this could see imitation in some markets with high cable penetration, vigorous growth at the low end of the broadband market, and a large and stable installed ISDN base (the Netherlands springs to mind). We think the attractions are numerous for the cable player - displace a large chunk of an entrenched user base from your competitor, bundle the phone to get it into the hands of the new user, and set the pricing of your higher speed products to promote migration. Cablecom's 500k product is only CHF45 per month - adding an IP phone line at CHF20 still leaves the product cheaper than ISDN.