Carriers go bonkers over bundling

Bundling seems like a win-win for businesses and carriers alike – the carriers increase revenue while businesses get discounts and the ease of dealing with fewer providers. As for which of the carriers wins out, while conventional wisdom says the incumbent local exchange carriers have an edge, any carrier has a chance to succeed if it offers the best bundle.

You know those service bundles that service providers offer to small businesses and individuals? To hear top carrier executives tell it, bundling is the hottest thing since touch-tone. It not only helps bring in new business, it also reduces customer churn.

At a recent Goldman Sachs conference in New York, carriers boasted that the bundles – which combine unlimited long-distance, local calling and data services at discounted rates – increase revenue for each account.

“When you do the pluses and minuses on this, we are getting more revenue per customer,” said Lawrence Babbio, Verizon vice chairman and president.

Whether customers are turning to the plans to consolidate services and billing or simply looking for discounts, small businesses and consumers are, on average, spending more with a single service provider rather than spreading the funds among several.

Interestingly, these packages seem to engender customer loyalty. As BellSouth Chairman and CEO Duane Ackerman said, “extended customer life more than offsets bundle discounts.”

Ackerman said BellSouth had been losing small businesses at an alarming rate: 29,000 lines per month in 2001. With aggressive customer re-acquisition efforts and the introduction of bundles – which have become more attractive because BellSouth now offers long-distance – BellSouth slowed the bleeding to 3,000 lines per month in the first half of this year.

AT&T Chairman and CEO Dave Dorman echoed the sentiment that bundling is best. He said bundling helped increase AT&T’s local voice minutes 39% in the second quarter compared with the same period last year.

The one detractor was Nextel President and CEO Tim Donahue, who said he wasn’t tempted to bundle his company’s wireless and popular push-to-talk services with landline services. “Not being attached to a telephone company is a good thing,” he said.

However, even he left the door open when he said he might be open to bundling possibilities.

Bundling seems like a win-win for businesses and carriers alike – the carriers increase revenue while businesses get discounts and the ease of dealing with fewer providers. As for which of the carriers wins out, while conventional wisdom says the incumbent local exchange carriers have an edge, any carrier has a chance to succeed if it offers the best bundle.

The real test will come if (or is it when?) the carriers decide to see just how loyal customers are and try to milk the cash cow by raising bundle rates.