Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) has taken major steps to keep up with the competition in the telephony market. "Globes" has obtained figures indicating that the churn rate (the percentage of subscribers who switch to another carrier) to Bezeq reached 32% in April-May, while the churn rate to HOT Telecommunication Systems Ltd. (TASE: HOT) was barely changed and the churn rate to Internet service providers (ISPs) fell sharply.
The trend clearly shows the decline in the number of subscribers abandoning Bezeq in the first quarter of 2011. The data leads to an unequivocal conclusion: Bezeq's aggressive marketing of reverse bundling (infrastructure and Internet access in a single package) in recent months slashed its churn rate, and an indirect result was to increase the number of Internet subscribers, which generates large profits as customers who switch to it because of the reverse bundling usually also upgrade access speed for more money.
Bezeq added a net 13,000 new Internet subscribers during the first quarter, triple the number added by HOT. Bezeq's quarterly success - which normally adds only a few thousand net new Internet subscribers per quarter - is wholly attributable to reverse bundling.
One of the obvious results of the reverse bundling is the effect on ISPs, whose profits are eroded. There has been a slow but steady change in the telephony market in recent months. The objective of reverse bundling recommended by the Gronau committee was to enable Bezeq to respond to HOT, which markets Triple Play services, and was made possible by Bezeq's loss of telephony market share.
Bezeq's reverse bundling offers 10 Mbps Internet access, hundreds of minutes of calls, and an ISP for NIS 89 per month. ISPs cannot match Bezeq's offer because Bezeq won't sell them infrastructures at a low price. It is willing to sell infrastructures to ISPs - but at a higher price than to its own customers.
Bezeq said in response, "The connection between Bezeq's bundle and the drop in the churn rate is completely marginal. This process is mainly due to the improvement in procedures at Bezeq, as well as a focus on recruiting subscribers who now use only mobile phones, abandoning fixed-line telephony, while relying on narrowing price differentials between Bezeq and other carriers."
Published by Globes [online], Israel business news - www.globes-online.com - on May 31, 2011
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