FTTx Price Elasticity

London, October 9th 2015– Quantum-Web continues its price-elasticity analysis series. This week, we’re looking at price-elasticity of demand for FTTx services of incumbents in the five main European markets: France, Germany, Italy, Spain and UK.

Our analysis reveals a wide array of differences in consumers’ responsiveness to price changes by local incumbents.
According to our analysis, consumers are more sensitive to FTTx price changes by T-Mobile in Germany and less price sensitive to FTTx price changes by Telefonica Spain. In other words, demand for FTTx is more elastic in Germany and less elastic in Spain (Graph1).

Graph 1. FTTx Price Elasticity, Q2 2014-Q2 2015
PriceElasticity-FTTx1

 

 

 

 

 

 

 

 

 

 

FTTx Subscribers and Cost Analysis, Q2 2014- Q2 2015

orangeQuantum-Web analysis of FTTx prices of Orange in France and their impact on take up of FTTx subscribers, reveals that despite a substantial decrease (-23%) in the price of FTTx packages since Q2 2014, the number of FTTx subscribers rose only by 300,000 (Graph 2), making PED (Price Elasticity of Demand) equal to 3.23. What this means for Orange in France is that a 1% drop in FTTx prices coincided with a 3% increase in subscriber numbers.

Graph 2. FTTX Subscribers, Q2 2014- Q2 2015

PriceElasticity-FTTx3

 

telefonicaQuantum-Web’s price sensitivity analysis of Telefonica’s FTTx subscribers and prices shows the lowest PED among the big five incumbents in Europe. Telefonica’s FTTx subscribers rose from 861,000 in Q2 2014 to 1.7 million in Q2 2015 (Graph3) while FTTx prices were reduced by 36%, which is the highest price reduction among the main 5 incumbents in Europe, giving a PED of 2.8%. In other words with a 1% drop in FTTx prices was accompanied by a 2.8% rise in subscribers.

Graph 3. FTTX Subscribers, Q2 2014- Q2 2015

PriceElasticity-FTTx2

 

telecom-italiaTelecom Italia had the lowest number of FTTx subscribers in Q2 2014 compared to the four other incumbents, but at the same time had the fastest growing rate of FTTx subscribers. Telecom Italia had 103,000 FTTx customers in Q2 2014 and by the end of Q2 2015 this number rose to 375,000, an increase of 264%. Pricewise, Telecom Italia was the only incumbent with a “reverse pricing” strategy. While the price of FTTx in other countries were being reduced, Telecom Italia increased the price of its FTTx by 13% from €43 to €48 on average for Triple Play packages.

Deutsche-telekom-logoThe German incumbent, T-Mobile, gained over 871,000 (+58%) new FTTx subscribers between Q2 2014 and Q2 2015, taking its retail FTTx subscribers base to 2.3 million. Over the same period, the price of fibre broadband packages remained nearly unchanged. This implies that customers for fibre broadband were very sensitive to the price changes of fibre and price variation have had a great influence on the FTTx demand.

 

BT-logoQuantum-Web’s analysis of BT’s (UK) FTTx price elasticity suggests that demand for FTTx is less volatile and demand for FTTx data remains rigid. The cost of BT’s Triple Play FTTx packages declined only by 2% between Q2 2014 and Q2 2015, from €43 to €42, but the number of FTTx subscribers rose by 894,000 (+38%) to over 3.2 million (the biggest base of the five incumbents under consideration).

BT’s price elasticity of demand indicates that the demand for FTTx data is highly elastic and for any1% drop in price of FTTx the number of subscribers between Q2 2014 and Q2 2015 rose by 612%.

Data:

*For the purpose of consistency in our comparative demand price elasticity analysis, the Triple Play (Broadband, Voice and IPTV) packages, as the most commonly bundled packages, have been taken into consideration.

Tariffs exclude VAT and include recurring and non recurring costs. For the purpose of this analysis we extrapolate residential, Triple Play uncapped tariffs.

Subscribers’ figures are reported by each company’s KPIs results.

Analysis:

In this analysis we focused on the Price Elasticity of Demand and have considered other forces in the market such as the market competition level and its maturity as exogenous variables.

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