Lifestyle service aggregation: A revenue opportunity?

Lifestyle service aggregation for more engagement

Telcos have looked at Amazon Prime for years with envy – a subscription program which had 200 million paying Prime memberships in 2021 (the majority of which are in the US). One Morgan Stanley analyst estimated Prime households can spend up to $3,000 a year on Amazon – twice what a non-Prime household spends . Attracted by the free inclusive shipping offered, Amazon has since padded out the program with attractive features such as video and online storage for personal data such as photos. While features such as delivery are increasingly becoming more costly, these aggregated lifestyle services build loyalty through repeat purchases (and Prime renewals) and provides the company which a wealth of data on what consumers value.

By contrast, telcos’ customers often only interact with their service provider when they are purchasing a new device every two to three years, or when something goes wrong with their connectivity. To build value with consumers, operators need to find ways to engage and stay relevant in consumers daily lives, in the way that Amazon has. Telcos have been promoting their own and partners’ entertainment (content) services for many years – most operator websites have a “lifestyle” option alongside core connectivity services, directing customers to a range (five or six) mainly of entertainment services, or occasionally wellness services. However, achieving differentiation or competitive advantage selling the same individual subscription services is a challenge. Now operators are aiming to overcome this challenge by providing an additional layer of convenience to consumers by aggregating multiple digital and/or physical services into a single holistic package. The concept is not new, but the ability for telcos to curate a large selection of services and offer customers the ability to manage multiple subscriptions in one place has an appeal in today’s proliferating subscription economy.

The subscription economy went into overdrive during the pandemic, but as the cost-of-living crisis has hit, particularly in Europe, consumers have scaled back on their spending. In the UK, Barclaycard payments, which processes £1 ($1.23) in every £3 ($3.69) spent on UK credit and debit cards, reported 67% of households had signed up to a subscription in 2022 after a spike of 81% in 2021. While two-thirds of UK households still subscribe to a digital or direct-to-door subscription service, the average UK household is spending £41.70 ($51.23) a month on subscription services in 2022, down from £51.65 ($63.45) in 2021. This suggests that while the subscription economy remains valuable, consumers are seeking to get better value for money. In the highly competitive entertainment market, where consumers’ preferred content may be spread across multiple streaming platforms at different times of the year, operators can help consumers to manage multiple subscriptions and control their costs in a single location.

The chart below shows that entertainment is by far the largest subscription spending category for consumers in the UK. This trend is expected to be similar across most markets, and there is also potential for operators to expand their ambitions into a wider lifestyle aggregation strategy targeting other areas of day-to-day life.

Barclaycard Payments: Top UK subscription categories

Source: Barclaycard Payments commissioned research, June 2022

This report looks at a variety of lifestyle services across finance, commerce (food, cosmetics, clothing), entertainment and a range of household services such as energy, health, education which can be aggregated to deliver new revenue streams outside the traditional telco business. These new revenue streams also complement the telco business in terms of customer engagement/activity, lower churn and retention ensuring telcos can stay relevant in consumers’ lives. We explore three approaches to building lifestyle subscription aggregation services.

  1. Financial services and commerce: Operators such as KDDI, SK Telecom and Vodacom have sought to build on their financial services propositions to offer a wide range of commerce and lifestyle services to their customers, expanding revenues based on the volume of sales and transactions settled via their payments services and direct revenues from services sold within the lifestyle ecosystem. With financial services having a lower capital intensity compared to the traditional telco business, operators stand to earn a higher profit margin compared to the core business.
  2. Entertainment: Operators such as Optus in Australia and Verizon in the US are expanding their content and entertainment subscription offerings from a small selection (averaging approximately three to five) merchant subscription options to up to 20 subscription services, the majority of which customers can manage (add and drop) each month.
  3. Household service aggregation: Some operators such as MEO in Portugal, Japan’s Docomo and KDDI as well as Orange have sought to capitalise on their existing customer relationships to offer a suite of household services, encompassing insurance, energy and home security, as well as broadband, TV and telephony.

Table of Contents

  • Executive Summary
  • Introduction
  • Lifestyle commerce and finance aggregation
    • KDDI’s Life Design strategy
    • SK Telecom’s T Universe lifestyle subscription platform
    • Vodacom’s lifestyle and payments super app
    • Takeaways
  • Entertainment aggregation
    • Optus’ SubHub “super bundle”
    • Verizon’s +play “super bundle”
    • Takeaways
  • Household service aggregation
    • Altice Portugal’s MEO Care household support services
    • Docomo’s Smart Life services
    • Orange’s Protected Home service
    • Takeaways

Related research

Telco A3: Skilling up for the long term

Telcos must master automation, analytics and AI (A3) skills to remain competitive

A3 will permeate all aspects of telcos’ and their customers’ operations, improving efficiency, customer experience, and the speed of innovation. Therefore, whether a telecoms operator is focused on its core connectivity business, or seeking to build new value beyond connectivity, developing widespread understanding of value of A3 and disseminating fundamental automation and AI skills across the organisation should be a core strategic goal. Our surveys on industry priorities suggest that operators recognise this need, and automation and AI are correspondingly rising up the agenda.

Expected technology priority change by organisation type, May 2020

technology investment priorities telecoms May 2020

*Updated January 2021 survey results will be published soon. Source: STL Partners survey, 222 respondents.

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Key findings on operators’ A3 strategies

Based on deep dive interviews with 8 telcos, as well as insights from 8 more telcos gathered from previous research programmes.

  • Less advanced telcos are creating a set of basic structures and procedures, as well as beginning to develop a single view of the customer
  • Having a single version of the truth appears to be an ongoing issue for all – alongside continued work on data quality
  • As full end-to-end automation is not a realistic goal for the next few years, interviewees were seeking to prioritise the right journeys to be automated in the short term
  • Reskilling and education of staff was an area of importance for many but not all
  • Just one company had less ambitious data-related aims due to the specialist nature of their services and smaller size of the company – saying that they worked with data on an as-needed basis and had no plans to develop dedicated data science headcount

Preparing for the future: There are four areas where A3 will impact telcos’ businesses

four A3 areas impacting telcos

Source: Charlotte Patrick Consult, STL Partners

In this report we outline the skills and capabilities telcos will need in order to navigate these changes. We break out these skills into four layers:

  1. The basic skillset: What operators need to remain competitive over the short term
  2. The next 5 years: The skills virtually all telcos will need to build or acquire to remain competitive in the medium term (exceptions include small or specialist telcos, or those in less competitive markets)
  3. The next 10 years: The skills and organisational changes telcos will need to achieve within a 10 year timeframe to remain competitive in the long term
  4. Beyond connectivity (5–10 year horizon): This includes A3 skills that telcos will need to be successful strategic partners for customers and suppliers, and to thrive in ecosystem business models. These will be essential for telcos seeking to play a coordination role in IoT, edge, or industry ecosystems.

Table of contents

  • Executive Summary
  • Telcos’ current strategic direction
    • Deep dive into 8 operator strategies
    • Overview of 8 more operator strategies
  • How A3 technologies are evolving
    • Deep dive into 40 A3 applications that will impact telcos’ businesses
    • Internal capabilities
    • Customer requirements
    • Technology changes
    • Organisational change
  • A timeline of telco A3 skills evolution
    • The basic skillset
    • The next 5 years
    • The next 10 years
    • Beyond connectivity

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