Telcos need pick "

Service providers (and incumbents in particular) need to get smarter about bundling. Bundling enables service providers to grow their customer base while at the same time, reduce churn. For incumbents, the strategy is invaluable in providing a competitive edge against new entrants with less comprehensive service portfolios.

SMEs should be attracted to bundles because:

"¢ most SMEs like simplicity and bundling can allow them to have a single point of contact, single bill and one contract;

"¢ many customers do not have the time (or in-house expertise) to research all the offers available to them and bundled services are an easy solution to all their ICT needs;

"¢ at the same time, SMEs can avoid the risk of being left behind by technology change - the  service provider takes the strain of new technology introduction;

"¢ small businesses need to avoid capex and many bundled services use a predictable per seat, per month pricing model;

"¢ bundled services should provide overall cost savings for SMEs - if they buy multiple services for one service provider, there should be financial benefits; and

"¢ many bundles have a pay-as-you-grow option, which enables businesses to expand their service usage as they need it.

So the question isn't 'why should SMEs use bundles', but rather, 'why, if they offer so many benefits, don't more SMEs take bundled offerings'‾ We think incumbents have been less successful than they should have been in selling bundled services for three reasons:

"¢ many bundled offers don't provide enough financial incentive to potential buyers because the discounts for buying multiple services aren't good enough. Many SMEs think they can negotiate better prices on single-service deals from multiple suppliers;

"¢ service providers need to get the message across better - SMEs need more understanding of what new technologies can do for them so the benefits need to be sold to them;

"¢ SMEs need to feel that they have not taken too great a risk in single sourcing. They need to retain some control over the solutions they are using.

Smart pricing for bundles needs careful consideration. SMEs need to know they are getting good value, as well as the right bundle for their needs. Discount schemes which offer better value for contracting to multiple services need to be more attractively priced. Better contract terms should also be considered to attract SMEs to bundled services.

Service providers also need to be flexible with their bundles. We think segmenting the SME market is a near-impossible task, but a 'pick and mix' approach would enable SMEs to feel more in control and would help service providers know more about its small customer base.

Identifying the key needs of SMEs will lead to innovation. However these innovative bundles will have to be easy to understand. SMEs will continue to need guidance from service providers to help them grasp what best meets their needs.

Pauline Trotter, Principal Analyst, Enterprise Practice & Lucy Hipperson, Research Analyst