Market Insight

Three launches UK’s first zero rated video offer

July 06, 2017  | Subscribers Only


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UK mobile operator Three has launched a zero-rated music and video service, Go Binge, which will allow customers to access selected applications without using up their monthly data allowance.

At launch, the service is restricted to Netflix, TVPlayer, SoundCloud and Deezer, which could limit the appeal of the service. However, Three states that other companies are free to join the Go Binge scheme. This is a similar to the approach taken by T-Mobile USA’s zero-rated initiative, BingeOn, which launched in November 2015. At launch, it supported 24 video services, but today includes over 100 different services.  

Go Binge is limited to Three’s higher-tier tariffs, known as advanced plans, with a 4GB+ data allowance. New customers on these plans will automatically have the service enabled, whereas existing customers will need to change to a higher price plan in order to benefit.

Our analysis

Go Binge is Three’s latest move to position itself as a Customer Champion

In the past, Three has launched a wide-range of initiatives to differentiate itself from larger UK providers. The operator introduced all-you-can-eat data plans in 2010, bringing unlimited mobile data to the UK. This was followed by the launch of inclusive roaming in 18 destinations via its Feel at Home offer. Most recently, it has added Wuntu, a rewards app that is exclusive to Three customers.

While Three continues to be unique in the UK mobile market in offering unlimited data, all operators now provide inclusive roaming in EU destinations following the introduction of the Roam Like Home legislation in June 2017. As a result, Three has become less differentiated and growth has slowed in recent quarters. The launch of Go Binge, therefore, provides Three with the opportunity to re-position itself for growth in the UK market and regain its challenger image. 

Content is playing an increasingly important role in telcos strategy, as evidenced by UK operators

In the UK, Vodafone offers a free subscription to Sky Sports Mobile TV, NOW TV, or Spotify in order to upsell customers to higher value Red Entertainment plans. EE also uses content to attract and retain customers, offering a free 6 month trial to Apple Music for all customers. EE customers on higher value plans also receive free access to the BT Sport mobile app for the duration of their contract, whereas those on lower value contracts receive a free 3 month trial.

Conversely, Three has lacked a content play in the UK mobile market. Although the operator provides a free trial to Deezer for all Three customers, there is little marketing activity to accompany this. The launch of Go Binge, which is heavily promoted online and in store, represents a pivot in Three’s content strategy. IHS Markit believes it increases the pressure on O2 to respond with its own content-based initiative, as rivals continue to develop their strategies in this area. 

Go Binge follows previous attempts by UK operators to use zero-rated initiatives

Three describe the launch of Go Binge as a UK first. While it is correct that Three is the first operator in the UK to offer zero-rated video applications, it is not the first time UK operators have experimented with zero-rating. O2 marked the launch of the iPhone 7 with zero-rated music applications, including Apple Music and Spotify, on selected high-data tariffs but has subsequently removed the initiative. In addition, Virgin Media used its launch of 4G services to introduce zero-rated WhatsApp and Facebook messenger on all 4G mobile plans.

Go Binge is designed to avoid net neutrality criticisms

The launch of zero-rated initiatives is often followed by concerns around net neutrality. For instance, in December 2016, Dutch regulators ordered T-Mobile to stop offering free zero-rated music streaming in the Netherlands due to violations of net neutrality rules. This was later overturned in a landmark case that witnessed the Dutch Minister of Economic Affairs reveal proposals to scrap the Netherlands’ strict net neutrality rules, which are in conflict with the guidelines presented by the Body of European Regulators for Electronic Communications (BEREC) in August 2016.

The UK regulator, Ofcom, is a member of BEREC. UK operators must adhere to BEREC’s guidelines on net neutrality, which do not forbid zero rating but do outline certain principles that operators must adhere to. In order to ensure the operator is compliant with EU guidelines, Three customers must have some data left in their monthly allowance to take advantage of zero-rated applications.

Increased data usage, as a result of Go Binge, adds to Three’s network capacity issues

IHS Markit estimates that Three has an 11% share of the UK mobile market, while it owns slightly less than 15% of the usable UK spectrum. This may not seem problematic, but Three’s customers tend to be heavy data users, creating pressure on Three’s network. The operator’s annual financial results highlight that Three customers used an average of 6.4GB of data in December 2016. This is more than double the average data usage of an average Vodafone, EE or O2 customer. The introduction of Go Binge will lead to Three customers increasing their data usage even further, which could be problematic given the operator’s weak spectrum position. This demonstrates the importance of Ofcom’s next spectrum auction, set for late 2017. Three must acquire sufficient spectrum at this auction otherwise it is likely to face network capacity constraints. 

Geography
UK Western Europe
Organization
3 UK EE O2 UK Vodafone UK
Research by Market
Mobile & Telecom
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