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Why BT Group plc Looks Set To Beat Vodafone Group plc To Become The King Of Quad Play

When it comes to the media sector, 2015 looks set to be the year when the so-called ‘quad play’ market really takes off. Certainly, the combination of landline, mobile, pay-tv and broadband has been available from one supplier for a little while now, but with BT (LSE: BT-A) (NYSE: BT.US) launching a takeover bid for EE and Vodafone (LSE: VOD) (NASDAQ: VOD.US) set to launch its own broadband and pay-tv packages in the spring, competition in the sector is hotting up.

The Benefits Of Quad Play

For customers, the idea behind combining landline, broadband, mobile and pay-tv into one package is that it could save time and money. Instead of dealing with four different companies, you deal with just one and this, it is claimed, makes life easier and cuts down on admin charges, thereby giving a lower price.

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For the companies involved, offering all four services has huge potential. That’s because it offers tremendous cross-selling opportunities and makes it less costly and less time-consuming for the companies involved to win new customers. For example, if a customer is happy with their landline and broadband service, it immediately puts the company at an advantage relative to its peers when it comes to selling pay-tv and mobile services to them. This, it is envisaged, will help to boost profitability moving forward.

Increased Competition

Clearly, there is not infinite demand from consumers for quad play services and, with the likes of Virgin Media, Sky, BT, TalkTalk and Vodafone all moving towards being quad play suppliers, it is likely that the market will become rather crowded. So, there could be a considerable first mover advantage and, although Virgin Media has been a quad play operator for some time, the restrictions on availability continue to hold it back somewhat.

So, with BT’s bid for EE on the table and it already offering landline, broadband and pay-tv services, it could have first mover advantage over Vodafone, which remains a pure play mobile operator in the UK. In addition, BT has been beefing up its customer numbers in recent years via various offers and sweeteners (such as free BT Sport with broadband), apparently preparing for a major cross-sell should the EE deal come off. This could allow it to ‘hit the ground running’ should its £12.5 billion bid for EE move forward.

Looking Ahead

While Vodafone does have considerable potential and may engage in M&A activity to speed up its transition to being a quad play provider, its focus on Europe could hold it back somewhat. Certainly, BT’s pension commitments are vast and may hurt profitability over the medium term, but Vodafone’s disappointing performance in Europe could be a short term drag on the remainder of the business and hold back its diversification into new product areas.

So, while Vodafone’s move into the quad play marketplace could benefit its top and bottom lines, BT seems to be better prepared than its key rival. And, with BT trading on a price to earnings (P/E) ratio of 13.5 (versus 36 for Vodafone), it seems to offer better value for money, too.

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Peter Stephens has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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