By Patrick Pfeffer and Susan Tucker
I noticed that the subscriber number for IPTV differ greatly from research company to research company. When I dug a little deeper, I realized that the definitions of what IPTV actually is differs quite a lot: Some include Video-On-Demand (VoD) offerings because they are bundled with IPTV offerings; others also count Telco TV solutions such as Verizon’s FiOS TV towards IPTV – though it is not based on the Internet Protocol; another group also includes Internet TV offerings such as Zattoo because they enable IP-based TV viewing.
I usually take Ovum studies with a grain of salt, I feel that they don’t always match my market experience; but then again, I’m not really the average target audience nor do I live in an average community, so what do I know… This time, however, the numbers and definitions of an Ovum report from June 2007 matched our internal numbers we were crunching, so here is an excerpt of the market forecast for the end of 2007 and end of 2011, followed by some of Detecon’s analysis done by Patrick Pfeffer and Susan Tucker.
Europe
IPTV was launched in some European countries long before it was done in the US. Both France and Italy had early market launches with France Telecom and FASTWEB. Given these earlier launches, some of the European players have moved beyond “me too TV” to introduce innovative services. For example, FASTWEB introduced a video telephony over the TV service.
While many of the European service providers launched much earlier than their US counterparts, they generally offer fewer TV channels and face markets where free TV channels are common. As a result, Telco TV in Europe generally has lower price points for basic packages than in the US where pay TV is a fact of life. For example, a basic TV package from AT&T U-verse is $59 for 190 TV channels (customer pays less for the TV service if they take bundles with Internet access and telephony). Belgacom offers basic, Classic+ TV for €9.95 (approximately $13.53) per month plus €6 (approximately $8.16) per month for the set top box. This offer includes 60 TV channels plus access to 2 soccer matches online on Friday and Sunday.
Another difference found in the European markets is the strong drive toward building a Pan-European presence. European telecom operators have leveraged expertise and infrastructure developed within their home markets to expand their TV services beyond their incumbent footprint. Examples of such a strategy are evident with France Telecom’s ADSL TV and VoD offering under its Orange brand in Spain, Poland, Senegal and Mauritius. It plans on launching in the UK in the fall of 2007. This is quite different from the US, where the telecoms, having entered the IPTV market much later, are heavily focused on building out the infrastructure needed to deliver competitive IPTV services within their footprint. The primary focus of the US telecom in the short term is to mitigate for the loss of voice business (to wireless carriers, MSOs and single play VoIP providers) and to compete against the MSO for a greater share of its customers’ telecommunications budget.
North America
Tier 1 Telecoms
With the consolidation of the fixed line network operators in the US, the two primary Telco TV providers are AT&T (U-verse) and Verizon (FiOS). From Both AT&T and Verizon are committed to their TV projects. Their approach is quite different in terms of technology and product positioning. We consider that AT&T is presenting U-verse as a bundled service. In its early instantiations, U-verse presented convergence features. On the other hand, we consider that Verizon is positioning FiOS TV as a better TV than cable and satellite. The bundle is taking a back seat. It is important to point out, that Verizon’s FiOS TV is not IPTV in a strict sense, but a Telco TV offering, as it does not use the Internet Protocol to transport the content.
Rural Carriers
While all eyes are on the large telecom carriers, local CLECs and Tier 2/3 carriers have quietly innovated IPTV and Telco TV in a way that even incumbent MSOs such as Comcast or DirecTV have a hard time to compete. There are many reasons why Tier 2/3 carriers are faster with their FTTH rollouts and are the first adaptors of the MPEG4 encoding standard with lots of HD channels available:
Surewest services about 124,000 access lines in a corridor of roughly 215 km2 in the Sacramento area of California. For rural dimensions, this is an extremely dense area with almost 600 access lines per square kilometer. Surewest was one of the first Tier 2/3 carriers to offer IPTV via a custom head end, ingeniously engineering and integrating several different vendors and technologies. Its technology and installation is so simple that on trade shows they have the problem how to highlight their service: In their booth you will find the usual LCD TV, a modem that splits the broadband Internet, telephony, and TV signal, and a tiny box that is a little bigger than a flash card reader and holds the set-top box and SIM card – the rest is a very responsive software package running in the backend. Currently about 20% of Surewest’s residential users are subscribed to IPTV and VoD services through DSL and FTTH. Surewest offers over 260 channels and will have 30 HD channels until the end of this year.
The National Rural Telecommunications Cooperative (NRTC) represents the advanced telecommunications and information technology interests of more than 1,400 rural utilities and affiliates in 47 states. In 2006 the NRTC developed a turnkey IPTV solution called IP-PRIME together with SES Americom, a video transport provider with 44 satellites in orbit. Upon ordering, two racks arrive pre-installed in wooden crates together with a 3.8-meter dish. The racks can be set up and connected to existing network infrastructure within a week, including additional feeds for local or proprietary content on top of the already negotiated and packaged 255+ SD channels and 20+ HD channels. The end-to-end satellite-based IPTV service is built completely on the MPEG-4 video standard, and carriers can choose between two middleware options, Myrio and NDS. Cisco acts as the chief infrastructure supplier and integrator, but IP-PRIME can talk with existing legacy systems as well. The first pilots were run in Q3 06 at Valley Telephone Cooperative (VTCI), Georgia’s Planters Rural Telephone Cooperative, and the West Kentucky Rural Telephone Cooperative. VTCI uses Pannaway Technologies’ IP access platform to cover its average ADSL2+ with 15Mbps and segment length of 3.7 kilometers.
Avail Media is another start-up formed in early 2007 as a result of the merger of two competitive companies, Auroras and Broadstream. It offers a plug-and-play MPEG-4 based IPTV solution for $300k, including 200+ SD channels and 20+ HD channels and interactive programming guide. Nortel acts as the chief infrastructure supplier and integrator. Some rural carriers using Avail Media are only serving 20,000 access lines in an area of 40,000 km2. The turnkey solution allows an update of the complete system to IPTV for fewer than $120, including central office upgrades and integration into existing OSS/BSS solutions. 3 Rivers Communications in Montana will roll out 120 channels by the end of this year.
Building B is a startup that develops a similar turn-key solution for carriers and Internet service providers, but focuses on the wireless in-home delivery through a proprietary and powerful set-top box with massive storage capabilities that will record 1000 hours of programming. Detecon, Inc. has a NDA agreement with Building B, and cannot disclose the wireless technologies or the actual video entertainment solution for the living room, but we are very excited about this new player with $17.5M funding. It will be a mix of broadcasting and pre-loaded VoD content. A simple remote control with eight buttons will enable users to easily access both broadcasted and stored video as well as Internet content. Building B also wants to offer a high degree of per-user customization using collaborative filtering and recommendation similar to Amazon, with individual log-ins via remote control.
Asia Pacific
“So many users so little ARPU” has been the predicament of wireless providers in India and China. The same will apply to pay TV and Telco TV. Most predict huge IPTV growth in China and India, we concur but the growth will be driven by demographics and westernization. The rise of the numbers of subscribers will be delayed by a lack of broadband infrastructure that can support TV. Other issues that the countries will face are the current push by satellite companies, the lack of a business model that can blend DRM and price sensitivity issues and the total absence of product awareness.
This protracted establishment of a stable value chain may derail traditional Telco TV efforts as Peer to Peer streaming is quickly filling the vacuum. This might be more the case in China than in India.
Hong Kong has the most established Telco TV market in Asia with the IPTV offering of PCCW. It has over 800K subscribers. PCCW has pioneered ala carte programming and while it is still struggling to generate profits it has reversed primary landline loss and gained broadband access dominance. In addition to superb execution, PCCW’s success is helped by a population accustomed to paying for television, a weak cable constituency and content owners willing to sign favorable deals with PCCW. However, Hong Kong remains the exception in Asia.
South Korea and Japan are the most mature broadband markets. South Korea offers the highest bit rate and Japan has the highest broadband penetration. However, in those two markets Telco TV is embryonic at best. The principal hindrance is regulations. Both countries have a dual regulatory environment with one body covering telecommunications issues and another one addressing broadcasting issues.
While most large HD TV sets are manufactured in Asia, having home parties with neighbors or colleagues is not generally part of the Asian culture. Asians usually go to public places to entertain. It is a major difference with the US where Telco TV programming has some appeal for small gatherings of acquaintances. In addition, Asians do watch television and video on their personal computer or laptop. Such viewing does not require Telco TV.
For all of these reasons, we believe that at this time the current Telco TV offering doesn’t justify the investment. South Korea and Japan may have to skip “me too TV” for Next Generation TV (NGTV).
