A Gartner forecast released last week that projects worldwide IPTV subscriber households to grow to 48.8 million by 2010 had to have been welcomed in the halls of telecommunications companies worldwide.
However, according to Elroy Jopling, research director for Gartner’s Consumer Communication Services group, the cause for celebration must be tempered by the fact that telecommunications companies will for the near- to mid-term be forced to compete on the basis of price with cable and satellite alternatives for TV viewers.
Relatively modest revenue from IPTV service is likely to continue until providers tap into the full potential of the technology to deliver an interactive viewing experience and create virtual communities of viewers.
IPTV Update turned to Jopling for more insight.
IPTV Update: The Gartner forecast released last week predicts the doubling of IPTV subscribers “buoyed by new service launches.” Identify the service launches you anticipate, and are you referring to things like Verizon’s FiOS, AT&T U-verse and the Deutsche Telekom service?
Elroy Jopling: The U.S. will be behind Western Europe in subscribers for a number of years and is really now in the catch-up mode. There’s no question that from a North American perspective, Verizon and AT&T will be the big players.
North of the border, an interesting one will be Bell Canada. It will be interesting from a number of perspectives because already they are in the Pay TV business; they are the largest digital-satellite-to-home company in Canada. They bring a lot of expertise from the content side. So that will give an interesting perspective to the whole area.
If you look at Europe, I think two of the key ones will be BT’s (British Telecom’s) BT-Vision and Deutsche Telekom. All of these fall within the Microsoft camp, and I suppose it is also very much a Microsoft foray.
IPTVU: According to Gartner, IPTV service providers will likely compete on price. Is that because they aren’t yet fully employing or exploiting the full potential of their technology, for example some of the interactive capabilities of IPTV?
EJ: It is a combination of factors. In the very near-term, what I think you will see them do is come out with pricing that is fairly similar to cable. And quite frankly what they are doing is getting the low-hanging fruit. That may be the telco-friendly customers, the people who just like them, people looking for a change, and people who have dissatisfaction with cable and satellite, and one of the audiences will be the analog base. So I think for the first period of time, they will have a pricing mechanism that is close to or just a bit below cable pricing.
I think when you move to the second stage of trying to get deeper into the cable companies’ and satellite operators’ consumer subscriber base, then you will have to offer something more, or probably what you will see them doing is reducing the price.
Then they will get into the various features of IPTV and what it can do. I kind of break them into four. One is the entertainment; one is communications; one is interactive; and the other is personal. When you look at some of those and the things they can do with presence and so on, a lot of that will be down the road. They will come out with launches that have a few extras. But mainly it is going to be a stable of services that pretty well mirror the cable companies, and it will take them a while before they get into the advanced services.
IPTVU: You don’t see IPTV as a replacement source for diminishing voice revenue, but do see it as a way for telcos to retain relationship with existing customers. Why?
EJ: The interesting thing is incumbent telcos are kind of damned if they do and damned if they don’t. If they don’t do something without question, the voice revenues are going to disappear — not completely, but let’s say the high gross margin voice revenue will disappear. In the U.S., voice over IP will represent more than 40 percent of households by 2010. There is a certain amount of telco voice over IP in there. But it is predominantly the cable companies, and that business is going away. So they have to do something, i.e. damned if they don’t.
Damned if they do? Hey, they’re getting into spending billions of dollars. They are getting into markets that they haven’t previously been in. They are going to have to hone their skills in content. They are going to have to expend billions of dollars in infrastructure, so without question it’s a difficult situation. So it is both a defensive and offensive strategy. Can they make money at it? And even that will be a long way down the road for many.
IPTVU: You see the next nine to 12 months as a high growth period for IPTV already launched and new services. Is that related to Verizon and AT&T roll-outs gaining momentum, a more conducive regulatory environment (i.e. movement on local cable franchising regulations), or other reasons?
EJ: I think the growth over 2007 is a bit of both. One thing I try not to do is predict regulators. But at the same time, I think the general movement is towards the telcos. So that is part of it.
But the main thing is getting IPTV out there and being in front of more users, having more homes passed. Both Verizon and AT&T are in fairly high ramp — Verizon to a lesser degree. But by the end of 2008, AT&T is saying it will reach more than 50 percent of its consumer base, i.e. 19 million households. I think that is one of the areas.
Interestingly, I think there is one area that is going to be on the telcos side, and this is very much in the U.S. and Japan. And that is high-definition television.
Many people say cable has high-def and so does satellite, but the key is as long as the telcos have an IPTV offering that addresses high definition well, they are in an optimum position. Normally, televisions roll over every seven to nine years.
We are now in a situation where people want high-def. It is the thing. It will continue to grow. What that means is consumers are out there looking for high-def. Actually, they are looking for large screens, flat screens, LCDs and plasmas. The key thing is they also need programming and the set-top boxes. They have to upgrade their PVRs. The consumer because of high-def is out there shopping today. And when you have the consumer out there shopping, it is always best for everybody in the field. And as the new kid on the block, it helps the telcos more.
I think this is one of the things people underestimate about high definition is that it will bring people to the market, and this will be the biggest boon to telcos in North America and in Japan. When you talk North America and Japan, you are basically talking 90 percent of high-def today.
IPTVU: Is there anything else you’d like to add?
EJ: I think the obvious is sometimes kind of missed in that the key thing is broadband households. We are looking at the three major reasons why Asia-Pacific, North America and Western Europe all have fairly high broadband penetration.
Some of the other areas, there could be some interesting happenings in IPTV that may not hit the radar screen just because they are kind of offshore. I think of Brazil, where there will be three introductions of IPTV by carriers down there this year. And you begin to wonder what kind of things can come out of that.
We’ll see what will transpire in the market. I think that you may begin to see that out of various geographies, there are certain applications that come to the forefront.
A good one is the Verizon package with karaoke. That’s a significant requirement in China. Another is KOD — karaoke on demand — in other parts of Asia also. That may filter over here to a certain degree, but there are certain applications that are generated in other parts of the world just because of their market dynamics.
One of the ones I’m always interested in that could really change the dynamics of the market is presence. What do I mean by presence? I mean that you are able to watch a soccer game in Europe, and you’d be able to look and know who else of your buddies was watching that soccer game at the same time, and you’d be able to communicate via IPTV with those people. You suddenly create communities. That may not transport to North America from the perspective of it being soccer, but it may transport to North America from the perspective of using IPTV to create communities. And I think with MySpace today, we see the significance of that, and cyworld out of South Korea, and with SNDA Entertainment out of China we see that.
So keep your mind open to what’s happening in IPTV globally. A lot of it is going to be trial and error, and most of it’s about finding new applications. What the telcos have always been good at — and is one of their strategies — is not being a leader but a fast follower. And that’s what they’ll have to do with IPTV.
Tell Us What You Think!
IPTVU invites response from our readers. Please submit your comments to email@example.com. We'll follow up with your comments in an upcoming issue.
Future US's leading brands bring the most important, up-to-date information right to your inbox