Triple Play Services: A Must Have In Today's Global Landscape

Today’s highly competitive global market is driving operators to rapidly integrate and combine their broadband data access with voice and video services. Multi-service offerings are now regarded as the minimum necessary to be competitive. Jeffrey Soong, CEO of Broadband Network Systems Ltd., Fergus O’Reilly, VP Product Strategy at Highdeal, and David McNierney, VP Market Development at Highdeal discuss:

• The evolution of triple play across global regions, specifically in Asia, Europe, and North America
• Pricing & Packaging of Multi-play services
• Diverse payment mechanisms for service differentiation

Jeffrey Soong, CEO of Broadband Network Systems Ltd.

Fergus O’Reilly, VP Product Strategy Highdeal

David McNierney, VP Market Development Highdeal Inc.

Transaction Reporter: What triple play offers do you typically see?

Jeffrey Soong: While broadband penetration is the highest in the world in Asia, Asian operators are only starting to explore the potential of triple play. Asia is a very diverse market, so approaches to triple play vary. Operators are marketing combined data services, some bundled with voice and others with mobile. From a technology stand point though, the services are not always fully integrated. As a result of existing investments or bureaucratic legacies, different services are still run as separate divisions and triple play consumers might still receive several different bills.

Fergus O’Reilly: European operators are bundling high-speed internet access with a core group of IPTV broadcast channels and a voice calling package onto one fixed-price monthly subscription. The voice calling package is usually voice over IP (VoIP) with unlimited national calling. French operators are starting to offer unlimited international calling to at least the EU and the US. And in the UK we have seen the recent emergence of fixed-price bundles that include mobile communications also.

David McNierney: The triple play market has been relatively slow to take off in North America due, in part, to lagging broadband penetration rates as compared to many Asian countries. As compared to Europe, the culture here is TV centric with many high numbers of cable and satellite customers. Surveys find that only 5% of cable or satellite subscribers are willing to switch to a telco for TV service, but consumers are willing to pay more for services such as unlimited VoIP calling.

TR: How has the Triple Play market been maturing across different regions?

David: Cable MSOs and telcos offer most of the triple play packages in North America, but the Cable MSOs are the clear early winners due to the success of cable broadband. Cable MSOs who were already providing video and broadband added VoIP to create simple triple play packages, such as Cablevision’s 30+30+30 ($90) package that offers basic digital TV, digital internet access, and a voice package with unlimited calling to the U.S. and Canada. The telcos, who partnered with satellite companies for their initial triple play services, have had difficulties due to the slow adoption of DSL-based broadband. Telco Verizon is now offering a wholesale triple play package in conjunction with their satellite TV partner, DirecTV, to increase their reach.

Jeffrey: Conditions vary greatly between economically advanced markets like Singapore, Hong Kong and Japan and emerging markets like Thailand and Malaysia. But we have seen quite a bit of activity in the triple play market. Bear in mind that Asian consumers spend a much higher portion of their income on entertainment than Americans or Europeans. In-Stat has estimated that IPTV services will grow by nearly 80 per cent annually between now and 2010 and Asia will account for half of all worldwide IPTV subscribers by the end of 2009. I cannot verify if these projections are correct, but we are seeing new IPTV projects in the planning stages in almost every single country or territory in Asia.

Fergus: In Europe, there is intense competition in the triple play market between incumbent telephone and cable operators and the newer alternative service providers. Cable operators throughout Europe are already bundling internet access with their cable TV services and are starting to deploy voice packages. The historical incumbent telephone operators are starting to encourage their consumers to migrate to VoIP and IPTV. But this is mostly a defensive move. The strongest driver for change in the market remains the new alternative entrants that were enabled by EU-led deregulation and that have innovated rapidly in terms of services offered.

Jeffrey: This is actually one of the big differences between Asia and other regions; the incumbent Asian telephone operators have enjoyed 50-year monopolies and are much better financed than the cable companies. Cable companies are smaller, with less access to capital. As a result, they face more technical constraints, leaving the telephone operators with more opportunities in the near future.

Fergus: In contrast, European cable operators have the largest subscriber base when it comes to TV services. They also already have existing contracts with filmed entertainment content providers at negotiated rates. The incumbent European telephone and alternative ADSL operators have struggled to find competitive content for their TV offers. To get around this, they have begun adding features to their IPTV offers, such as quick channel change, pause and record of live TV, video on demand, and pay-per-view.

TR: What general trends do you see in terms of market growth for triple play?

David: Market research estimates that the number of worldwide broadband subscribers will double and reach 413 million in the next five years. The primary force behind this rapid growth is the increase of new applications, such as IPTV and VoIP that rely on high-speed connections. Broadband providers are now offering tiered packages so subscribers of IPTV services can get the bandwidth they need for a satisfactory video quality of service.

Jeffrey: If you look at the market growth potential for triple play services in Asia, the focus is firmly on the pay TV environment. In markets where pay TV penetration is high, such as in Taiwan where 80% of the population subscribes to pay TV, the environment is very competitive and the growth potential for interactive services is enormous. In countries like Malaysia however, where the pay TV penetration is very low because of various factors like cost, IPTV is a good option because it lowers the barrier to entry in terms of cost.

Fergus: IPTV is not a huge generator of incremental margins, but it is a proven, dynamic marketing tool. Italy’s Fastweb was the first European alternative ADSL operator to offer IPTV to consumers. Immediately after introducing IPTV along with VoIP and Internet access, their growth rates surged, demonstrating the market power of triple play services in Europe. In a recent survey, European consumers indicated that IPTV is their most valued element in the triple play bundle.

Jeffrey: Most existing IPTV services in Asia were designed three to five years ago as linear multi-channel service similar to cable and satellite television. However, market newcomers are learning from incumbent operators and are designing future-proof triple play services that take into account evolving technology, such as interactive home networking, pod casting, or digital video recorders tied with interactive services. In some cases, consumers can even buy TV channels individually through à la carte channel packages instead of pre-set bundled subscriptions.

Fergus: The U.S. government is proposing legislation to unbundle channels. This federally mandated unbundling is different from the market-driven Asian à la carte offerings, but the real next step will be to unbundle television programs from the broadcast channels. Apple iTunes is already successfully selling individual episodes of TV shows from studios such as ABC, CBS, Fox, NBC and MTV.

David: In the U.S., the cable operators own many of the TV channels. The telecom operators have been having difficulties with their IPTV offerings not only for technical reasons, but also because they do not have experience building and maintain relationships with broadcasters. Since the broadcasters have deep relationships with the cable operators, this presents a challenge for telcos – convince broadcasters to offer their services without upsetting the existing relationships. Instead, internet video which is available on sources like YouTube, Google Video, and AOL Video is rapidly emerging as a real alternative to traditional TV. Today, young people are watching less TV and more internet video. Unlike IPTV, internet video does not require a set-top box.

TR: What sort of price models are triple play services using?

Fergus: Many of the initial pricing models on the market tout flat-rate pricing with some optional extra services, such as VoD, priced on a per usage basis. But this is generally used by the most innovative operators just in order to gain initial market share with a simple marketing message. As the market matures and services evolve we expect to see more of the spend shift out of the basic flat-rate package and into a set of tailored bundles and optional extras. This will allow operators to maximize their margins per subscriber segment.

Jeffrey: Many yet unforeseen services will continue to pop-up, so operators need flexible and sophisticated charging infrastructures that will not constrain or impact future service offerings.

David: As more service providers offer triple play packages, consumers will demand more options, and we will see increased needs for differentiated pricing and packages. Telcos are already experiencing the backlash – if you provide the same package of video services at the same price as the cable & satellite providers, why would a customer switch?

TR: Are there regulatory or environmental constraints that influence the market?

Jeffrey: The regulatory environment plays a mayor role in launching IPTV services in Asia. Every market handles regulation differently and it is still a grey zone in many countries in the region. There are still markets were the boundaries are blurred, meaning that one service is regulated by two regulators, telecom and broadcasting, who represent two different constituencies and inevitably pursue two different interests. Two very prominent examples in the region where regulation is stifling IPTV progress are China and Korea: China has two regulators for IPTV and has so far only granted one licence to a broadcaster, not an operator. Korea on the other hand has the highest broadband penetration globally and yet operators are not allowed to launch IPTV services mainly due to the pay TV community’s veto power with the broadcast regulator who is regulating IPTV

David: North American consumers typically have one choice for their cable service based on municipal franchise agreements. Broadband and VoIP competition exists with DSL providers, but telcos like AT&T and Verizon are laying fiber in entire communities (Projects Lightspeed and FIOS, respectively). With high-speed bandwidth in place, the challenge for the telcos goes back to negotiating deals with the broadcasters and providing content for their IPTV services. The telcos are now lobbying in the US for a national franchise agreement to deliver video rather than dealing with each municipality, as the cable operators have done for decades.

Fergus: Triple play is more available in Europe than in the U.S., due to the deregulation of the European markets. But there is significant variation among the individual countries. The extent of deregulation is a key determinant of the richness of the service offer and the intensity of price competition in each country. In Europe, competition has also pushed the basic technology further with high bit-rate ADSL up to 20 Mbps now coming online in Europe. This is sufficient to support high definition (HD) TV streaming over ADSL and therefore allows operators to challenge satellite and cable operators for the top tier of subscribers willing to spend upwards of €60 per month for high quality HDTV programming.

TR: What is happening with regard to fixed-to-mobile convergence?

Jeffrey: Fixed-to-mobile convergence is already happening in some parts of Asia, especially in markets where a single service provider dominates the fixed line and mobile operations. Strong Asian service providers use fixed-to-mobile convergence to flex their technological muscles. In Hong Kong, the incumbent PCCW has just acquired Sunday, a 3G mobile operator. PCCW built an IPTV content platform and now they want to extend this onto a mobile platform. Obviously, fixed-to-mobile convergence is still in its nascent stages but it is a top priority for many of the telcos that we talk to. The majority are in the research stage, both in terms of market evaluation and in terms of defining the technological way forward.

Fergus: In Europe, many incumbent telephone operators are merging back in their mobile arms, after having spun them off in the late 90s. Standalone cable and mobile operators are also busy searching for partners and sometimes merging with them as they seek to fill the gaps in their product portfolio. Companies realize that integrating the backend infrastructure for television, voice, messaging, and video services is required for delivery of the next wave of services that will add consumer value.

David: Like Europe, North American operators are realigning with mobile partners. AT&T has a relationship with wireless operator Cingular while Verizon has Verizon Wireless. AT&T has also partnered with Clearwire to deliver wireless broadband to areas where they have not yet deployed fiber. A consortium of leading cable operators in the US including Comcast and Cox Communications has entered into an MVNO agreement with wireless operator SprintNextel. One of Highdeal’s customers, a Canadian cable MSO, is also in the process of introducing an MVNO service as part of a “quadruple-play” package.

TR: How does the Highdeal solution solve these challenges?

Jeffrey: Operators have only begun to harness the potential of triple play services. As market competition continues to stimulate and accelerates this growth, there will be more services available and more combinations between the various fixed, mobile, and Internet services. There will also be more diversified content mixing voice, images, video, and more players in the value chain. We have partnered with Highdeal because we feel that Highdeal offers the only converged pricing, rating, and packaging solution in the market today that has the flexibility and proven easy integration to meet future demands.