IPTV evolves as a necessity

When IPTV first entered the IT lexicon three to five years ago, industry players toyed with the idea of adopting it to get a grip of the technology. That experimentation is now over, with its adoption considered imperative rather than just merely riding on the wave.

This is because service providers worldwide, particularly fixed-line operators, are faced with dwindling voice revenues in an increasingly competitive market. More importantly, new players come with disruptive business models never seen before in the industry, catching the traditional operators off-guard.

Service providers understand the need to plan and embark on business transformation well ahead of these challenges to exit from the existing red ocean, moving on to find and develop the blue ocean. Is IPTV indeed service providers' blue ocean‾

Over the past few years, IPTV has become the buzzword in the telecommunications industry. Every fixed-line and broadband operator has either planned, evaluated, or is in the midst of deploying IPTV.

IPTV is portrayed as the missing piece to offer blended triple-play services of video with voice and data, and is viewed as the initial step toward achieving convergence.

More recently, IPTV has also morphed into the mobile space, completing the quadruple-play equation. IPTV is seen as the most compelling value-added service with infinite opportunities and the key driving force for service providers to seriously look into the need for next-generation network (NGN) transformation.

But how should service providers position IPTV‾ Is it purely a defensive weapon to reduce churn by offering multiple services to create stickiness, or an offensive approach to increase revenue‾
As it stands, IPTV is mostly bundled together with broadband access to entice customers on board, which in turn helps to reduce churn; not so much yet in terms of generating new revenue stream.

In the entertainment sector, service providers that position IPTV to compete in the entertainment space with the broadcasters, cable operators or satellite providers risk jumping out of their current predicament and falling into another red ocean.

Little value is gained by duplicating broadcast TV over IP networks. This is an area unknown to most telecom operators. Cable and satellite operators, on the other hand, have set the bar very high in terms of both quality and content. Media companies have strong relationships and understand the content business well. They tend to have smaller investments in capex, while being generous in terms of revenue share with content providers.

On the contrary, telecom operators are used to huge capex investments, hence keeping a bigger share of the revenues for themselves. This gap presents a significant cost element for telecom operators if not managed properly.

IPTV as integration point

The strategic importance of IPTV lies in its ability to be the point-of-integration (POI) to enable 'blended services'. This is where the different elements of voice, data and video can be integrated to create new innovative services, hence enabling traditionally independent services to interact with one another, typically by sharing information such as buddy lists, location data, presence information, and subscriber preferences and profiles.

For example, services such as instant messaging can be combined with IP voice and video capabilities to create new offerings such as multi-party video conferencing.

 

The positioning as the POI transforms the traditional telecom operators from pure communications play to information, communications and entertainment (ICE) companies. The POI concept allows service providers to focus on other value-added services that IPTV can enable - creating and developing the blue ocean.

The POI concept of IPTV is a very powerful tool when we speak about redefining lifestyle services. We hear recent talk of user-generated content (UGC) at almost every bend. More often than not, telecom operators question its relevance and are unsure of how UGC affects them and how they can capitalize on this trend.

The real fact is UGC is all about participation and interaction. IPTV as POI fits perfectly here. IPTV provides the necessary platform or integration point for participation and interaction which enables UGC.

To be an ICE player, the right content plays a significant role in the success of the company. End-users are accustomed to the rich content provided by the cable or satellite operators and they expect at least the same content, if not more to be offered. The content acquisition strategy is as important to service providers as the content itself.

However, the content community is highly skeptical about the new IPTV technology, its take up rate, and its efficiency in protecting their content rights. Against this backdrop, the challenges faced by service providers are two-fold.

Firstly, operators have to convince the content owners on the benefits of IPTV and that it is robust enough to protect their copyrights. Secondly, they (operators) should develop a business case that is beneficial to both parties. Therefore, the success of a telecom operator in the IPTV space still hinges on its content acquisition strategy.

Different strategies exist for IPTV depending on the priority of service providers. If IPTV is a means for broadband customer acquisition and churn prevention, then aggressive pricing coupled with matching TV experience to compete in an existing similar service marketplace seems to be the way forward.

If the intention, however, is to generate more revenues, greater emphasis should then be placed on service differentiation against existing services - interactivity, exclusive content and other value-added services. The real challenge lies with the customers' willingness to change their passive TV viewing habits to being more interactive with the TV.

The justification for IPTV implementation has come a long way and many a time deployment is more of a strategic decision rather than a financial one. While an entirely new business model for telecom operators may exist on the back of IPTV as POI, there is perhaps a more realistic reason why telecom operators venture into IPTV - the lack of other choices.

Sin Siew Teyew is the Asia-Pacific director for telecoms at global growth consulting company, Frost & Sullivan

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