IPTV leads telco transformation in 2009

Telecom operators believed they had found the next killer application after the IPTV debut in 2000. Since growing from 3 million subscribers in 2006 to 5.5 million in 2007 - a growth rate of almost 85% adoption rates are slowing steadily.

Experts predict a weak economic climate until the end of 2010. With this in mind, Frost & Sullivan Information & Communication Technologies group has revised the previous year's growth forecast of a three year CAGR 29% to under 15%.

A change in media consumption patterns should mark a turning point in the telecom and media industries, to telcos' advantage.

A disappointing IPTV performance is not a disaster for incumbents; it spurred new service creation and more innovative business models across the value chain. Now, as end user's media consumption patterns change, telcos and broadcasters have an opportunity to invest and/or collaborate to meet evolving user demand.

Video seems to be the way of the future - consumers appear to have an insatiable appetite for it. To tap consumption of videos, broadcasters and other high definition content aggregators will demand higher quality, secure network for delivering content to users. Operators can bridge the gap by providing networks with varying QoS at different price levels. This is an important operational and business model change, and will help compensate for the decline in bundled service margins.

Once operators and media providers are able to deliver and customise the video content to meet end users' expectations, IPTV's revenue potential could add 15-22% to operators' retail revenue in the top five Western European markets. 

In the UK alone, TV revenues could grow at an 8% CAGR for the next five years, which is a more robust rate than the fixed or mobile

sectors. To make this happen, operators need to improve QoS, extend coverage and distribution, form more alliances and create more innovative services.

Two big players in the industry, BT Vision and Virgin Media's focus is on expanding their service portfolio to cover as much as the end user's entertainment, media and communication needs as possible.

BT Vision hopes to boost revenues through alliances, with products such as Microsoft's Xbox to capture the gaming community. Virgin Media is taking a different route, concentrating more on the trend of service convergence such as its hyped QuadPlay.

The company has also exploited the shifting habits of media consumption and the emergence of Over-the-Top (OTT) media players such as BBC's iPlayer. These are just two UK examples of telecom operators accelerating their service portfolio expansion to capture end users' media consumption habits.   

Competition combined with consumer's limited willingness to pay for entertainment and comms services had led to less profitable service bundles. Having said that, the change in the way people consume media points to a brighter outlook for the industry.

Yiru Zhong, analyst, Frost & Sullivan

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