BuddeBlog

On paper, the UK’s broadband market has performed very well during the last two years. The country is among the most broadband-friendly in the world, with more than ten million subscribers, or one in six of the population. The country continues to climb the broadband ratings charts, and while technological developments regularly allow providers to increase data speeds of their broadband packages, the competitive environment prevents them from increasing prices. The UK was also one of the first countries in the EU to bring quad-play to consumers, following ntl’s purchase of Virgin Mobile. The formula is now springing up throughout Europe ? the latest to embark of the quad-play formula, this month, was Belgium’s cable provider Telenet which now offers a bundle comprising broadband, fixed and mobile telephony and interactive digital cable TV. Providers across Europe are gearing up for their triple play deployments, as infrastructure improves.

Yet does the man on the street understand what it all means? On a recent trip to the UK this researcher was pleased to see how the television market had developed during the past three years. Interactive TV had become very popular, and the range of channels available on Freeview was impressive. In July the well-regarded Film Four channel abandoned its subscription service to become one of the Freeview family of channels, calculating that it could generate sufficient revenue from advertising alone. It appeared that most living rooms had a Freeview set-top box. Coupled with BSkyB, it seemed that the living room had a firm grip on the average family’s TV-based entertainment.

Therein lies a fundamental difficulty for IP-delivered entertainment at present.

Firstly, computer illiteracy is a hurdle which must be addressed before current computer-based services can become mainstream. An Ofcom survey in March this year showed that about 60% of people without Internet either could not understand it or had no interest in it.

Secondly, people must be attuned to the unfamiliar notion that streaming video as entertainment could be delivered to the living room rather than to a computer tucked away in an unsociable part of the house. For many, the two concepts do not co-exist happily, and this is largely a result of poor understanding.

There is currently only one company ? Video Networks ? that makes most of its income from Video-on-Demand (VoD). Its service, HomeChoice, is limited to certain areas of London, and its subscriber base is only about 30,000. BT had been trialling VoD since the late 1990s and is clearly committed to the platform, having selected Microsoft’s IPTV Edition software platform for its broadband delivery and management service and Philips as the STB provider. In addition, several content deals have been signed in recent months with some high-profile entertainment companies, including BBC Worldwide, Paramount and Warner Music Group, the National Geographic Channel, and children’s TV programming suppliers HIT Entertainment and Nelvana.

By the end of the decade perhaps 60-70% of European households will have broadband. This will create an enormous potential market for IP-delivered services. Clearly, network upgrades and faster data delivery go hand in hand with the public’s ability to purchase VoD products and to make full use of existing video services, such as YouTube, and those yet to be developed. But just as clear is that services need to be delivered to the living room before most people will grasp that IP will have much to do with entertainment, and increasingly less to do with computers, as presently understood. Once this conception is popularised, IPTV will have a bright future. For the computer illiterate across Europe, and those disinterested in the Internet, this will be a welcome change.

See also:
United Kingdom – Broadband – Fixed Network Overview;
United Kingdom – Convergence – Triple Play & Digital TV;
Europe – Convergence – Triple play and Digital TV;
Europe – Infrastructure – FttH, NGNs & IP ;
Technology – IP 5 – Video On Demand.

I will examine the mobile communications market, identifying a number of important trends on both the demand andsupply side. The killer application on mobile remains voice. Mobile data is slowly finding some niche markets, but without better business models not much will happen here. 3G will give operators the network efficiencies to become more competitive both in voice and data services.

Duration: 13 minutes

Download: Mobile Voice still the Killer Application

For further information see:

• Global – Mobile Communications
• Global – Mobile Data

This is a BuddeComm MP3 podcast. BuddeComm is an international telecommunications research company and produces over 2,000 research reports, covering 170 countries, 500 companies and over 200 technologies and application. Topics include telecommunications, mobile, Internet, broadband, convergence, digital media and content. These reports are available on the net as well as in pdf and printed formats. For more information visit us on our website www.budde.com.au.

The broadband ISP market underwent significant changes during 2005 and 2006.

The key development has been the aggressive charge by Telstra into the overall broadband market. This certainly has increased awareness and increased penetration, which, of course, is good for the country. However, at the same time, Telstra’s strategies have also resulted in a sharp drop of ARPU and that is seriously affecting the more vulnerable competitors, who don’t have a $4 billion profit buffer. At the same time wholesale costs over that period have not decreased. Margins in this market have dropped to 20%. This is not enough to cover the costs involved in customer acquisition and a good quality customer service.

Telstra is offering baby broadband (256Kb/s) for $29.95, with a $19.95 monthly charge for the first 12 months, based on a 2-year contract. At the same time the company is able to throw in other services, such as exclusive access to certain content. Within the current market structures it is virtually impossible for competing ISPs to come even close to the content offerings that Telstra can throw in. The ACCC is keeping a close watch on this situation – it has flagged it as being of serious concern.

Under competitive pressure ISPs are also forced to ‘throw in’ free installations and free modems, making economically viable business models even more precarious. While ARPUs are coming down the cost of customer acquisition is going up.

Residential Broadband ARPU and change – 2004-2006
Year ARPU pm Change
2004 $55 -40%
2005 $42 -24%
2006(e) $35 -17%
(Source: Paul Budde Communication)

The price busters at the bottom of the market have ARPUs as low as $25pm.

The only way for the broadband resellers to survive in the residential market is to live off the ‘penalties’ that customers have to pay when they go over their broadband limits – not the best way to create a bond of trust with your customers. The other alternative is, of course, to move into the business market. While the margins are significantly better in this segment, customer expectations are also higher and only ‘the best’ are able to survive.

Still, most ISPs are ‘trapped’ in the customer acquisition cycle. With dwindling ARPUs more customers are needed to sustain the business. In this vicious circle they are focusing totally on access and have little time or money to spend on market segmentation, customer service and value-added services. This has resulted in yet another year where more than 90% of ISP revenues depend on ‘commodity’ access.

On the market side, the only way forward for the industry is to move into triple play models, providing voice, data and video services. To be able to deliver a QoS product of this type requires a minimum of ADSL2+ capacity.

On the industry side, the only way forward in the ISP market is consolidation, and with ARPUs continuing to fall this is not a sustainable way forward. This applies to both 2nd and 3rd tier players in the market. Merger and acquisition announcements are taking place across the market every week.

It is actually amazing that, despite the onslaught that is taking place in this competitive market, since Telstra started the campaign in 2005 it has only been able to increase its retail market share from approximately 40% to 43%.

More statistics and analyses of the Australian telecoms market will be released at our annual ‘State of the Industry’ Roundtable:

‘State of the Industry’ Roundtables with Paul Budde 27th & 28th September
Theme: Australian Telco Market moving into 2007
Presentations and discussions will mainly concentrate on the latest results of our new Australian reports that we will publish at the same time, covering:

• Analyses of the Australian Telecommunications Industry (Revenues, Market shares, Trends and Developments) Analyses of Telstra, Optus, AAPT, Vodafone and Hutchison.
• Key industry and market developments – state of the industry
• Statistics, Trends and developments in fixed voice, data, mobile and broadband
• Forecasting broadband, Triple Play, NGNs, FttH, VoIP and other fixed network developments
• Forecasting mobile data, content and personal wireless developments

I will bring you up to date regarding the latest research data and, perhaps more importantly, analyse the market with you – highlighting the areas where opportunities exist.

For more information and agenda click here.

Other dates for your diary:
26th September – Sydney – Wholesale Industry Meeting
18th October – Sydney – Broadband Power Lines (BPL Workshop)

Previously in September 2006 the ACCC had announced a draft decision to reject the special access undertaking submitted by Foxtel in relation to its digital STB service. Foxtel’s undertaking would have allowed content providers to use its digital pay TV platform to sell their own channels direct to Foxtel subscribers.

The ACCC considered that Foxtel’s undertaking would have provided access for content providers on reasonable terms and had the undertaking been limited to that, the ACCC’s draft view would be to accept it. However, the key difficulty was that the undertaking also prevented competing pay TV firms from using the Trade Practices Act 1974 to access the individual component services that make up the digital STB service from Foxtel on a stand-alone basis.

These components are as follows:

• access to Foxtel’s digital STBs;
• conditional access services that control which channels a subscriber can view (through encryption of the pay TV signal);
• Foxtel’s EPG, and
• the modem within the unit which supports iTV.

Argentina has made a full turn-around from its terrible recession, and the telecom sector has been growing apace. Fixed-line teledensity is 22.4%, similar to Brazil and Chile, and about 4% higher than the Latin American average, but there remains a marked discrepancy between urban and rural areas. While fixed lines have stagnated, mobile telephony has boomed, and Argentina’s mobile phones outnumber fixed line in service by more than 2.5. Mobile penetration is on a par with Brazil’s, higher than most other South America countries, but still a long way behind Chile. Three mobile companies operate in the country: Movistar, CTI Móvil, and Telecom Personal. Following the merger of Unifón and Movicom BellSouth in January 2005, the merged entity, Movistar, accumulated surplus spectrum which it must relinquish in stages, between 2005 and 2008. Three companies are vying to secure Movistar’s returned spectrum: cooperative start-up Comarcoop, CTI Móvil, and Hutchison. Argentina’s Internet market is the third largest in Latin America, and penetration is among the highest in the region. Traditionally, cable modem was the more popular medium of broadband access, but ADSL has consolidated its leadership in the country’s broadband market. Convergence strategies offer promising prospects in Argentina, and several companies are investing in triple play services. Digital terrestrial TV is under discussion: Argentina is likely to adopt the same system as Brazil, and the introduction of digital TV is expected to take place in September 2006.

Argentina is covered in our report on The Mercosur Countries (Argentina, Brazil, Paraguay, Uruguay) and Guyana, Suriname and Venezuela.