Interview With Ni Quiaque Lai of City Telecom, Hong Kong

The following interview with Ni Quiaque Lai, Director of Corporate Development, City Telecom, is the first in a series held at the iptvworldforum 2005.

For further information about the event please visit www.iptvforum.com.

Q. Can you give an overview of City Telecoms’ IPTV deployment?

We are four years old as a facility based carrier and we started our pay TV service about eighteen months ago. Our Pay TV operation needs to be profitable as a standalone incremental investment, but it is also an integrated part of our overall business plan.

There’s a lot of group synergies. So the incremental cost of IPTV is a very minimal, but it makes a lot of financial and logistical sense for us to move up this path. We have a network that is now delivering one gigabyte into the home, which is effectively unlimited capacity to the home, and this is driving up the value of the curve of iptv.

Q. How has the City Telecom Pay TV service developed?

 In our case we have put a strong emphasis on local content. Self-produced, local, Hong Kong centric. With the right money you can buy any international content. There’s no differentiation there, it’s just about how much you’re willing to pay. But when you’re talking about what’s happening in your neighbourhood, that’s where we can differentiate. It’s self-created, it has no international value. But your local high-school sports day has a lot of value for local people who have a vested interest.

IPTV is point- to-point, so you can differentiate, if the economics make sense you can have a different video screened to each niche interest. We can take advantage of the niche nature of the market. You’re not going to build a big business model that survives on niche, but niche will definitely help differentiate your service. The whole process of IPTV is that it shatters the entry barrier costs. Hong Kong is historically a natural monopoly of only 2.5 million households. That’s not big enough for multiple cable operators, but with IPTV we can enter that market on very strong economics because the costs are shared between multiple services.

Q. What are the challenges surrounding acquiring content for IPTV services?

Coming from a telco background and moving into content is ‘Night and Day’. It’s a whole new learning experience. As an industry we have to go through the whole inertia problem, and right now the content providers view VOD as a low priority as a revenue stream. There was an excellent presentation this morning, I think by Siemens. They gave an example of a very large VOD department which from 100,000 subscriptions created only about $2,000 for a new movie.

For a content provider that is irrelevant, it’s a waste of time. So we really have to work as an industry, we have to work to make VOD a standard form, just as i-Tunes has done for the music industry. There are certain things we can do as a company and there are certain things we can’t. Certain things are beyond Hong Kong. And the i-Tunes model is really beyond Hong Kong. It’s making the content providers prioritise IPTV as a major revenue stream. Rather than fearing IPTV, they need to be embracing it as a new revenue stream.

Q. How are City Telecom expecting the IPTV market to develop?

We are pushing towards unlimited bandwidth. Today we are delivering one gigabyte, which is faster than PC’s can run at today. I think that applications will catch-up. But we want to make sure that as a telecom bandwidth provider we want to make sure that we are not the bottleneck in industry development. So we have cleared our part of the value chain. As a telecom operator, and a small one at that, we can only do that.

We do believe that over time that Hong Kong is going be at the forefront of broadband application development, because there is such a richly available bandwidth. The direction that we are heading is that we want to grow the overall IPTV market. So we’re not talking about just taking away the same dollar of revenue from the incumbent pay TV operators. It’s about generating a whole new revenue segment. VOD can eat into video rentals. So as an industry we can grow and expand beyond our natural boundaries, rather than thinking about in-fighting, think about developing as an industry, pushing the whole industry. We want to push VOD to the same release window as DVD.

Q. Do you think it’s likely that VOD can be pushed to the same release window as DVD?

 It’s not something we can do on our own. But why not? If I had said that about music before i-tunes it would have been a no-hoper. But with i-tunes and a little bit of imagination you can see why there may be future releases that come out on i-tunes before it gets out on the physical format. The post-theatrical release of DVD goes for £20. The same DVD can be sold on an IP platform for maybe £5 and the returns to the content provider may be similar or enhanced.

Because you don’t have to pay for the physical packaging and the imagery costs and so forth, it’s just much more efficient. If you’re selling that same movie for £5 instead of £20 then the addressable market size only expands, and we will watch a lot more movies per household.

Q. So how do you think that the DVD / VOD market will change as IPTV takes hold?

 I think our kids will only be buying music from the internet and physical CD’s are going to look antique. Hopefully that will also happen in the DVD world. There’s a lot of redundant material involved in buying a DVD, all the packaging and physical costs. Right now if you look at the DVD release, it’s way ahead of the VOD release, of course they don’t want to cannibalise each other at the moment. But actually VOD maybe bigger than DVD, if we can embrace that change. The potential market for VOD is much higher than for DVD.

 For more information please visit http://www.cithk.com and http://www.iptv-forum.com