IPTV needs 'full offensive strategy', says Frost & Sullivan

October 9, 2008 - Global IPTV deployments to date would suggest that a half-hearted approach to launching IPTV services has not been effective, says a new report from Frost & Sullivan, with many service providers feeling the urge to launch IPTV as a defensive strategy to increase their 'n-play' offerings with one more service.

Frost & Sullivan analyst Adeel Najam comments that IPTV requires a 'full-throttle implementation' to really take off: "As the broadcasting and pay-TV industry is uncharted territory for most telecom players, telcos will need to penetrate the market with an offensive approach, complete with a content acquisition strategy, to successfully attract cable or satellite TV subscribers."

The new report, entitled 'IPTV Business Case', finds that the IPTV subscribers base in the Asia-Pacific region (which covers 13 countries) reached 4.1mn in 2007, and projects that this will increase to 22.4mn by the end of 2013, with a compound annual growth rate of 32.7% during the period. Of the 13 countries in the region, eight had commercial IPTV services in operation last year, while the rest are conducting trials for expected deployments from 2009 onwards.

The APAC region was found to have accounted for about a third of the global IPTV subscriber base last year, with the top two countries by subscriber numbers ranked as Hong Kong with 24.9% of the total (1.02mn subs) and China with 22.7% (0.93mn) - South Korea is excluded from the rankings as Frost & Sullivan believes that it does not yet host a 'true' IPTV service (probably due to the fact that linear programming was only recently approved for launch on commercial IPTV servics).

Hong Kong is also found to have the highest household IPTV penetration rate at 45.3%, and is described as the only market where IPTV dominates the pay-TV industry with a 46.7% subscriber market share last year by incumbent PCCW. Cable TV holds 41% of Hong Kong's 2.18mn pay-TV subscriber market, while satellite DTH services hold the remaining 12.3%.

Najam believes that, although many argue that a business case for IPTV does not exist, with EBITDA margins being in the red for many operators, it is a case of unrealistic expectations: "A long payback period is not unique to IPTV services, but is the case for all pay-TV services," he says, adding that cumulative payback periods of over seven years is the norm rather than an anomaly due to the intensive capital expenditure required for infrastructure build up and content acquisition.

The analyst also says that launching an IPTV service is a must for operators with broadband speeds upwards of 10 Mbps in order to fully optimise bandwidth capacity: “Service providers with high-speed broadband transmission networks have the competitive advantage in deploying IPTV services as they can leverage their networks to offer bandwidth intensive services like high-definition TV (HDTV),” says Najam. “The first line of attack for any fixed-network operator to realistically transform into multi-play service providers offering voice, data and video services is by converting its existing broadband subscribers. This will ensure lower subscriber churn rates and increase operator revenues and ARPU (average revenue per user) through service bundling.”

Najam points out that content is critical for IPTV succeed, as consumers initially only understand the 'TV' element of an IPTV service (rather than the possibilities for interactivity and value-added services): ”Content exclusivity is a definite advantage, although not a pre-requisite. Acquiring broadcast rights to popular content such as live sporting events and premium broadcast channels requires huge investments which can take time to recoup."