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Cable’s Differentiation Challenge

Ben Piper — Tue, 09 Mar 2010 18:13:06 GMT

“Life used to be easy,” says Duco Sickinghe, CEO of Belgian Cable operator Telenet

Once upon a time, the company had only to worry about keeping its television customers happy. Today it faces a new competitive reality; one where the triple play bundle of voice, video and data has become table stakes, and effective differentiation is paramount.

Indeed, the entry of Telco companies into the television arena has been disruptive to the industry, putting satellite and cable companies on the defensive, while at the same time opening new points of entry into the subscriber’s household.

In short, all bets are off.

Increasingly complex product offerings have catapulted many consumers into a state of perpetual confusion. While Cable as an industry has burnished its image in many Western European markets, in others it does not have the same history or credibility. And research suggests that it would be unwise for any operator to take its customer’s loyalty for granted.

A survey fielded by Strategy Analytics in Q2’09 shows that stated satisfaction among Western European Digital Television customers is quite high, with 63% reporting to be either “somewhat” or “very satisfied” with their current service. However, when presented a competing offer, 20% cheaper, a full 45% said they would make the switch.

Cable’s competitive positioning varies by country, though historically it has been portrayed as a “value offer,” competing largely on price. While there is much talk of evolving cable into a premium offering, Strategy Analytics’ research confirms that consumers are still relatively price-sensitive.

The same survey showed that, irrespective of platform, Western European digital television consumers have a low perceived “value for money” from their provider, with only 21% saying it “exceeded” or “greatly exceeded” expectations.

Even lower-rated was customer and technical support—with only 12% finding their provider to exceed expectations.

The challenge facing operators, then, is to simultaneously and consistently demonstrate value for money and service excellence.

Nobody said it was going to be easy.

Technorati Tags: Cable,Europe,Telenet

US Broadband Demand Strong and Growing, Despite FCC Findings

Ben Piper — Wed, 24 Feb 2010 22:30:03 GMT

In an attempt to escape the New England winter, I spent a few vacation days on a Caribbean cruise last week. It was a welcome three day respite from connectivity of all kinds. While I managed to keep the iPhone turned off for the duration of the voyage, on more than one occasion I did overhear the whines and whinges of tweens begging their parents for permission to access the extortionately-priced onboard WiFi. And to think, when I was a kid I used to pester my parents for $3.00 in quarters for the video arcade—today it’s forty bucks for a half-hour of Facebook.

I was struck by how this generation—a generation who has never known anything but a connected world—feels anxious and ancy when deprived connectivity with the outside world. Even for 72 hours.

The future of broadband demand is secure.

93 Million Disconnected Americans

An FCC report released February 23 announced the findings of its National Broadband Plan Consumer Survey, “Broadband Adoption and Use in America.” The findings reaffirm what Strategy Analytics has been saying for years about the state of Broadband in the United States. Namely, that in the "metrics that matter," including speed, availability, penetration and price, the US falls woefully behind.

The FCC study finds that 67% of US households “contain a broadband user who accesses the service at home,” in line with the Strategy Analytics estimate of 63.4% household broadband penetration in 2009. According to the study, 93 million Americans (representing roughly 43 million households) are so-called ‘non-adopters.’

The reasons cited for “non adoption” of broadband include affordability, digital literacy, and relevance. These barriers to adoption will be—and must be—overcome in the near future.

Affordability Remains an Issue in US

Thirty-six percent of the “non adopter” respondents in the FCC study cited affordability as a key barrier to broadband adoption. Indeed, Americans do pay more on per Mbps than most of our peers. When it comes to faster speeds (i.e., above 50Mbps offerings), the “rip off factor” is even more evident.

We estimate that, on average, Americans pay almost $16 per Megabit received to the home. In Korea, the amount is $2.00. Central to the relatively high cost of broadband in the US is the lack of meaningful competition. With essentially zero intra-platform competition, service providers have little incentive to innovate offerings beyond par.

Digital Comfort Factor and Relevance

Another notable finding from the study was the importance of digital literacy and ‘relevance’ as barriers to adoption. Twenty-two percent of non-adopters indicated a lack of comfort with the technology, while 19% saw little if any personal relevance. Of the one-third of American households falling under the “non-adopter” category, the largest sub-group doesn’t use the Internet at all. This particular category was older, lower-income, and less educated than occasional non-home users and/or dialup users.

Growth Opportunities Remain

Despite the 93 million unconnected Americans estimated in the report, Strategy Analytics continues to be bullish on the future of broadband in the US. We expect household penetration to breach the 80% mark by 2013. Why?

It’s Generational

It’s not surprising that older Americans are more intimidated by (and see less need for) broadband. This group, however, is being replaced by a generation who will have known no world without broadband. They won’t be able to imagine a world without ubiquitous connectivity.

People Come Around

As was the case with non-adopters of microwave ovens, VCRs, cable tv and cell phones, people eventually do come around. Interestingly, 78% of the “Digitally Distant” (non-Internet using) respondents had cable or satellite tv at home, and over half had a cell phone.

It’s Inevitable

Broadband is so tightly woven into the fabric of our culture and society that it is almost impossible to imagine a future devoid of the technology. We truly do live our daily lives online, and the pipe dreams of five years ago are fast becoming reality. Telepresence, a technology until recently dismissed as a niche enterprise application, will be launched to consumer households this year. Telemedicine and distance learning are inching their way into the mainstream of American life.

Technorati Tags: Broadband FCC

Can Google’s 1Gbps Announcement Kick-start US Broadband?

Ben Piper — Tue, 16 Feb 2010 16:00:38 GMT

One of the toughest things about this business is that when a major industry announcement or event occurs, the instinct is often to provide a quick (and perhaps not completely crystallized) opinion. Surrounding Google’s announcement last week, many in the analyst community did just that. I have to confess that, I too got swept into the hype, but forced myself to “sleep on it” before putting pen to paper (or fingers to keyboard).

The results of my holiday weekend cogitations…

Deep Breaths Everyone, Deep Breaths

For all of the hype and hysteria surrounding what Google’s announcement means for service providers, the Telecom industry and the angle of the earth on its rotational axis, it is perhaps helpful to step back for a moment and consider a few points:

What does Google want out of this?

What is the scope and scale?

What are the potential repercussions?

Google’s Dream of Being a Service Provider?

I will go out on a limb, and say that I don’t believe Google has any intention of being a broadband service provider.It’s interesting to consider this implausible scenario, however, and my industry colleague Dan O’Shea at Fierce Telecom has given among the best arguments for it. Still, it comes down to return on investment. The money is simply not there for Google.

With apologies to Lady Gaga, Google is not out there to change the world “one sequin at a time.” It’s a for-profit enterprise, with an obligation to maximize shareholder value. How does it do that? Tiny Ads. Not in network building.

As we have been saying for years, in the metrics that matter, US Broadband is woefully inadequate. The US lags in household penetration, speed, and affordability. Google has a vested interest in ensuring that the last mile “tap” its customers use to access the Internet is optimized. And it would prefer not to have to do it alone.

So no, I don’t think Google has any ambitions of becoming the next great service provider. Rather, it hopes to optimize the platform it depends on to run its business.

The thin end of the wedge?

Google announced that its “experiment” will begin by offering “competitively priced” service to “between 50,000 and 500,000 Americans,” with individual municipalities competing for the honor. At the high end, this represents less than one half of one percent of total US households.

To be sure, there are those who ask “Isn’t this just the beginning though? Isn’t this just the camel’s nose in the tent?” Probably not.

Why?

Because municipal broadband is still a dog of an idea

My colleague Tom Elliott, in a prescient piece in 2008, Sic Transit Gloria Muni: The Sad State of US Municipal Broadband spelled out problems Muni was having 2 years ago: namely: lack of demand and “harsh economics.” These factors haven’t radically changed.

Remember Google’s failed attempt at Muni, teamed up with Earthlink back in 2007?

Hype for the picking

What to make of all of this? Certainly, there are many heralding the move as a watershed industry event and a “complete game changer.” While I think it is certainly a notable announcement, I am perhaps a bit more circumspect.

What is likely to come of all of this?

Pressure on Telcos

Google’s move might just provide the swift kick in the pants that US broadband needs to become competitive. While the definition of “broadband” might be a moving target, one thing is clear—what we have today in the US falls way short of where we need to be.

The Elusive Killer App

A fair question—and the topic of much debate around the water cooler here at Strategy Analytics—is: what exactly one does with 1 Gbps to the home. Though we have made plausible use cases for 1 Gbps scenarios in the 10 year horizon, it’s a difficult case to make today.

Part of the Google plan calls for the open development of high bandwidth applications “We want to see what developers and users can do with ultra high-speeds, whether it’s creating new bandwidth-intensive “killer apps” and services, or other uses we can’t yet imagine,” says the release.

The more we play together, the happier we’ll be…

One mustn’t overlook the obvious political overtones of Google’s move either. As a key proponent of Net Neutrality/Open Networks, Google can capitalize on this move to prod along the glacial speed of change in Washington.

The ever-animated Gigi Sohn, president and co-founder of public interest group Public Knowledge sees it as a win for consumers as well:

“This project is the kind of forward thinking and investment from the private sector that could jump-start Internet technology while helping our economy and giving consumers the experience of a true next-generation network.”

Household Bandwidth Forecasting: Plausible Case for a 1 Gbps pipe to the home by 2020?

Technorati Tags: Google,Broadband,FTTH,1Gbps,Fiber

US Pay Television Angst…or was that ennui ?

Ben Piper — Wed, 27 Jan 2010 19:00:05 GMT

Recently, I’ve been talking a lot about how, in all aspects of our daily lives, nickel and diming is getting out of control. It seems to be going from bad to worse. I’m a capitalist by nature, and fundamentally take no issue with “bear market pricing,” that is, enterprises have the right charge what the market will bear. What gets me—and most consumers—is the relatively recent phenomenon of collection of fees for zero added value services.

$25 checked bag fees, $5 potato chips on airplanes, $12 “convenience charges” on concert tickets, and of course, the laundry list of fees and up-charges—often dressed up to look like taxes--on pay television bills are becoming commonplace. I’m convinced that this pettiness will ultimately backfire on those who have elected to benefit from it.

And, as Martha Stewart would say, that’s a good thing.

A report we just published analyzes the findings from a nationwide survey of 856 US Digital Pay Television consumers. In it, we look at satisfaction for key performance metrics, analyze customer willingness to churn, and look at the role of the bundle in mitigating churn. This is presented at both an overall and platform-level (including Cable, Satellite and TelcoTV / IPTV).

A few key findings from the report:

Digital Television Satisfaction is High Overall, but Cable is Still Vulnerable

Seventy-one percent of respondents in the survey reported to be "somewhat" or "very" satisfied with their current service. While this may seem like positive news for the digital television industry, the story changes somewhat when viewed at the individual platform level.

The differences among Cable, Satellite, and IPTV were impressive, with Telco/IPTV customers reporting 95% overall satisfaction, compared to 67% for Cable. Cable underperformed in virtually every satisfaction metric.

Low Perceived "Value for Money" among all Digital Pay TV customers

Virtually across the board—and irrespective of platform—respondents reported low satisfaction in the metric of `Value for Money.' There was very little measurable difference by platform among respondents, and in all cases, fewer than 22% of respondents felt the service "exceeded" or "greatly exceeded" expectations of value for money.

This is among the most important findings of study, as it underlines the vulnerability of pay television in its current state. Indeed, in a report published in 2008, we found that over 50% of US digital pay television customers would be willing to scale back or completely drop their television service if household budgetary circumstances dictated.

Cable Customers Most Willing to Jump Ship

Despite a high stated satisfaction rate, digital television respondents displayed relatively high price elasticity. A somewhat surprisingly high percentage of respondents indicated a willingness to switch providers when offered a competitive deal 10% or 20% cheaper than their current spend.

Cable customers displayed the highest propensity to churn, with 47% saying they would switch for a 10% price discount. When the price discount was raised to twenty percent, over two-thirds (68%) said they were willing to jump ship.

Malaise? Angst? Ennui?

Whatever it is, it doesn’t feel good.

Despite a rather high stated satisfaction level, pay television customers in our survey indicated a substantial willingness to churn, and a general feeling that they were not getting high value for money from their television service provider. Both of these factors further underline the threat that Over-the-Top (OTT) distribution poses to traditional service providers.

Among platforms, IPTV appears to being doing best in terms of satisfaction and anticipated growth. Its success, however, is not a foregone conclusion.

Technorati Tags: Cable,IPTV,Satellite,TelcoTV,Consumer,Churn,Satisfaction

IPTV Challenge: Differentiate Beyond Content

Ben Piper — Fri, 15 Jan 2010 17:57:25 GMT

In a report we recently published, my colleague Martin Olausson and I talk about the new challenges facing France Telecom (Orange), in light of a recent ruling by the French Competition Authority.

According to a commission appointed by France's Competition Council, Orange’s exclusive carriage of channels on its “Orange TV” IPTV platform “has drawbacks in the short, medium, and long-term,” rendering it “undesirable to maintain.” This decision could potentially have repercussions on the entire industry, and Orange will need to fundamentally alter its marketing strategy to stay in the game.

A few thoughts…

If not content, then what?

Strategy Analytics has long held that content—particularly exclusive content—would be a key differentiator and driver of IPTV uptake. Recent developments in the hyper-competitive French market threaten to change that model.

Orange, which was unable to differentiate itself on the basic services level, has pursued an aggressive content strategy in recent years, spending over €200 million to acquire exclusive rights to sports and other content, packaged under its Orange Sport and Orange Cinéma Séries brands. The strategy has worked quite well for the operator, and utilizing exclusive content to market its pay TV services has led to rapid growth of its pay TV segments.

Now all of that is in limbo, and the operator will need to find other ways to stand out.

Pricing matters…but differs by region

One of the takeaways of a report we published back in September was that platforms don’t matter to customers—features do. Well, features and price.

Further customer survey work we have just completed confirms that price as a churn motivator depends largely on the individual market. Our research shows French consumers to be the least motivated by price, and those in the UK most influenced.

Much of this has to do with consumer perception. In France, all the major triple play service providers offer very similar packages at essentially the same price. Our interpretation is that the typical French consumer might not feel it worth the time to make a switch—even for a 20% discount. The perceived disparity is much greater in markets such as the UK, where pricing and bundling disparities are much more pronounced.

Challenge is in finding ‘non-content differentiators’

The recent ruling by France's Competition Council suggests that the “traditional” differentiation through content may not be viable for much longer. As such, operators will be forced to find other ways to differentiate and “own” the customer. The easiest way to do this, in our opinion, is to control the gateway into the home and offer a better QoE, and more value for money (i.e. better bundles) for the consumers than the competition.

Technorati Tags: IPTV,Orange,France Telecom,France,QoE,Consumer

CES 2010 Notes: It's all about the 3D

Ben Piper — Mon, 11 Jan 2010 15:34:00 GMT

I’m just back from four days in Las Vegas, which is usually about three too many for me. From all accounts, attendance and spirits were up at this year’s CES, with 3D chatter dominating the halls and booths of the Las Vegas Convention Center.

The story is 3DTV…Again

3DTV clearly dominated as a theme. Nobody can question whether or not is real—according to my colleagues David Mercer and Peter King, it’s not a terribly expensive nor complex “feature” to embed in a television. Rather, its adoption will depend on two factors: the availability of content, and the willingness of customers to invest in hardware…again. Didn’t we just all buy HDTV sets?

CES: Consumer Experience Show?

Cisco Chairman John Chambers hosted a small (by CES standards, anyway) cocktail party for press and industry analysts Thursday night in the swanky Chairman’s Suite in the Venetian. He suggested that the role of CES has been changing, moving away from solely a device-centric show, and more to one of an overall customer experience--similar to the way Cisco is broadening its focus

Pay TV’s Future

I sat in on a rather interesting panel discussion of the future of Pay TV as a model, including Jim Denney , VP of Product Marketing at TiVo. The basic conclusion from the session was that, despite what some like to say, pay television as a model is not going away any time soon. Rather, the model is likely going to change. We’re already starting to see examples of pay tv operators embracing (or at least addressing) the issue.

One interesting point that was raised in the session: early on, there was much talk of voice ultimately becoming a free application. While one could argue that its role in the bundle has declined greatly, the pay-model has not disappeared completely.

Nor is it likely to happen in television.

Apple’s TV Plans Threaten Cable’s Calculus

Ben Piper — Tue, 05 Jan 2010 14:32:45 GMT

When I switched my home television service from DirecTV to Comcast last summer, the slick sales guy on the other end of the line promised me that I would be receiving an identical channel lineup to the one I was currently receiving. “Apples to apples,” he promised. “Only cheaper.” What’s not to like?

You’d think that I, someone who gets paid to research and write about digital television, would have done more due diligence on his own account.

I didn’t.

So, when it became apparent that two “must have” channels for me (NatGeo and BBC America) were not in my Comcast tier, I called again to inquire. Seems that to get those, I would have pay an additional $15 a month to buy up to the next highest tier, one filled with numerous channels of no use or interest to me. Suddenly the calculus changed. This was no longer a good deal.

This time, it’s not coming from the FCC

Recent movements suggest that change may be afoot.

No sooner had Comcast announced the launch of its OTT-mitigating Fancast Xfinity TV service than rumors started circulating about Apple’s talks with CBS and ABC. Seems the folks in Cupertino are mulling a subscription-based video service, obviating the need for iPhone/iPod users to depend solely on the Apple iTunes service for downloads.

If the Apple service is successful at elegantly bridging the '’screen gap,” and delivering compelling online content to the tv screen, it could fundamentally alter the way MSOs sell content. The much maligned “bundled” system currently in place, whereby consumers are required to purchase content in blocks of channels--rather than individually--could finally be on the chopping block. And that’s good news.

What is interesting, though, is that the catalyst for this change will be the market—not a government mandate as previously feared.

A la carte used to be somewhat of a cause célèbre in the television world, and one that the FCC has been wrestling for years. It was only the more recent emergence of “net neutrality” that has stolen the spotlight from the issue.

Former FCC Commissioner Powell’s administration commissioned a 2004 report finding that, under an mandated a la carte scheme, customers would end up paying more. That report has since been largely discredited and found to be riddled with misinformation and half-baked analysis. Successor Kevin Martin embraced “cable choice,” though apparently more for the way it allows parents to monitor and block channels, than for household consumer budgetary reasons. One analyst firm rather dramatically predicted ‘economic ruin’ if the FCC went ahead with its plan.

Who moved my talking points?

Government-mandated a la carte is bad for cable consumers, who would wind up paying higher prices to receive the same level of service and fewer channels than they receive today.”-NCTA Issue Brief, January 2009

The National Cable Television Association (NCTA ) talking points were crafted to respond to a possible “government takeover” of television. In the context of a market driven change, the memo reads somewhat differently. Most of the arguments fly out the window, and the market will call the cable industry’s bluff on the supposed technological barriers to offering personalized programming.

As usual, the problem does not lie in the technology, but rather in the business model

The very nature of cable advertising is in flux, brought upon largely by digital television. The 30-year old model in place today, whereby flagship channels lead certain tiers and support fledgling new ones, could be facing some changes. While the NCTA estimates that half of cable companies’ revenues come from national ad sales, this is certainly shifting. Intelligent two-way networks will herald in addressable advertising—the next step in demographic targeting.

Indeed, vendors I spoke with only months ago alluded to some “user identification” scenarios that could pinpoint actual viewers within a household, based on their “jitter signature.” Seems that we all shake and tremble in our own unique ways, and it is possible to use these signatures like fingerprints, and serve up completely targeted advertising.

To be sure, , vendors will need to overcome the “creep out” factor first, but the general idea is the same. Linear advertising as we know it is going the way of the dodo, and the MSO’s ‘old math’ will need to change.

It’s not about choice…it’s about the illusion of choice

Our research shows time and time again that consumers are tired are feeling that they are being screwed by their pay television providers. The nickel and diming in all aspects of consumers’ lives has grown out of control. Our latest survey work (to be published in Q1) found that only about 20% of pay tv customers felt that the ““value for money” they were getting from their pay television operator exceeded expectations.

Part of the issue is consumers’ feeling that they have no control, that they are somehow being taken advantage of..

Choice—or more importantly, the illusion of choice—is an extremely powerful tool. Think of the immensely popular Build a Bear Workshop franchise, whose stores dot shopping malls across the world. BABW allows customers to design and personalize their very own stuffed creatures by visiting eight “stuffed animal-making stations,” where they can choose (and buy) everything from stuffing to clothing. The concept has been a huge hit, and the company is now a $300 million/year concern, with over 400 stores worldwide.

What is the secret to the company’s success? Certainly not selling adorable plush animals; anyone can do that. Rather, BABW has perfected the illusion of choice and flexibility. All customer start at the same default position: buying a bear. The trick is, they end up paying more for the additional features relevant to them.

How about “Build a Bundle?”

What prevents MSOs from employing a similar strategy—allowing customers to design their own bundled offerings? All would start at the same default position, the $XX/month basic tier. The real money comes in the add-ons. Critics say this is not how advertising works in the cable industry. Guess what? It’s about to change.

My (still untested) hypothesis is that, if customers were given the choice to “personalize” a television bundle, ARPUs would actually increase--or at least stay the same. Allowing them to configure a package conveys the illusion of choice and control, and makes customers think they are in the driver’s seat.

Sounds like a great project-opportunity…phone lines are open if someone out there wants us to test the concept.

Technorati Tags: Apple,DirecTV,Comcast,FCC,CBS,ABC,Disney,Cable

Comcast’s Fancast XFinity TV: The Makings of a Monetizable OTT Model?

Ben Piper — Thu, 17 Dec 2009 17:15:03 GMT

Comcast’s (CMCSA) “TV Everywhere” initiative has been christened with a snazzy new name—perhaps a little too snazzy? Fancast XFinity TV went live this week to an estimated 14 million Comcast double (cable+HSI) and triple play customers.

First things first: the name needs work

Did nobody in Comcast’s marketing department catch the similarity to Dunder Mifflin Infinity-- the scandal-prone online division of the fictional paper company on NBC’s ‘The Office?” Coincidental—since “The Office” on its way to becoming a Comcast asset.

Regardless of the branding, the idea is, on its surface, solid.

Comcast’s Model Makes Sense

Comcast is essentially doing what other industries in the past have failed to do: addressing and embracing disruptive technology head on. Rather than burying its head in the sand and ‘hoping away’ alternative distribution models, the company has recognized that its customers want the freedom to view content on the screen and device of their choosing.

I often cite the examples of the music industry and print journalism as two cautionary tales of industry approaches to technology. While these may be slight oversimplifications, they are still illustrative of the high cost of early missteps.

One could argue that the recording industry elected to ignore the power of the Internet completely, and insisted that the existing distribution and value chains would remain unchanged. When things ultimately pear shaped, instead of adapting to the new reality, they sued their customers. Makes sense, right? Goodbye Tower Records.

The print journalism industry initially embraced the Internet, and tried to charge for content (remember the pay per article model?), Eventually, though, it too caved to customer pushback. Readers showed a preference for consuming their news online at a price point of…guess what…zero. The ad-supported model proved unsustainable. The reality? Print newspapers are, as one politician recently said “endangered species.”

“Anywhere” may be important, but content still rules

To be sure, there remain kinks to be worked out of the system. Early reviews talk about long buffering and other pesky problems. As a Comcast customer, I downloaded and logged in today, only to find that the “Beta” label remains on the landing page—perhaps this is some sort of intentional insurance policy?

“Any screen, any device” is a laudable goal—but it’s only half the battle. Customers need compelling content to complete the package. It doesn’t matter where I can watch content, if I don’t want to see it in the first place.

That’s where the NBCU deal comes in. Once the deal is consummated, content from NBCU’s cable assets could theoretically help to beef up the content library, offering a wide selection of both free and paid-for selections.

Could this be the first real pass at a viable (read”monetizable”) OTT business model?

And oh yeah, what about Hulu?

Technorati Tags: Comcast,Fancast,Xfinity,NBCU,OTT,Hulu

2010: Expect More M&A Activity in UK Broadband Market

Ben Piper — Tue, 08 Dec 2009 16:22:11 GMT

We’ve just published our European Broadband Tracker for Q3, focusing this month on the happenings in the UK market—a market that witnessed a significant change in landscape in the third quarter. With its acquisition of Tiscali for a “fire sale price,” Carphone Warehouse now finds itself in the number two slot in the UK. Three providers in the market now claim over 4 million subscribers; however, BT Retail still maintains a commanding 780,000 subscriber lead ahead of its nearest competitor.

Sky remains the fastest growing broadband service provider in the UK, though the company’s quarterly growth has slowed down from double digits a year ago to half of that this quarter. Nonetheless, Sky is poised to potentially approach three million subscribers by the end of 2010.

While Orange’s subscriber loss in the UK market persists, we believe that the impending Orange and T-Mobile merger—reported to be on fast track from the Office of Fair Trading (OFT) –could potentially help to stave off further subscriber churn, through a combination of multiplay bundling and innovative service deployments.

Indeed, we expect to see accelerated M&A activity in the UK market in the upcoming year, with Carphone Warehouse a potential acquisition target.

Source: Strategy Analytics, Multiplay Market Dynamics

Technorati Tags: Broadband,UK,BT,Carphone Warehouse,Tiscali,Sky,T-Mobile,Orange,Merger

Postcards from South America: Broadband in Buenos Aires

Ben Piper — Mon, 07 Dec 2009 21:18:45 GMT

I’m just back from a ten-day vacation in Buenos Aires. Had a wonderful time, though the 11pm dining hour probably wouldn’t be sustainable long-term for a “closer to 40 than I’d like to admit” guy like me. In any case, while the purpose of the trip was relaxation, I couldn’t help letting a bit of research get in the way. A few observations from my trip:

WiFi is ubiquitous

Recent research shows that Buenos Aires has the highest WiFi penetration in Latin America, with one hotspot for every 2,620 people. More interesting is how many are free. While the “muni WiFi” model has never seemed to make much sense in other corners of the world, BA may have found an interesting solution—corporate goodwill sponsorship. To ensure that residents are not without broadband even in the city’s cavernous “Subte” metro system, Cisco kindly offers a free service.

In fact, corporate sponsorship seems to be the way in Buenos Aires—even street signs are sponsored by the likes of Mobile operator Claro, Nokia, Cisco, American Express, and Broadband Service Provider, Arnet.

Packages are cheap, but service is s-l-o-w

In the fully-furnished apartment I rented for my stay in Buenos Aires, “broadband” was touted as a perk. While it was, indeed, present, the actual achieved data rates walked the spider silk thin line between “broadband” and “not quite broadband.” From the best I could tell, Arnet’s premium service maxes out at about 5Mbps. I was getting just shy of 1Mbps.

Competition seems to be heating up.

Smaller players such as metrotel are taking on behemoths such as Arnet, blanketing Buenos Aires’ billboards with advertisements for their VoIP product, iVoz. The company has claims a 200km MPLS fiber optic backbone in greater Buenos Aires, as well as 60 nodes and a data center.

I’m ready to do some more “field work.” Perhaps some on-site research in Brazil?

Technorati Tags: Broadband,Cisco,Arnet,WiFi,VoIP,Argentina

Vivendi and Telefónica Bid Up #4 Brazilian Telco. Fala sério!

Ben Piper — Wed, 18 Nov 2009 20:03:04 GMT

Fala sério! (“Talk seriously!,” “You must be kidding!”) is likely one of the only remnants of my two semesters of university Brazilian Portuguese—well, that and the ability to sing “Happy Birthday." Nonetheless, nobody in that classroom years ago would have believed that major companies, namely Vivendi and Telefónica, would one day be fighting for ownership of a Brazilian Telco.

In an escalating price war that has repercussions on three continents, French media giant Vivendi and Spanish Telco Telefónica have been bidding up Brazilian operator GVT--the country’s fourth-largest high-speed Internet provider. In a somewhat surprising move, Vivendi bought out 37.9% of GVT with the option of buying another 19.6% so it can have total control of the broadband telco. The price tag? A cool $4.2 billion. Telefónica sources said the Spanish telco will not pursue any further counteroffers.

The move is noteworthy for a few reasons:

It underlines the strategic importance of Brazil as an emerging market

In a report we published recently, we talk about the importance of Brazil as an emerging powerhouse. Our base case model predicts broadband subscriptions growing to nearly 20 million by 2013, implying a 15% CAGR. Broadband sub and revenue growth is largely predicated on increasing importance of IP-delivered video content, as well as the expected surge in IPTV providers in the Latin American region. By hitching its wagon to an established player at this point in the game, Vivendi has the opportunity to establish a beachhead in a key emerging market--one whose tv market is expected to grow faster than Western Europe.

It’s a direct challenge to Telefónica in its “home turf”

Telefónica, through its Telesp subsidiary , has enjoyed a nice piece of the Brazilian fixed broadband market--market share is estimated to be around 28%. Vivendi’s takeover of GVT challenges Telefónica’s position in the Sao Paolo market, puts it on the defensive, and further limits its ability to expand outside of the Sao Paolo metro area.

It further paves the way for an eventual Comcast NBCU merger

Vivendi’s move is a clear and final signal that the company is ready to sell its 20% ownership of NBCU, valued at approximately $6 billion. Indeed, it will need to in order to finance the GVT purchase. This freeing up of ownership will pave the way for an eventual takeover of NBC Universal by Comcast.

I expect we'll be seeing more of this type of emerging market "pre-positioning" going on the next few years.

Technorati Tags: Telefonica,GVT,NBCU,Comcast,Vivendi,Brazil,France,IPTV,Broadband,Spain

IPTV: Déjà vu—again

Ben Piper — Thu, 12 Nov 2009 17:30:19 GMT

I’m on my way back to Boston,after spending 2 days at the Telco TV event in Orlando, a somewhat small--but nonetheless impressive--show focused on the IPTV space. I’m posting this online at 35,000 feet, which is one of the few places I don’t particularly mind (or at least won’t audibly complain about) paying for connectivity.

My overall takeaway from the show is that IPTV still has a long way to go--and I feel like I say that every year at this time. A few notes and observations from the keynote sessions, workshops, and meetings:

What have you done for me lately?

For years, we’ve been hearing about the promise of IPTV, and the jaw-dropping array of services and applications it will ultimately deliver. The potential and promise of IPTV has been widely hyped. Jeff Weber, VP of Video Products at AT&T, suggested that IPTV’s upside is “beyond our understanding.” The question remains, though, what has the technology delivered?

Research we recently published confirms the strong growth opportunities for IPTV in the US—that growth, however, is dependent on a few basic conditions, including sustainable customer take up, and achievable and meaningful differentiation. The “me too” services won’t cut it anymore.

Um…the datestamp on that slide is “2005”

Sadly, the slideware on display at this year’s keynotes and sessions might as well have been from five years ago. The same tired slides and examples keep showing up again and again, presented as “innovative” and “new.” These include on-screen Caller ID (a curious notion in the first place, given the rapid decline of residential landlines, and the inherently personal nature of telephone communication), customizable EPG skins (really??), multiview, and remote DVR programming.

Not exactly earth shattering stuff.

Is there an app for that?

While IPTV may not fully realize its full potential for several years, the general consensus seems to be that the likely path to innovation in the space may come through the open “widgetization.” Drawing parallels to iPhone apps, proponents of this theory foresee a flood of new applications migrating to the television screen. Whether or not these can be (or should be) monetized remains another question. It does loop back to the fundamental question: how to compel a consumer to move to IPTV.

No first mover advantage

IPTV represents the first time in the Telcos’ history that they have been second to market…indeed, they enjoyed near or complete platform monopolies for decades. Television has a long and storied past, and consumers have developed a set of expectations and quality thresholds. Having to build to a set high-water mark is no easy task. And they have to do more than replicate what the cable companies are offering—to be successful, they have to surpass it.

What the Telcos have in their favor, however, is a long legacy of delivering “five nines” quality to consumers; an established brand and existing customer base.

The challenge is in meshing the two pieces together: harnessing the experience and success of the past, while simultaneously changing the fundamental Telco mindset from one of a monopolistic utility provider to that of a competitive provider of services.

Technorati Tags: IPTV,AT&T,Telcos,Widgets

BRIC Broadband: $46 Billion Opportunity by 2013

Ben Piper — Thu, 05 Nov 2009 15:17:07 GMT

We’ve just published a report on broadband opportunities in the BRIC (Brazil, Russia, India and China) countries, estimating that broadband revenues in the four-country region will reach $46 billion by 2013.

The BRIC designation, attributed to Goldman Sachs analyst Jim O’Neill, captures the commonalities shared by the four countries, including rapid economic growth, burgeoning middle classes, and increasingly sophisticated communications marketplaces.

Just as the BRIC countries are expected to be a dominant force in the global economy in the next decade, so too will they become important leaders in broadband consumption. The bloc’s still somewhat young and immature broadband consumer base, rapidly growing upwardly-mobile middle class, and increasingly important consumer purchasing power all point towards substantial opportunities in the upcoming years.

We see the region as one of the next broadband frontiers, more than doubling its number of broadband connections between 2009 and 2013.

While there are some positive commonalities shared among the four countries, there are likewise some negative aspects which may ultimately hamper their success. Widespread and institutionalized corruption, social and political instability and inefficient bureaucracies all make for a less-than-ideal environment in which to do business.

Nor do we see the BRIC countries necessarily marching in lockstep. In many ways, the four countries are more different than similar, and it would be unwise to expect them to follow exactly the same path. Rather, we think broadband adoption will play out quite differently in each.

Technorati Tags: Broadband,BRIC,Brazil,Russia,India,China

Comcast and Time Warner Expected to Post Flat Sub Growth in Q3—My Predictions

Ben Piper — Fri, 30 Oct 2009 16:47:31 GMT

As I've said before, and as evidenced by AT&T’s and Verizon’s recent reporting, the days of consistent double-digit broadband growth are probably behind us. The US market is rapidly maturing--we are estimating 63% household broadband penetration by year-end-- and the new customer pool is dwindling.

Q3 was a fairly flat quarter for the Telcos in terms of subscriber growth, and we expect to see similar results from Comcast and TWC when they report next week. We estimate sequential subscriber growth for each to be just around 1%, bringing Comcast's total broadband base to around 15.4 million, and Time Warner's to near 8.9 million.

The name of the game for service providers today is mitigating churn--that is, holding on to what they've got. Research we recently fielded in the US market (to be published soon) showed that Americans report very high satisfaction with their current service provider (75% are "somewhat" or "very satisfied". That said, when presented with a compelling competitive offer (20% price discount or doubling in speed), roughly two-thirds would jump ship.

Technorati Tags: Comcast,Time Warner,AT&T,Verizon,Broadband,Churn,Forecast,Penetration

Verizon, AT&T Post IPTV Growth, Slightly Below Expectations

Ben Piper — Mon, 26 Oct 2009 18:13:52 GMT

Last week we predicted strong growth for both AT&T and Verizon’s Q3 TV subscriber base. AT&T’s growth fell right in line with our estimate, the Telco posted 240,000 new U-verse subs in the quarter, just shy of the 250,000 we predicted. But hey, what’s 10,000 subs among friends, right?

Verizon’s results, reported today, were somewhat more surprising. The company did not meet our expected sequential growth target of 15%, posting instead 191,000 new subs, implying 8% growth.

Technorati Tags: IPTV,Verizon,AT&T

Strategy Analytics, Multiplay Market Dynamics Service

Net Neutrality Brings Politically-Charged Tone to Supercomm

Ben Piper — Thu, 22 Oct 2009 14:41:00 GMT

The tone of this year's Supercomm is certainly more political than usual, with net neutrality at the center. Otherwise benign speeches and presentations are punctuated with "keep government out of broadband" taglines. All of this is very à propos, of course, as the FCC today is expected to vote on a proposal giving the green light to rules formulation on net neutrality--something the Telcos view as an existential threat.

In yesterday's keynote, Verizon CEO Ivan Seidenberg ripped the idea of net neutrality as "a mistake, pure and simple--an analog idea in a digital universe," and blasted the "Silicon Valley digital elites" (oh God, using "elite" perjoratively is sooo 2008!). Net neutrality threatens to stifle progress, he suggested, noting that "if we can't earn a return on the investments we make in broadband capaicty, our progress toward a connected world will be delayed, if not halted altogether."

In what some have referred to as "astroturfing," i.e., creating an artificial grass roots movement, Seidenberg suggested that net neutrality could create a public safety hazard, saying "If we can't differentiate betewen packets, we can't prioritize emergency communications for first responders, telesurgery or heart-monitor readings for digital medicine, or videoconferencing over spam for telecommuters."

While it may tug at the heartstrings, the argument is a bit of a red herring. Nothing in the net neutrality discussions occuring now would prevent lawful and reasonable network management.

Today's decision should come as no surprise to anyone; the US policy on net neutrality was effectively made last November with the election of a new administration

A poster in the main hallway at Supercomm...

AT&T and Verizon to See Double-Digit IPTV Growth

Ben Piper — Wed, 21 Oct 2009 15:59:00 GMT

In a press release published today, we predict that AT&T and Verizon will post double digit IPTV subscriber growth for the third quarter. Both have seen an impressive growth clip over the past year, and are likewise experiencing increased consumer take up percentages. Consumer take up, clearly, is key here.

In a report we released back in September, we talked about drivers and inhibitors to IPTV growth in the US market. One key driver of IPTV uptake is household broadband penetration, which is currently at 63%, and estimated to grow to 81% by 2013. Likewise, household familiarity and comfort levels with bundling will drive uptake-this has certainly been the case in European markets including France, where IPTV was initially "bundled" with broadband as a giveaway.

The "content is king" adage continues to hold true, and operators able to secure exclusive premium content will likewise have the upper hand. Satellite provider DirecTV's exclusive "NFL Sunday Ticket" has proven to be an effective churn mitigator and revenue source. Finally, aggressive marketing, such as the print and television campaigns currently underway by AT&T and Verizon, will continue to raise awareness and generate demand among television households.

Several factors stand in the way of consumer takeup, however, and these must be overcome if IPTV is to truly take off in the US market. Among these potential inhibitors are "Over the Top" (OTT) content-programming and content available for free or inexpensively online-which to some households will obviate the need for pay television altogether.

Customer unfamiliarity is another key hurdle Telcos must overcome; to date Telcos have done an inadequate job in communicating the benefits of IPTV over cable or Satellite. They must make this a priority. Likewise, strong and aggressive competition from cable players, who currently have pipes into 90% + of US homes, must not be overlooked.

Verizon’s Metered Billing Rumblings: A Dog of an Idea Even 2 Years Later

Ben Piper — Wed, 30 Sep 2009 17:41:48 GMT

When Did Alienating the Customer Base Become a Viable Strategy?

Verizon CTO Richard Lynch, addressing members at the FTTH Conference in Houston this week, made strong noises that the Telco might embrace the notion of “metered” or “usage based billing” in the future.

“We are going to reach a point where we will sell packages of bytes,” Lynch said. “Now I’m not announcing a new pricing plan. But we have already gone this way in wireless because that is where the resource is most constrained.”

Time Warner Cable, readers will recall, tried this over a year ago---and it went over like a lead balloon. In fact, I published a piece on UBB back in early 2008, suggesting that the PR fallout would be too much to compensate for the potential revenue bump. This turned out to be correct.

Consumers are tired of being nickel and dimed to death—everywhere from the grocery store (“You want a plastic bag? Pony up!”) to the airport (“Oh, you wanted to bring luggage with you? Cash on the barrelhead!”). Our research suggests that they will not tolerate it. Survey work we completed in the US suggests that 63% would churn broadband providers if offered a 20% discount.

Technorati Tags: Verizon,Broadband,Time Warner,Consumer,Usage Based Billing,Churn

Some have suggested that the only way for metered billing to take hold is for the entire industry to back it—Verizon had long been a hold-out. Just like in the case of airlines’ extortionate baggage fees, providers will emerge who refuse to play the nickel and diming game. They will benefit immensely from the “we don’t screw you over” marketing message.

Customers have grown accustomed to paying for their broadband service in a certain way, and appreciate and expect a predictable monthly bill. Dramatically altering the model, with no discernible added value, will prove to be a big mistake.

Numericable Sets Triple Play Bar Even Lower in France: Will Telcos Take the Bait?

Ben Piper — Wed, 23 Sep 2009 19:01:44 GMT

And to think how easily “29.90 Euros” rolled off the tongue…

French cable company Numericable announced it will launch a €19.95 Triple Play, adding more pressure on an already irrationally priced broadband market. The €19.95 plan will offer all DTT and DTT HD channels, up to 30 or 100 Mbps internet access, depending on the area, and unlimited phone service nationally and to 53 international destinations

The pricing move was not unexpected. In fact, we predicted it nearly two years ago. Rather, Numericable’s €19.95 deal is the latest salvo in a market that seemed to have reached some sort of stability at the €30 level—a price point originally set by Free (Iliad). Now it is Numericable, owner of its own network and slave to no-one, that is setting the rules.

Unless competitors Orange, SFR and Free can come up with a differentiation strategy –and quickly-- they will have no choice but match or beat the offering. Fiber might be an answer, but consumers shouldn’t hold their breath.

Service Providers in France find themselves at a critical juncture in a commoditizing market. Offerings in the market are becoming increasingly indistinguishable, and providers are doing relatively little to differentiate effectively. As I have written before, France is following a pathway that can only lead one way: lower prices. While consumers will ultimately benefit, it is likely that this latest price offensive will spark further consolidation in the market, and will cull out providers unable to innovate.

Broadband Evolutionary Path

Source: Strategy Analytics, “Triple Play Chaos: Lessons From France's Hypercompetitive Broadband Market, “ 2007

If the Telcos take the bait, and find themselves in a price war with Numericable, there is only one way to go—and it’s not the right way.

Perhaps they ought to think about it as if their very lives depended on it.

Technorati Tags: Triple Play,Broadband,IPTV,Numericable,Orange,France Telecom,Free,SFR,France

3-D and IPTV Key Themes at IBC in Amsterdam

Ben Piper — Sun, 13 Sep 2009 15:05:16 GMT

I'm currently at IBC in Amsterdam, having spent last week at Broadband World Forum in Paris. Needless to say, I've got a bad case of trade show legs.

Unlike BBWF, where I barely had a chance to look at the exhibit hall, I have had some opportunity to roam the halls at IBC to see what the hype is. The key theme from IBC is, without question, 3D.

As is so often the case, the issue is not one of technology (the vendors have proven that they can make it work). Rather, the primary challenge to 3D is the availability of content. As my boss, David Mercer, recently pointed out, consumers won't be willing to make a substantial technology upgrade investment until the content is there to support it. It's simply not worth several thousands of dollars to watch the same Disney 3D movie over and over.

Another perennially hot topic is IPTV’s future. My talks with representatives at both Alcatel Lucent and Cisco confirm that both vendors view IPTV as a mature technology. I would suggest that, while it may be a mature technology, it is very much a nascent market. IPTV is mature in the sense that most operators now have some sort of offering—what they don’t have is large subscriber numbers.

It has been my feeling that Telcos have, by and large, done a sub-par job of articulating the merits of IPTV, and customers are loathe to switch providers for what they might presume is only "more of the same.'' Our research suggests that pay tv subscribers are willing to make the jump given the right price—IPTV providers need to focus on getting the right message out.

Technorati Tags: 3D,IPTV,IBC,BBWF,Alcatel-Lucent,Cisco