The announcement that Reliance Communications would pay $500 million to Microsoft for IPTV software and services came as something of a jolt of cold water this week, and has a remarkable twist of unreality about it.
First off we don’t believe that amount of money, not in any sensible timeframe anyway, and secondly even if it was true, this marks Microsoft Mediaroom at best as a $3 billion proposition globally on the simple logic that the deal was exclusive. If Microsoft allows a single operator to claim exclusive use of the technology in a market that covers one sixth of the global population for just $500 million, then its total likely global revenues over the period that IPTV tools up, perhaps the next ten years, can be little more than 6 times that amount – $3 billion.
But the serious issue is the amount of money. Microsoft has been telling us since 2003that Reliance has been a customer for the IPTV middleware software which has become Mediaroom. It has been running a 20,000 user trial since before other countries even realized that IPTV was possible, and yet it never got around to launching it. Now it is only launching late, after two other rivals have beat it to the punch and when India is awash with DTH services.
India only boasted 2.4 million broadband connections by the end of 2006 and will only reach 3 million by the end of 2007. Actually that number doesn’t stack up and although it’s the official number always given out, the operators collectively claim more like 6 million.
Even so that’s a pretty small universe, for IPTV to be extracting the $500 million from that Mediaroom is supposed to cost, and Reliance will have to accelerate take up of broadband by about ten fold with this new system, in order to gain enough customers to deliver any kind of IPTV footprint.
There are three main operators in India, the other two being Bharti (BNSL) and Mahanagar Telephone Nigam (MTNL), and on top of this there is Tata Communications, previously known as VNSL, and its associated DTH operator Tata Sky.
Bharti is thought of as the public incumbent and has 2 million of those broadband customers, launched 8 Mbps broadband in India for the first time last month, and has already launched IPTV services using UTStarcom equipment and software, and encoders from Israel’s Optibase.
The company is already offering ‘free’ 512 Mbps broadband as an incentive to take a landline at $14 a month and at that price we can see why India has only 45 million landlines installed.
That pretty much sets the price ceiling and line number ceiling for any IPTV services which is why local analysts project IPTV will generate just $21 million annually in India by 2015. The existing dominant cable industry (with around 71 million customers) is more likely to reach over $2 billion annually with satellite services from Tata Sky and Dish TV India (no relation to the US Dish Network) taking perhaps a few $100 million
MTNL has also rolled out IPTV in Mumbai and Delhi to what it claims are its existing 2.2 million MTNL broadband subscribers there.
The problem is that pay TV prices in India are in packages from around $3 to around $6 a month, and both analog cable and DTH gets down to that price.
To make back the $500 million investment in Microsoft software Reliance would need IPTV dominance on every broadband line in India, for around ten years, and that’s without the costs of the content, the equipment and any profit. The only way that Reliance will be paying Microsoft $500 million, we figure, is over a 20 year time frame.
However Microsoft needed to claim a large number for the good of its Mediaroom business and to justify Steve Ballmer, CEO of Microsoft, turning up in India to announce the partnership.
Back in 2006 Ballmer talked about taking a strategic equity stake in Reliance as a quid pro quo for getting the IPTV service launched, but as far as we know that never came about.
The service will be launched to Reliance customers by March 2008 said chairman Anil Ambani, and will have VOD, DVR, the famous Microsoft instant channel change, as well as personal media sharing. And claims it will bring HD content to India for the first time.
There’s not much point in that, since HD devices are quite a rarity at this stage in India and having HD content is no good if there are no TV sets that can view them, so Reliance will have to somehow find a way to bring cheap HDTVs to the country as well. The slow pace of HD in India is partly due to the fact that cable operators have not got the capacity to deliver it, being analog, so perhaps this will give Reliance a small edge at the very top end of the market.
Reliance says it has a pan-India, next generation, converged digital network spanning 13,000 towns and 500,000 villages with over 165,000 kilometers of fiber, which will delivery the IPTV.
In our view satellite remains the right technology for a population as diverse in geographical location and wealth levels as India, and Tata Sky reached its first 1 million customers in India after just a year in operation and expects to reach a further 7 million customers by 2011. Now that, we can believe.