SK Telecom, one of the leading telcos in Korea, is thought to be looking for a way out of its S-DMB service, according the Korea Times. The service appears to have stagnated at just over 1 million customers, and was never meant to be able to break even with less than 5 million.
Now while we understand that The Korea Times often flies a kite, and may have this story very wrong, it bears analysis, because it if isn’t true, it should be.
There are few options available to SK Telecom, which is the majority owner of TU Media the company that began the S-DMB service back in 2005. It might sell the service off to the other investors, shutter it completely, or even try to merge the services onto the rival T-DMB network which uses entirely different spectrum and technology, so that would mean replacing over 1 million handsets.
The rationale for S-DMB service was that SK did not like the regulator mandated T-DMB service business model, which required free to air TV to handsets, and instead wanted a paid service which could drive its ARPU.
But today even though T-DMB multiplexes are still being built out after the successful launch of the service in the capital Seoul, usage has rocketed to around 5.5 million shipped TV handsets, in two years, around 1 million ahead of our own aggressive forecast for T-DMB services there. T-DMB works in the same L Band spectrum that is reserved for Digital Audio Broadcast radio services around the world.
Once T-DMB is available nationally, it appears that it is set to rapidly grow to around 17 million handsets, or 35% of the handsets in use, over the next three years, to give it one of the largest percentage penetrations of a mobile TV service anywhere in the world.
That’s not to say that this is entirely about the business model. Paid S-DMB services might have worked if they had been backed by the owners of great swathes of Korean content, but instead this is controlled by the local broadcasters, who all loved the idea of a free to air service extending its paid advertising model, and so kept the best content to T-DMB services.
Interestingly there is a move afoot now in Korean to build paid services on top of T-DMB, by adding conditional access to the system, and potentially adding new TV channels which are paid extras, with the regulator’s permission, over and above the initial unpaid channels that were mandated.
Another way around this is to use one of the new chips that came onto the market this Summer, for instance from GCT semiconductor, that support both S-DMB and T-DMB, and then shift the user base to devices that can support both services.
The report said that TU Media is almost out of money having increased its capital five times, the last being in February when a $40 million slice of capital was injected at the expense of EchoStar, which was thought to be joining the investors (the other major investors are Samsung and Toshiba) in order to contribute some of its DTH contracted content.
This raises the problem for every network operator out there of just how bad it will be to be caught owning the mobile TV network which comes in second in a given market, which is perhaps the reason for the reluctance of companies like AT&T in the US to back a DVB-H service, when MediaFLO is already established and an ATSC mobile handheld standard is just around the corner.
EchoStar Asia Holdings put that last slice of money into TU Media, to become the second largest shareholder after SK Telecom which might mean that EchoStar is prepared to take on the satellite capacity and supply its own services. Perhaps that could be a deal it strikes with Samsung and Toshiba, and given that the satellite footprint also covers Japan, it might try to launch services there also. But whoever takes it one has a huge ongoing Opex cost associated with leased gap-filler site rental.
S-DMB uses OFDM modulation, and operates in the 2.6 GHz spectrum but needs a huge number of local terrestrial repeaters in order for mobile handsets to be able to receive signals when in-building. As such it is a very similar system to the one being proposed by Alcatel, referred to as DVB-SH and the system being designed for China, for both mobile and digital TV.
S-DMB was widely reported to have cost something like $500 million and initially projected a 12% penetration rate (but missed badly). The problem is that something like 8,000 gap filler transmitters were needed, averaging around $20,000 of equipment and double that including site and installation fees, which is now what is weighing down the service.
Interestingly EchoStar is providing satellite services to the nascent Chinese mobile TV effort, which is supposed to be online by the middle of next year and perhaps it might be able to re-purpose the satellite in some way, though we doubt it, especially given there are over a million Koreans relying on the service right now and we’re not sure just who owns that satellite.
Meanwhile SK Telecom signaled its weakening support for S-DMB back in September when it said that it would work with Germany’s T-Systems, a unit of Deutsche Telekom, to jointly enter the mobile TV broadcasting market in Europe and Asia. It said at the time it will not specialize in any one technology but work on several.
At present S-DMB services in Korea get around 15 video channels and 19 audio channels and pay an upfront ‘switch on’ fee of around $17 and around $10 to $12 a month.
One of the potential losers in a switch off for S-DMB would be conditional access specialist Irdeto, which has so far shipped all of the security for the software clients, despite the fact that SK Telecom has been looking to replace it with a local supplier.
TU Media has worked on its MCAS system over the past 3-4 years and has only just completed the first iteration of the product, so far only with two handset manufacturers, whereas Irdeto is integrated into 18 handset manufacturers offering 50 models.
But while it may see off the challenge of a local DRM or CA, Irdeto would lose out on future revenues from the service if it was closed down, and the only way to weather that might be to win the race to supply T-DMB with its own CA.
Irdeto got the head start with S-DMB through its strong relationship with Samsung, and says it has not fallen out with Samsung, and will continue work closely with Samsung and that handsets embedded with Irdeto security are being sold by Samsung into South Africa, Germany and are being trialed in Spain and Hungary.