There is a concern growing in our minds about IPTV, and whether or not it has a future. What it has is a set of backers ‘ telcos, which are motivated, moneyed and murderously ruthless ‘ but in and of itself, is that enough?
Cable doesn’t think so, and as old and stodgy as big cable has become in the US, and smaller cable is in Europe, it remains agile and fast moving in comparison with its older rivals an attracts the attention of private equity groups.
These are the questions which ran through our mind as we heard details from the Broadband Forum this week that IPTV has now reached 15 million customers, and that broadband itself numbers 370 million.
IPTV customers have more than doubled in 12 months, which right now shows just how powerful those backers are, but little else really. Researcher Point Topic has done the sums for the Broadband Forum and released the table below on IPTV uptake. (See PDF version for full diagrams).
At that rate Europe will add another 4 million plus next year, Asia Pacific and the US another 1.5 million, and the rest of the world less than 1 million. It represents in excess of 150,000 IPTV adds each week, and given that pay TV is something less than 500 million globally, it only represents a 3% penetration of the pay TV world. IPTV, satellite and cable all hold each other to an honorable draw, then IPTV will reach 200 million customers at some stage in the distant future.
Although there was no forecast with the announcement, at current growth rates, without any slow down or acceleration, that would give us 23 million IPTV customers by first quarter 2009, 31 million a year later, and 40 million the year after that in 2011, which is more or less in line with the types of predictions that market research companies out there have issued, although the rate is clearly actually accelerating at this point.
DSL is moving further ahead as the dominant access technology at 65% of the world’s subscribers, but the Broadband Forum, which changed its name from the DSL Forum last year, is now trying to position fiber as the natural extension of DSL (rather than of all forms of Broadband). Fiber subscriptions rose by 33% during the year and has reached 10 million people, (as opposed to homes).
The great bulk of IPTV being delivered today, over 12 million subscribers, runs over ADL2+, though this is more likely to be dual chips which support either ADSL2+ or VDSL2 depending how far the home is from the DSLAM. So many of these will be fiber to the cabinet anyway.
The Broadband Forum has worked on access agnostic management specifications and developed specifications to incorporate PON fiber into its standard architecture and management framework for providers.
‘IPTV operators around the world have shown that systems are scalable and can handle rapid growth in subscriber numbers,’ said Point Topic Senior Analyst John Bosnell. ‘However, developing and agreeing standards will help these operators deliver IPTV more simply and effectively over a variety of access technologies and help to drive higher up take in other markets.’
Meanwhile cable subscription rates have slowed to 18% growth, over the past year, much of this in markets where cable is the only or main Pay TV offering. In some markets, like the US, it has been stagnant for years.
But so often we line up telcos against cable companies as each other’s main rival, this is because in broadband this has been the case for over a decade now. The organizations do the same job, all target triple play and bundling, and are trying to get the most out of a single cable connection to the home.
But of course in satellite TV we have another entertainment service that has not only been resilient in terms of defending itself against Telco erosion, but it has even flourished where cable has been saturated. In the US, the Telcos have flirted with satellite TV and even been partners in taking DirecTV and Dish Networks to market, and have even considered buying them.
If you look at the UK as a microcosm we can see below that BSkyB which is thought of as the grandfather of Pay TV, is still generating more new subs per year than the new IPTV systems from BT and Tiscali or the dominant cable operator.
BSkyB (in 000s) 8,888 8,492 396
BT Vision 214 0 214
Tiscali 50 36 14
Virgin Media 3,515 3,390 125
In fact, BSkyB last year added more customers than the others put together, so this rosy view of IPTV is perhaps not quite working in the UK. What’s the reason for this?
As far as we can see it’s twofold. First satellite TV is well organized, once dominant and strong, and secondly Free to air TV is going through something of a revolution. Freeview, using DVB-T needs less than 200 transmitter sites to be built to cover a country the size of the UK, and so it’s cheap to build, perhaps even as cheap as satellite TV for a countrywide footprint.
The UK incumbent telco BT has just said that it will spend $3 billion (see elsewhere in this issue) on building out fiber to around 40% of UK homes. By comparison a multiplex for a new set of 6 nationwide TV channels might cost $200 million.
For the same amount of money we might put up a satellite which can deliver huge amounts of video. The Freesat service, again in the UK, will deliver up to 200 TV channels, and many of these will be in HD format, and that doesn’t even have is own dedicated satellite.
A geostationary satellite can cost anywhere from $200 million to $600 million ‘ depending on weight, orbit, launch confidence, the number of transponders, the antenna size and its ability to self-navigate, and self power, with perhaps 40% of that spent on building the satellite, another 40% seeing it launched, around 15% in insurance and just 5% spent on the ground systems.
Freesat systems have now been launched in the UK and France and one is being planned for Italy, and will drive free to air satellite TV services, where a cheap dish and tuner will be all that is needed to acquire a 200 station, advertising driven, TV service. It will not take long before DVRs with EPG for all 200 channels are soon in place from the pure Consumer Electronics market.
The only strongpoint that BSkyB will continue to have is an element of control over the sale of live sport, in every other area of coverage, films, news, drama ‘ the same programs will be sold to the channels that rent time on Freesat. We can hear the theoretical dialogue with a customer now, ‘Would you like to subscribe to Sky?’
‘Sorry I don’t watch sport.’
‘But what about all our lovely films,’ I can get those on a) the internet, b) the other channels which are FREE, and c) On Freeview (DVB-T service) which is FREE.
And how exactly does IPTV invade this market? Especially when a satellite can reach up to one billion of population in a single footprint, and deliver in multiple languages and timezones, sharing that $200 plus million cost around not just over many channels but over many countries.
The fiber investments for incumbents such as BT, and others in Russia, China, parts of France and Spain are justified almost entirely on competing for broadband with the Data over cable architecture DOCSIS, now heading for version 3.0 which allows channel bonding and speeds up to 150 Mbps. Telcos figure that they MUST keep up with DOCSIS and while they are at it, given all that excess bandwidth, they might as well upgrade to deliver multiple concurrent HD video services.
But where they are going to get the repayment for the installation of those fiber lines we don’t know. Video will be squeezed by the huge footprint of satellite, and the triple play effect of cable, but mostly by free to air TV services. Broadband for Telcos is a straight fight with cable, though potentially they are about to be hit by broadband wireless systems, whether these are cellular in nature or WiMAX driven. Cellcos can of course offer quad play systems potentially by buying up unbundled fixed line ISPs and bundling service.
And the irony is that the faster that these internet access network go, the more likely that ‘over the top’ carriers can offer video services over the internet ‘ more YouTube’s, Joosts and iPlayers ‘ which in effect creates yet another level of competition, usually offering the same programs that their TV channels offer.
If we go back to our favorite ‘Shoe salesman’ joke where two unlucky sales people are given territories in the desert ‘ one calls home saying it’s the worst territory ever, because no-body wears shoes, the other says thanks boss, nobody here has got any shoes it’s a virgin market.
How long before the poor IPTV salesman calls home and says ‘Everyone here already has TV, and guess what, it’s free.’
The opex on the fiber and advanced DSL that is going into the ground, is likely to be more than the costs borne by the Freesat customers, although it must be remembered that satellites do have a lifetime, roughly 15 years or so, and although this could always change (once they invent refuellable satellites) which means that there is an ongoing or repeat capex cost, it is never likely to be more than the price of digging up miles and miles of the ground.
And what happens when telcos have made these huge investments by putting fiber in the ground or having built a huge amount of DSL plant? Voice pricing will be falling in VoIP, in wholesale voice, and in cheaper and cheaper cellular; video will be down to free to air models, which it might have to join in with using a free to wire model, and a kind of broadband line rental will be the main revenue earner used to repay all that interest. In the end the Telcos are big enough to write off all that investment and use the capacity it gives to create their own survival. But then all of that expenditure will come straight out of their balance sheet and therefore their market capitalization.
But the last thing that the world needs are multiple architectures of fiber for each home, so as far as the telcos around the world are concerned this is a race to use what might be potentially ‘fictional’ future revenues, to secure their futures. What they will look for (and BT did it this week, and AT&T and Verizon did it more than 3 years ago) is some form of regulator agreement that for the foreseeable future they will not have to offer competitors access to the fiber they lay, or at least not at a stupidly low price. BT is trying to get Ofcom to agree something along those lines right now, and the FCC said that this would apply for US fiber that went within 500 feet of the home. AT&T promptly settled on an architecture which did not do this, based on reaching within 5,000 feet of every home.
So today you could theoretically become an unbundler (CLEC) using AT&T fiber, but you’d have to work out how to attach to it economically.
But surely in the end that’s the architecture that works for everyone. A single fiber to each home, carrying almost unlimited services, with everyone agreeing to lease capacity on that highway, and offering a multiplicity of service levels, which after all is what the internet is. Instead we have HD destined to become a broadcast activity in Europe, broadcast video becoming so attractive as to set back pay TV to the point where most homes will be able to do without it. In those circumstances, it only needs a recession to trigger an overall reduction in Pay TV, instead of an increase.
This potentially will lead to a future where sporting activities go straight to the web, knowing that everyone has the capacity to view at least one internet delivered signal in HD, and secondarily will re-run on a vast scale over free to air, sharing advertising revenues with the carrier, whether that carrier is cable, fiber, copper, satellite or cellular.
What makes sense now, and what has always made sense, is that telcos should partner with satellite video distribution in hybrids. Let’s put this another way. Satellite TV companies can use existing broadband capability to augment their services with VoD and other extras, as long as the broadband provider does not block their video traffic.
If these thoughts are right, then not only will IPTV slow down its penetration rate as Free video services make their mark, but so will cable (already slowed down) and paid satellite ‘ in other words Pay TV will plateau once a society is wired enough to deliver payback on a free to satellite or free to air (or both) TV service.
I can hear a lot of voices in the US saying ‘that could never happen here,’ which is partly true, in that free to air broadcasting is not strong enough economically, but if a major player tries the free satellite service there, copying Europe, and tries a free to air mobile TV approach as early as 2009, then suddenly the business models driving the rest of the world could backfire into the US, and catch alight. And then free satellite TV might do the same to US pay TV, as satellite radio has done to US radio.