Faultline said back in May that the lure of the Quad play would prove too big for Carphone Warehouse boss Charles Dunstone, after he had agreed to acquire Tiscali UK for less than 50% of what it had been on the market for. Now, days after completing the £236 million ($388 million) acquisition Dunstone is talking about getting into TV after all.
To those who don’t know it, and think of the Carphone Warehouse as some antiquated parochial supplier, it is a $2.28 billion business that has given US retailer Best Buy a foothold in Europe, latching onto a 50% stake in its retail operations across Europe. It has very little debt and has almost made the transition from the number one phone retailer to a Quad play operator ‘ with broadband, fixed VoIP, an MNVO and now TV services.
We said at the time the deal was struck that the company’s first job was to take the Tiscali lines and put the services onto its own existing DSLAMs shifting 50% of the Tiscali broadband that is unbundled, up to something like 80%, with massive operational expenditure cuts. Carphone’s Talk Talk backbone has its own DSLAMs at 2,212 of the UK’s roughly 5,500 telephone exchanges. The company confirmed that this would take less than 24 months. It would also switch billing to its own billing service.
We then said that Carphone has to take a big decision about whether or not it went for a fully enabled quadruple play by adding video as the last leg of the four services. The Tiscali Homechoice service has a few hundred channels, no HD as far as we can see, but very strong catch up TV services (which have been weakened somewhat by the introduction of catch up TV on iPlayer, but none the less they remain strong).
So Dunstone has two choices and the UK media has played up one way above the other. He can either take the excellent Homechoice IPTV system now called Tiscali TV (Perhaps to be called View View as in Talk Talk, under the Carphone naming system), or he can throw in his lot with the BBC on Canvas, and push a unified system of internet enabled VoD built into a Freeview box.
Readers outside of the UK have often said how difficult it is to understand the TV options in Europe and especially the UK. Pay TV suffers under a huge burden because Freeview digital TV is available free to air across the whole footprint, and has been for a number of years, starting as an organization in 2002, and broadcasting a full complement of free to air programming since 2005. Today there are 10 million homes with access to just under 40 TV channels just for the price of a roof antenna and a converter box.
For a country that used to have five analog TV channels this has been a big revolution, and it has put a spanner in the works of any new pay TV effort. Meanwhile France is not far behind in also using the DVB Project’s terrestrial standard DVB-T, and Italy and other parts of Europe, are installing boxes at an astonishing rate, with 35 countries in total either already pursuing or committed to pursuing DVB-T.
It is the promise of all those similar territories, mostly countries with low Pay TV penetration (not all of them, because France is quite high) which means that digital to analog converter devices (so you can keep your analog TV sets) and new digital TV sets, have such a huge potential market. Canvas is about including over the internet VoD into that model.
So the UK especially, and potentially a much bigger part of the world, will have a very different take on pay TV, and internet TV. If Canvas is successful it will not require Yahoo Widgets or a specialist chip like the Intel CE 3100 (although that or a variant might be a good chip to make the set tops with) in order to establish internet video. It would be sent over the internet in the full understanding that it was never going to be viewed on a PC, but on DVB-T attached TV set.
Given this difficult market, local incumbent British Telecom has never felt that it could offer an across the board IPTV service, and after years of prevaricating, came out with a hybrid ‘ VoD and Freeview in one box ‘ a sort of pre-Canvas Canvas.
So naturally when Dunstone was asked this week if he would consider offering Canvas, he said yes. And that’s where most of the coverage has stopped. The truth is that he has a fully blown IPTV service in Tiscali nee Homechoice TV, which requires considerable network upgrades, such as multicast and MPLS capable routers, Quality of Service mechanisms, DRM servers and more bandwidth to the DSLAM and the provision of a whole new brand of set tops. If you have the chance to watch it, it’s one of the best IPTV services in the world ‘ but which way will he go ‘ take Tiscali TV to a bigger footprint (currently it is only available around London and has 50,000 subscribers) ‘ or go the Canvas route. Dunstone said openly before the acquisition that he was not interested in offering TV. Clearly he has now watched the service and realizes just what is possible.
The answer of course is to do both, a little like AT&T, which in the US offered U-Verse, but also initially offered Homezone, which was VoD over the internet from Akimbo and satellite TV from Dish. AT&T launched Homezone straight away in 2005, and then gradually went around the country making U-Verse work. The UK is a much smaller country, and Carphone could easily go around its existing customers base, providing the Tiscali TV VoD services across a Canvas box, and then tempt them slowly, over a five or 6 year period, onto the full scale Tiscali TV including multicast services and HD.
In fact given Carphone’s clever marketing tactics (such as offering free broadband) it could offer the VoD almost totally free in a short timescale, just repeating the buildout of a few metropolitan copies of the Tiscali TV VoD servers, using the same rights, and pick up a few million customers over the next year or two. From there paid upgrades under the same brand would be no problem once customers already trust the brand with video.
After all Carphone has to compete with its biggest customers (for instance Vodafone) and with Quad plays like Virgin Media, and even Sky which offers DTH TV and which bought an ISP and offers a few million homes broadband and VoIP, so it needs a full set of services. Knowing the ambition of Dunstone the chances are that once a formula was set, acquisitions across the Benelux and Scandinavian countries would lead to a major internationalization effort as he once did with cellular retail.