Sometimes as analysts and journalists we get too excited about radical change in the market, which is perhaps why our headlines back in January 2008, pointed not only to Vodafone launching an IPTV service in Germany, but to a domineering Quad play that would envelope a huge mass of European subscribers.
Today that is not much closer to a reality, but we can see the inevitable, if glacially slow shift, of Vodafone heading in that direction ‘ it’s Portugal operation has added IPTV to its offerings, just like Germany did 18 months earlier.
Quad play is talked about by so many analysts, but is rarely understood ‘ it genuinely gives you flexibility in service pricing and it drives down churn ‘ but it comes at a cost. For Vodafone one of those costs has been to keep ISP services alive in acquisitions dating back to the 90s in Germany and Portugal, and to acquire new ISPs in October 2007 in both Spain and Italy, buying out the local operations of Swedish operator Tele2, for $1,093 million.
Tele2 radically altered is European footprint at the time, selling out of heavily saturated countries and taking holdings in Central and Eastern Europe instead. This included the sales of its French operations to SFR, part owned by Vodafone and the sale of Spanish, Italian and Portuguese operations directly to Vodafone.
At the time we saw the value of ISPs all over Europe going up, as purely cellular operations like Vodafone, and to some extent all the European majors outside their home markets, were on the hunt for fixed lines over which to deliver Quality of Service controlled video services ‘ in other words, video good enough for the TV.
That cavalcade of private equity and telco driven sales finally came to an end with the sale of Tiscali UK, for a rock bottom price a few weeks ago to Carphone Warehouse ‘ ISP valuations everywhere have no fallen dramatically and any large ISPs not belonging to an incumbent Telco can now be bought for less than half what they are really worth in the long term.
Vodafone naturally should have bought Tiscali UK, because its only access to fixed lines in its native UK is through the incumbent British Telecom (BT) which also supplies much of Vodafone’s backhaul and in return Vodafone hosts BT’s MVNO in the UK. About the only way now that Vodafone can launch a Quad play in the UK is on BT lines, either wholesaled or by buying BT, a move that would probably stumble on regulatory hurdles (BT was also bargain basement back in March but at $15 billion BT is still probably worth just 50% of what it was a year ago).
But for the rest of its European footprint, Vodafone has the ISPs in place for a Quad play launch. What it has found in Arcor in Germany is that simply offering cheap IPTV is not enough. It needs to harmonize billing, and put out bundled offers where one or more service is almost free out of fixed VoIP, high speed internet access, mobile voice and TV, and of course in other countries it needs to make the final equipment investment needed for IPTV.
This last step can mean upgrading routers to multicast and usually to MPLS, upgrading DSLAMs to ISAMs and adding significant amounts of backhaul as well as provisioning set tops ‘ not to mention negotiating content rights, putting together satellite downlinks, a head end and DRM servers.
But Vodafone has plenty of cash, that’s rarely the problem, what it needs to be sure of is that it will get all that money back and that it is not better invested elsewhere. Which is why our enthusiasm for a genuine Quad play (and this is really still yet to emerge here) perhaps ran ahead of the reality.
The truth is that even in these European heartlands where Vodafone has the bulk of its global revenues, such activity still seems to be the business of the local operation, and does not appear to be centrally mandated. The biggest problem in the way of a flexible quad play is most often the help desk and billing centres that Vodafone is constantly tinkering with in order to put them on common software.
But despite all that delay, Vodafone Portugal will now offer Casa TV, kicking off with 100 channels, including all the leading free to air channels (RTP and SIC channels, TVI and Porto Canal) as well as the favourite premium channels in Portugal.
It starts with 8 of them in HD (including Sport TV HD, Eurosport HD, National Geographic HD and Disney Cinemagic HD), and the usual mix of Children’s channels, film and themed channels; offers Dolby Surround sound, and a DVR with 280 hours and VoD film services and catch up TV options on demand, for viewing recent TV programming.
No doubt about it that Vodafone is learning from its far more modest IPTV launch in Germany, and this Portugal moves is far more aggressive.
What’s interesting is that back in June 2007 Vodafone in Portugal began adding, very early, ADSL2+ lines to its operations, promising 24 Mbps, in an attempt to build up its internet lines. We can’t quite find a Vodafone references to how many ISP lines it actually has in Portugal, only that it sold off its fledgling Vizzavi ISP business in 2003, and had to start building up lines from scratch after that ‘ so it doesn’t have many potential customers for this new IPTV service ‘ and most likely, to the local country management, this move is as much about cementing its fixed line ISP offering, as reaching for a Quad play.
However there is already a link between the 5.6 million or so Vodafone Portugal cellular customers and the new IPTV service, as it plans to offer placeshifting from the set top to key Vodafone handsets as well as remotely viewing the TV Guide, getting program alerts and being able to control the DVR to schedule recordings from their phone.
These are very much systems which Vodafone Arcor put in place in Germany and we suspect that this confirms that this is a direct import from the German operation. That system used Alcatel-Lucent as the main equipment and software supplier, but did not use its supposed partner, Microsoft Mediaroom, instead offering its old OMP middleware, which has now been merged with the Telefonica written Imagenio IPTV software. The support of Imagenio was given over to Lucent in April 2006, then acquired by Alcatel and now has been renamed MyView. Additionally Vodafone in Germany uses NDS for its VideoGuard Conditional Access system, Harmonic as an encoder supplier, with set tops and home gateways from Pirelli, running Opera IPTV as a browser. It is likely that Vodafone Portugal has used a very similar set up for its new service.
We can also see how Vodafone has got over the billing issue initially, because the services will be free to existing ADSL2+ broadband subscribers until the end of the year, and made available to new customers from September, when it will be pushed for a special introductory rate for three months, after which it will rise to $56, by the end of the year.
This was pretty much the way Arcor TV was launched into Germany, with Vodafone telling us that it had over 100,000 subscribers virtually overnight, but it has never followed this up with hard figures of how many have chosen to pay for the service in Germany. But it must feel that it has a working formula, in order for it to go ahead and offer a similar service under similar terms, elsewhere.
Vodafone Portugal will be up against Portugal Telecom, France Telecom backed Sonaecom, as well as cable operators Cabovisao and TV Cabo, all of which have a head start in both broadband generally and pay TV separately, so it will be a tough campaign for Vodafone. But none of those have the mobile features that it promises top bring into play.
Increasingly this is beginning to look like a slow burn, Europe wide Quad play, which Vodafone is cooking up and it will invariably place pressure on both pay TV providers, and rival cellular operators. If Vodafone continues to push these services out at free or almost free rates, and pays for the service implementation costs and content from churn improvement in its other businesses, it has the potential to disrupt both pay TV, but more importantly, cellular market share.
Across the saturated cellular markets of Europe, where Vodafone is strongest, it has never once hinted at a coherent strategy for its quad play, but by repeating its German formula in Portugal, however slowly, this is starting to look like one, and we would expect there to be existing developments in Italy, Spain and then in Vodafone’s native UK, within the next few years as the Vodafone Quad play engine moves slowly, but inexorably on.