Japan’s NEC is taking a late run at the global IPTV market, sporting its own VoD server bands, next generation networking equipment and the now famous PCCW home written IPTV middleware, which gives us a perfect opportunity to pick up on some of the remaining threads from last week’s London IPTV World Forum show, where NEC launched.
While we have lots of respect for the Cascade software that runs the PCCW service, one of the first in the world, and one that almost has a million customers on it, we have to ask whether there really is room in the IPTV market for yet another player.
Surely putting together IPTV expertise into one unit makes sense, because often the bulk of the system sales comes from DSLAMs, Layer 3 Switches and MPLS routers ‘ networking hardware, along with network upgrades to make a system IPTV ready, and the Quality of Service and quality assurance software and hardware layers ‘ and that is just a straight fight between Alcatel Lucent, Ericsson, Motorola, Huawei and the like, which is a business right up NEC’s street.
Chances are that simply understanding IPTV may give the company some traction in Europe and the US, but only offering a single flavor of IPTV is unlikely to be appealing, and it must be asked just how much green field IPTV activity is left. There are live systems in place in almost all 27 member countries in the European Union, and in some countries two or three warring factions. All of these are supplied in various ways, but Alcatel is the strongest supplier, with its own middleware, middleware from Telefonica’s Imagenio service, now called MiViewTV, and it is also the only company that has ever supported the installation of a Microsoft Mediaroom system with network upgrades, equipment and implementation skills.
Alcatel, along with Microsoft, account for Deutsche Telekom, Swisscom, Telecom Italia and British Telecom, while France Telecom has used software that it wrote itself with Thales, which has since been passed to Thomson for maintenance and exploitation. Other rivals in this market are Nokia Siemens Networks with its Myrio middleware, and various smaller suppliers like Orca which changed hands last week, DreamPark, and Kasenna, though a partnership with Ericsson.
NEC needs to perhaps operate at the device and network level rather than set up as a one stop shop for IPTV. That way it might grab a piece of multiple existing IPTV build outs and upgrades, rather than needing to be in at the ground floor of an IPTV service’s inception. We would say that Germany, France, Italy, the UK, Spain and all of Scandinavia are all out of bounds for the Japanese telecoms equipment specialist, and perhaps it was really putting its toe in the water here, while expecting that perhaps the bulk of its IPTV business will come from the Asia Pacific region, where it will find plenty of local suppliers to fight it, with UTStarcom, one of the strongest.
However $500 million isn’t so large an amount of business for NEC. When you realize that Microsoft cut an invoice for almost that amount back in 2004 ($400 million) when AT&T decided to go with its middleware vision for IPTV, and again repeated a similar figure when it talked late last year about its dealings with Reliance in India, then it doesn’t seem such a lot. Except that these were headline figures and they included the anticipated revenue from these operations for the next 10 years.
NEC said its service would include everything from network architecture to delivery servers and set tops, DRM, VoD server hardware and software, and the QualiTVision middleware from Cascade, a wholly owned subsidiary of PCCW.
But today in the IPTV market, so stagnant for the past three years since Microsoft entered it and effectively froze the market by capturing the hesitant tier one telcos, there is definitely some uncertainty. Light Reading ran a major piece this week pointing out that even Microsoft Mediaroom isn’t safe, saying that it lost out on a contract at Telecom Italia.
What we are actually seeing at Telecom Italia is more about code consolidation. Microsoft had always been the intended ‘next generation’ version of IPTV software at Telecom Italia if you ask Microsoft. But a full two years ago Telecom Italia executives said publicly that they had no intention of using the Microsoft approach. What they had at the time was the OMP software from Alcatel, and without ever stating it publicly, the only way for Alcatel to continue with three separate in-house systems was to bid Microsoft at Green fields sites, and merge the code base for Imagenio MiViewTV with OMP, so that it could have an alternative to the Microsoft product for those who preferred it. Alcatel even went to the trouble of writing many applications ‘above’ the middleware, so that they could equally be applied to all three customer bases with appropriate APIs.
Light Reading reads the situation differently and talks about the decision coming due to the changes in Telecom Italia’s shareholding, which happened last year when Mexican associate America M’vil, Pirelli and the Benetton family agreed to sell their 18% controlling stake in Telecom Italia’s Holding company to a group that included Telef’nica and Italian banks Intesa Sanpaolo and MedioBanca. Regardless of whether this is Telefonica using its own shareholder influence, Alcatel was always going to offer a single code based eventually, and it is this which we expect Telecom Italia has moved to.
This is perhaps why Telecom Italia’s IPTV service has been so unsuccessful in attracting customers. It has 7.6 million broadband lines, 6.4 million of them under Telecom Italia’s retail control, and 1.3 million VoIP lines, but under 100,000 IPTV customers. But perhaps that’s because the high roller in Italy in IPTV isn’t Telecom Italia at all, but Fastweb, and it has a significant brand lead, using once again an in-house designed system, which it developed with VoD supplier BitBand. There is also a rival IPTV service coming from Wind Telecomunicazioni, now part of Orascom, which will come to market using the Microsoft Mediaroom that Telecom Italia didn’t like.
Of course Telecom Italia may not have wanted too many customers to take an unstable system, and said as much on its analyst call, because at some stage it may have to replace all those set tops. So perhaps it hasn’t been marketing it quite so aggressively ‘ perhaps.
Some may have considered that the entire past three years by Microsoft has been a wasted opportunity, one where it spent much of its time ensuring that AT&T stayed the course in its native US. But Mediaroom can see that investment coming through now, with a stable code base of its own, and surging numbers of US homes taking the system. And it is against this type of ‘success at last’ environment that NEC is trying to launch, while operations like Thomson and even NDS are hungry for new contracts too.
Last quarter AT&T said that it was now installing IPTV customers at the rate of 12,000 a week, ahead of its promise to reach 10,000 by year end. If that rate is sustained throughout this year it would add half a million customers during the coming year. AT&T clearly thinks it will be able to ramp the install rate further, because it has said it will be joining the 1 million IPTV customer club by the end of 2008, and regardless of what you think of Microsoft’s middleware design, no-one except Verizon’s FiOS is moving any faster, anywhere else in the world.
With that success late coming, but finally under its belt, Microsoft has been signing new customers and at the IPTV World Forum, for the first time we noticed that it actually had a stand, where it was pushing its latest edition of Mediaroom, which will see third parties adding new IP based applications to the TV suite. We said that in mid-2007, Microsoft would add the Mosaic EPG and the full function VoD, which came in the Mediaroom release where it also added supporting for a browser and xhtml, in order to allow the development of core web style applications.
It was always planned that the second software release, would introduce High Definition just as it was clear that chips which support multiple concurrent Picture in picture images would not come until the third release and in the main Microsoft hasn’t deviated from this, with just one year’s slippage over these release schedules.
Perhaps the final fly in the Mediaroom ointment, although we don’t reckon this is any kind of opportunity for a new supplier, is what is happening in Germany. Overpricing by Deutsche Telekom of its IPTV services continues and what we think is its third price cut has just been announced down to under €50 a month ($78) for all three services. Rivals says that DT cannot get it much cheaper because of the costs of all those Microsoft servers needed for rapid channel change. That’s a spurious argument and this is more about the arrogance of DT believing in its brand, and refusing to go in with a low price. The amount extra paid for IPTV over its double play price is now fairly low.
Most services in France have the triple play price down under €30 ($45) and Vodafone’s German fixed line subsidiary Arcor has offers of TV channels in bundles from 22 to 50 channels from €9.95 to €12.95, as well as triple play pricing from €39.95, still €10 a month cheaper than DT. So it may still have some way to go.