Vodafone’s 75% owned German DSL operation Arcor has finally allowed a sneak peak at its IPTV operation, which is expected fire up a German quad play landgrab and push the global cellco rapidly into fixed line services. So far it has just announced the first of its contracts this week, one with NDS for its VideoGuard Conditional Access system.
But Faultline can reveal that behind this a number of key supplier alignments have now been set, with Alcatel-Lucent in the driving seat, and instead of it pushing the Microsoft Mediaroom IPTV software that it used so catastrophically at Deutsche Telekom, has installed its old OMP middleware, which is in the middle of being merged with the Telefonica written Imagenio IPTV software. The support of Imagenio was given over to Lucent in April 2006 and it has been renamed MyView.
Harmonic is thought to be the supplier of the head end for the system and set tops and home gateways have come from Pirelli, which now runs the Opera IPTV version of its browser.
This is pretty much the type of installation that Alcatel would have installed prior to its merger with Lucent and before it had a firm partnership with Microsoft’s Mediaroom and similar installations have been seen at Telecom Italia’s Alice Home ITV service and Austria’s aonDigital TV system.
There is now a strong chance that this supplier combination could be rolled out across the wider Vodafone footprint, including Italy, Spain and potentially on leased BT lines in the UK, and even through the Vodafone partner SFR in France (although that is outside its direct control). By NDS getting the conditional access business this will push a dagger into the heart of the pure IPTV conditional access businesses ‘ Verimatrix, Widevine, Secure Media and Latens ‘ which have had to live on scraps outside the Microsoft Mediaroom stranglehold of the past three years, and now find that Vodafone may also be lost to them as an opportunity.
The Arcor Digital TV is already established in Germany, it is declared on the Arcor web site, and pricing and service data is available, but Vodafone has issued no announcements about the service, and no suppliers have been named until now. Many suppliers in the IPV market have been nervous of mentioning negotiations with Vodafone unless they miss out on what might become a blueprint for the rest of the Vodafone global footprint, and potentially one of the biggest IPTV services in the world.
Rival Deutsche Telekom went with Microsoft and Alcatel and aimed to wire up 50 cities with VDSL2 throughout 2007, and rolled out the first ten cities which included include Berlin, Hamburg, Cologne and Munich during 2006, but when it finally launched its first IPTV services in October 2006, its astronomically high €65 to €90 pricing tiers prevented the service capturing enough new business from the dominant cable and satellite pay TV operators. The Mediaroom software has been blamed for the high pricing on the service, though this has never been alluded to by Deutsche.
The Deutsche service comes with High Definition if customers pay extra, includes content from local broadcasters ARD, ZDF, RTL, Pro7 and Sat 1 and all the German soccer for an extra €10 ($12.50) and VoD services including content from Universal, Dreamworks, 20th Century Fox, MGM, Paramount, Warner and Sony.
Vodafone’s Arcor is certainly not making that kind of pricing error and has offers of TV channels in bundles from 22 to 50 channels and TV only prices from €9.95 and €12.95, as well as triple play pricing from €39.95 for VoIP, broadband at 16 Mbps and 50 TV channels, plus VoD movies at €1.49 a movie and an initial selection of 500 movies. The set top is just €50, but this is likely to be waived with top end packages.
Arcor publishes extra themed channel groupings such as ‘sports,’ for around €5.95 and offers overseas channels from Turkey, Poland and Russia, at small premiums.
Increasingly Germany’s IPTV market looks like a three or four horse race, with Deutsche boasting 13.3 million broadband lines to aim at upgrading to a triple play, with just over 3 million of them unbundled lines marketed by other companies and Vodafone controlling around 2.2 million. Telecom Italia’s Hansenet is the next best placed company, but there is increasing pressure on Telecom Italia to get out of minor overseas markets, and focus on building momentum at home and in South America. If Vodafone were to buy the Telecom Italia broadband business, it could develop a serious triple play challenge in Germany, and given that it’s IPTV software is almost identical, merging the two platforms wouldn’t represent a problem.
Telefonica is also known to be building up its fixed line infrastructure there, and combined recently with Vodafone to complain to the German anti-trust regulator that unbundled lines were being rolled out too slowly by Deutsche.
It has responded by saying that it will raise the number of broadband lines that it can install from 250,000 a month now, to 330,000 by April 2008. It is likely that a large proportion of these will go to these new Cellco rivals, all attacking the weak German DSL fixed line market.
So Telefonica is just as likely a buyer of the Telecom Italia Hansenet if it comes on the market, and again it would have common suppliers and since there is a commitment from Alcatel to merge OMP and MyView platforms, a common platform in the near term.
The traditional IPTV set top makers including Switzerland’s ADB, Motorola’s Kreatel Unit, Amino, Thomson and Pace Microsystems, will also be smarting at this customer loss which might lead to a Europe wide customer base.
Back in October last year Vodafone bought an ISP business in Spain, and Italy, by acquiring the Italian and Spanish arms of Tele2, paying some €775 million ($1,093 million).
Although it is native of the UK, Vodafone is strongest in Germany with $11 billion in cellco revenues plus the $2.1 billion and rising revenues from fixed line Arcor, which it acquired when it bought Mannesmann all those years ago, in what, at the time, was one of the most daring European takeovers of all time.
That deal made the overall international business, but also made the future shape of the company and gave it the one fixed line Arcor base with which Vodafone could experiment towards a quadruple play.
The UK is only a few $ billion behind the German operation, at $10.4 billion, but given that this is its headquarters and the country it feels it understands the best, it means Vodafone has managed to grow its business better here than in Germany most recently, and its last round of figures showed the German cellular business shrinking slightly, while its Arcor business added 47% in growth taking it to 2.2 million customers.
While there has been no overt move by Vodafone to buy into one of the handful of large ISPs left in the UK, and it says that it is quite happy in a partnership wholesale arrangement with British Telecom, this feels inherently wrong. Chief Financial Officer Andy Halford said in a September conference that the company would pursue broadband line acquisition using, ‘our own provision, wholesale and ULL,’ (meaning unbundled local loop).
Despite the mention of wholesale, as Vodafone becomes more and more competitive with BT (it has its own convergence plan using a Vodafone MVNO), we would expect it to look to acquire someone like Tiscali or the broadband offerings of Cable and Wireless to make up a matching set of offerings across its strong European markets.
That would then give it huge buying power for content across both its fixed and cellular operations, and lead to bundles that include cellular minutes as well as triple play fixed line services.
The Tele2 Italy that it acquired has 2.6 million customers, with just 400,000 on broadband, with the rest on dial-up which are being rapidly and aggressively upgraded. Tele2 Spain has 550,000 customers with just 240,000 on broadband. So neither has quite the potential to be as large in IPTV, overnight, as Arcor.
When we talked to Vodafone about our own Quadruple Play Report it told us that it was working first towards merging help desks and billing for double play packages (fixed and mobile voice), and that the addition of TV services for a full Quad play was something they would have to consider once they had completed the move. Clearly it has now completed that in Germany and has a model to progress towards full quad play pricing.
NDS says that with this contract it has more than 78.6 million pay TV smartcards deployed worldwide, which it argues makes it the number one supplier globally. Nagravision is perhaps the only company that might argue with that, with a Conditional Access stronghold in Europe.
Meanwhile Microsoft’s Mediaroom has picked up another couple of contracts this week, one in Korea with search engine company Daum, and another in Canada with MTS Allstream.
It wasn’t many years ago that Microsoft was locked in an anti-trust battle with Daum back in 2005, when it forced a $30 million settlement over the bundling of Microsoft’s instant messenger and media player applications with Windows. Now the two have entered into a joint venture, along with set top market Celrun, to offer IPTV services in Korea against local incumbents
This is a bit of a change of tack for Microsoft, because in the past it has not considered taking a holding in an operator, but it may be the only way it can break into the Korean market. Technically IPTV is not allowed there, and we suspect that this is more like web TV, but given the phenomenally high speeds of the broadband lines in Korea, VoD over the internet can be offered at HD speeds to most homes even without multicasting services.
Recently companies like Hanaro Telecom has said it will use the Sony PS3 as a set top for such services, and we would not be surprised to see the Xbox 360 being offered in the same way at Daum.
The three firms said they will set up a joint venture firm in February, start a limited service by July, and have a full commercial operation by December 2008.
MTS Allstream said this week it would work with Alcatel to upgrade its network so that it can offer HD based IPTV using Microsoft Mediaroom software. Initial services will be ready before the end of the year, the company said.
‘This is an evolution of our existing Internet and MTS TV services, and positions MTS Allstream to continue its success as Manitoba’s telecommunications provider of choice, be it local service, high-speed Internet, television or wireless,’ said Kelvin Shepherd, President, Consumer Markets Division, MTS Allstream.