IPTV leads the telco transformation in 2009

Telecom operators believed they had found the next killer application after the IPTV debut in 2000. Since growing almost 85% from less than three million subscribers in 2006, to 5.5 million in 2007, adoption rates are slowing steadily.

Experts predict a weak economic atmosphere through 2010. With this in mind, Frost & Sullivan revised the previous year’s growth forecast of a three year CAGR 29% downwards to less than 15%. A change in media consumption patterns should mark a turning point in the telecommunications and media industries.

Yiru Zhong, an analyst for Frost & Sullivan’s Information & Communication Technologies group, said: “A disappointing IPTV performance is not the end of the road for telecom incumbents but it has spurred new service creation and more innovative business models across the value chain. As end user media consumption patterns change, both telcos and broadcasters face a window of opportunity to invest and/or collaborate to meet the evolving user demand.”

Video seems to be the way of the future. To tap that end user’s consumption of videos, broadcasters and other high definition content aggregators have operational needs to demand higher quality and secure network for delivering content to users. Telecom operators on the other hand can bridge the gap between users and broadcasters and other content aggregators by enabling a communication network with varying QoS at different price levels. This is an important change in order to compensate for the decline in bundled service margins.

Once operators and media providers are able to deliver and customize the video content to end users’ expectations, the TV revenue potential could add between 15% to 22% of telecom operators’ retail revenue in the top five Western European markets.

In the UK alone, it is expected that TV revenues could grow at an 8% five year CAGR, which is a more robust rate than both the fixed and mobile communications sectors. However, the current lack of momentum is not sufficient to rejuvenate overall revenue growth in telecommunication services yet. Operators will need to continue to improve QoS, extend coverage and distribution, form more alliances and create more innovative services.

Two big players in the industry, BT Vision and Virgin Media focus on expanding their service portfolio to cover as much as the end user’s entertainment, media and communication needs. BT Vision hopes to boost revenues through alliances, with products such as Microsoft’s Xbox to capture the gaming community within the residential segment.

Virgin Media took a different route, focusing more on the trend of service convergence such as its much hyped QuadPlay offering in UK. Virgin Media has also leveraged shifting end user habits of media consumption and the emergence of over the top (OTT) media players such as BBC’s iPlayer. These are just two UK examples of telecom operators accelerating their service portfolio expansion to capture end users’ media consumption habits.

“Competition combined with a cap in consumer’s willingness to pay for entertainment and communications services had led to less profitable service bundles. Having said that, the emergence of a change in media consumption habits point the way to a brighter outlook for the industry,” added Zhong.