Internet-based TV technology is slowly catching up in the region, opening up new revenue streams for telecom service providers.
Despite all the hype and hoopla, IPTV services are yet to see mass adoption in the Middle East though some of the service providers such as Etisalat, du and STC have been offering the services for a while now. Market researchers SNL Kagan forecast IPTV subscriptions to grow from 40 million in 2010 to more than 70 million by 2014, and the Middle East subscribers are expected to reach 315,547 by 2013.
According to SNL Kagan, the Middle Eastern multichannel market has the world’s second-highest share of IPTV subscribers after Western Europe; however, this market characteristic is due more to the lack of cable systems than to robust IPTV adoption.
So what exactly is the benefit of IPTV? For one thing, it gives telcos a sustainable consumer offering whose margins aren’t eroding. And by doing so, it introduces competition into the content-distribution business.
“Certainly, IPTV opens the door to a new world of on-demand and personalised multimedia that enables operators to differentiate their services, reduce subscriber churn and increase revenue per subscriber,” says Joe Battikh, Government & Industry Relations Manager –GCC, Ericsson.
Andrew Brown, Business Development & Commercials, Video Division, Alcatel-Lucent, adds another perspective: “Telecom operators’ voice and data revenues are decreasing because of competitive pressure in the Middle East market. Video represents an ideal service opportunity to increase top line as well as provide a unique service that will reduce customer churn and keep their loyalty. Given the interactive nature of video services, IPTV offers the opportunity to have relevance in the consumers lounge room – an increasingly important position in maintaining and growing customer intimacy.”
The emergence of smart phones, tablets and improved video delivery mechanisms has seen traditional single screen IPTV evolve to multi-screen where the consumer is able to watch the content of their choice on the device of their choice inside or outside the home, he adds.
Haritha Ramachandran, Program Manager, Information and Communication Technologies Practice –MEA, Frost & Sullivan, agrees that IPTV is certainly an opportunity for the telecom operators to develop a new source of income. “When a customer subscribes to IPTV service, which usually comes in a package with broadband and landline, the telco becomes a sole communication link for the customer. From the end user perspective to get everything from a single provider is also very appealing. Hence, it positively affects Average Revenue Per User (ARPU) and enables telcos to pitch other Value Added Services (VAS) such as Video on Demand (VoD), video telephony and home surveillance.”
Hadi Raad, Principal Associate with Booz & Company, offers a different perspective: “Leading fixed operators, globally, have been able to reverse the trend of dropping broadband prices by introducing incremental revenue streams such as IPTV. While IPTV itself adds a small margin of revenue (typically between 10% to 15% on top of the broadband price for an entry level TV package), it requires that customers upgrade their broadband package to a higher speed bracket. Furthermore, users typically subscribe to an additional premium Pay TV package and have the ability to purchase Video-on-Demand (VoD) titles that further increase the average revenue per user, or ARPU. Moreover customers with a triple-play bundle are less likely to churn than others with a single service.”
While IPTV, no doubt, can shore up the sagging fortunes of telcos reeling under from declining voice ARPU, it sure comes with a cost. Operators will need to invest in extra video and multimedia related equipment such as IPTV content head ends that aggregate and deliver content from different sources and enable the delivery of high-quality video content to end users. Furthermore, to offer an acceptable quality of experience, operators will also have to invest in quality of service (QoS) systems and equipment to proactively manage their networks and ensure reliability of the service.
A case in point is the UAE operator du, which has been offering IPTV services since 2008. Since then, the telecom service provider had invested considerable amounts to replace its first-generation infrastructure with its current one, which has been leading in the Middle East and on-par with leading operators such as AT&T, Deutsche Telekom and Singtel. “ du continues to invest in infrastructure, customer experience and content to delight its customers. du TV (du’s IPTV service) strongly contributes to du’s growth,” says Farid Faraidooni, Chief Commercial Officer – du .
Guo Yajun, GM, Huawei Carrier Software & Core Network, Middle East, says that though operators have to upgrade certain elements of their network as IPTV warrants higher quality of service and reliability, they don’t have to always invest in new equipment if they already have a broadband network in place. “By optimising their existing network infrastructure, we have seen more and more operators pursuing IPTV packages as a compliment to their current consumer offerings.”
He adds that the crucial step comes in adopting an end-to-end service solution which includes an IPTV bearer network assessment, IPTV planning integration, day-to-day care, and network bearing audits in all stages of the rollout. These services can help address challenges in IPTV development so as to maximise the potential of an operator’s existing network infrastructure.
Paul Allen, Head of Intellectual Property & Technology , DLA Piper Middle East, says that a key commercial factor for operators involves the cost of establishing a viable IPTV offering. “The key factor to any IPTV offering is the operator’s access to a network which has adequate bandwidth. Operators can do this in one of two ways. Either they can invest in the development of their own network, or they can pay for access to a network which is owned by a competitor operator (usually the incumbent) or by an independent broadband network operator (if one exists). The options available to an operator will very much depend on the specific circumstances in their country of operation.”
He adds that different countries in the region, and around the world, are adopting different next generation network models. In the UAE, Etisalat has invested in the procurement and roll out of a nationwide Fibre to the-Home (FTTH) network, giving Etisalat the ability to deliver state of the-art IPTV offerings to its subscribers. On the other hand, du, the second licensed operator in the UAE, has a territorially limited FTTH network (primarily in free-zones) due to its licence restrictions. Consequently, to promote competition, regulatory intervention has been necessary to put the two operators on a path to a commercial agreement around bitstream access. Ultimately, it is envisaged that both operators will, through bitstream access, be able to offer their own IPTV packages to each other’s subscribers, thereby enhancing competition in the marketplace.
Is there a business case for IPTV in the region? Ramachandran from Frost & Sullivan believes the potential is huge though it’s still a niche market. “The growth rates of IPTV subscriber base in the Middle East are high. For example, in KSA alone the number of IPTV subscribers has tripled in size over the last year. However, it is expected to take several years for the telcos to collect return on investment from advertising and sales of bundled services.”
Mahmoud Makki, Senior Associate with Booz & Company, says the IPTV business case should consider both direct revenue and indirect benefits of enhanced customer retention and the ability to increase customer value by upgrading users to high-end broadband packages. Telecom operators can best penetrate the market by bundling their TV services with their high-end broadband packages. Statistics show that customers prefer to buy their telecom services in bundles due to increased savings and ability to pay for all their services in one bill. Furthermore, operators must ensure the availability of best in class TV content and interactive services such as Video-on-Demand and the ability to time-shift live TV to rival the well-established satellite players that control the Middle Eastern TV market.
Yajun from Huawei agrees that the single most decisive factor in IPTV success is whether a service provider’s offerings can create a unique and rewarding experience for their customers. This typically involves a combination of exclusive video content, interactive services such as video-on-demand, and the reliability of the network in being able to consistently deliver high quality of service to the customer.
“Building a business case for IPTV thus tends to vary by market and by operator. A business feasibility study may depend on the competition seen in that market, the opportunities to license quality programming, regulations pertaining to free-to-air satellites, and the maturity of an operator’s broadband network. All these factors need to be carefully weighted by operators before deciding if and when to penetrate the IPTV market. This again comes back to the importance of doing thorough IPTV network and planning assessments to determine what kind of deployment model would drive the most value,” he adds.
It is also important for telcos to have the right content strategy and ways to monetise content. Allen from DLA Piper says content is king when it comes to any IPTV offering, and the licensing of that content will always play a key role.
“Getting the content offering right at the outset, and over time, is what will attract and keep subscribers coming back for more. Multiple options are available for an operator, including selling a re-branded white-label service, licensing in content from multiple content providers and assembling that into operator branded channels or packages, creating their own content from scratch for its audience, or a combination of all three. Whichever option is chosen, operators need to consider the demographics within their target markets, how different packages can be aligned with those demographics and for specialised market segments, and how they can leverage their buying power across multiple territories to potentially reduce content licensing costs and increase margins,” he says.
There are a couple of barrier that hinder the widespread adoption of IPTV in the region. “The first is the need for strict Quality of Service requirements within an operator’s network as well as the availability of high bandwidth service to the end user in order to be able to deliver video. This, however, has been largely resolved with the availability of technologies such as adaptive streaming and Content Delivery Networks that opens up the possibility for new players such as mobile operators and ISPs to develop a sustainable video business,” says Brown.
Yajun adds that in the Middle East, intense competition to IPTV is also faced from other internet TV platforms and the historical prevalence of free-to-air (FTA) satellites. Even though these do not offer the same level of interactivity and quality of service as IPTV can, establishing a compelling call to action amongst consumers requires time. “In this regard, one of the challenges that Huawei seeks to address in the IPTV market is providing a hybrid solution for telecom carriers who compete with free-to-air (FTA) satellites. Hybrid set-top boxes (STBs) can for example, offer both IPTV and satellite services.”
Despite all these barriers, industry experts say the region’s regulatory infrastructure is ready to support these type of services. “The regulatory landscape in the Middle East is diverse, having its own regulations and with each country being at a different stage of telecoms liberalisation. One unifying factor is that the regulatory landscape is developing, which means changes are likely to continue as governments across the region refine their policies to suit the needs of their populations and economies. Because IPTV is a relatively new technology, in some ways the Middle East regulatory landscape is just as ready as other parts of the world because governments elsewhere are also coming to terms with how best to regulate this new service offering,” says Allen.
Battikh from Ericsson says IPTV is a new innovative service that competes with established incumbent platforms and has the potential to reinvent the media distribution market. “Therefore regulators should adopt a light-touch regulatory approach like the one used in the early stages of VoIP. These efforts ensure that regulation does not hinder innovation or introduce distortions into the market. Where regulation is needed, policy makers should make sure that it is harmonised across technologies, services and business models.”
What IPTV gives carriers is the flexibility to experiment with content offerings until they hit on the packaging formula that consumers will pay money for. And that is the real advantage of IPTV- it’s about giving more players the opportunity to get creative about packaging and delivering it to consumers. Will that result in improved services? Probably, because competition usually has that effect.