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The Report From Asia
The Silver Bullet: IPTV in Asia
by Peter Galace, Editor, Asia

We can talk about IPTV tech specs all we want. We can debate IPTV tech issues beloved by boffins (H.264, ADSL 2+, QoE, 1080p24 and whether 24mbps is sufficient bandwidth, among others), but in a region as diverse as Asia/Pacific (and anywhere else, for that matter), it’s the Quality of Experience (QoE) that will ultimately make or break IPTV. The differentiator of IPTV from digital cable and DTH are the marketing efforts, which could be the key factor in whether telcos have a mainstream moneymaker in IPTV, or just another cute, niche technology masquerading as a winner.

IPTV is one of two new silver bullets that should finally enable telcos to break cable and satellite’s hold on the lucrative, but very competitive, multichannel, pay-TV industry. The other is HDTV.

For telcos, however, IPTV is undeveloped territory, both in the infrastructure and marketing aspects. But as IPTV sits on the leading edge of IP advancements, new infrastructure and applications give IPTV a leg up on cable. Cable remains (mostly) wedded to the old MPEG-2 codec — too slow for bandwidth intensive IPTV.

With world standards for IPTV more or less settled, attention is turning toward the tougher job of creatively marketing IPTV to subscribers with an abundance of multichannel pay-TV choices, and who mostly don’t give a hoot about IPTV.

Product differentiation is the challenge. Vastly improved QoE is the Holy Grail.

Toughest challenge

Clever marketing is seen as the toughest challenge telcos face in winning marketing share as they intensify their struggle versus cable and satellite offerings. Surprisingly, IPTV has made significant progress in the marketing fight. The DSL Forum last October announced worldwide, IPTV subscribers jumped a huge 179 percent to 8.22 million in June, up from 2.95 million year-on-year.

Europe accounted for most of this surge, with IPTV customers climbing to 4.98 million from 1.51 million for the same period. Some 660,000 broadband customers signed up for IPTV services in the Americas, giving the region a total of 1.07 million subscribers. Asia/Pacific added 1.19 million subscribers, giving the region 2.18 million subscribers. IPTV pioneers, such as Hong Kong’s PCCW and France Telecom, together account for around 1.5 million users. Both firms, however, have built fiber-to-the-home (FTTH) networks to support their IPTV offerings.

DSL Forum marketing director Laurie Gonzalez said they are excited about these figures.

“Even a year ago, people were asking whether IPTV would be a compelling application. Today, more than eight million customers are using it in every region of the world. It’s gone far beyond testing to a real rollout.”

DSL has a 66 percent share of broadband access customers, around 200 million in number. Fiber has an 11 percent share, while cable acquired approximately 22 percent.

Hong Kong leads Asian IPTV

The June numbers for Asia/Pacific are an improvement over the second quarter when it was reported the region’s IPTV penetration was “insignificant,” except for Hong Kong. IPTV success has been the greatest in Hong Kong where IPTV has 608,000 subscribers, these coming from PCCW’s NOW broadband TV service. NOW is the largest IPTV deployment in the world and accounts for one third of the total global IPTV subscribers.

Despite a rapid 66 percent increase in NOW subscribers, PCCW reported revenue losses from its TV and content businesses. PCCW also stated NOW subscribers increased to 608,000, but the losses rose to $24 million. PCCW is attempting to generate more revenue from its content services by reselling them to customers of its mobile phone network. This marketing move makes good use of NOW’s premium content, such as 24-hour local news, CNNI and mobile ESPN.

Japan’s Softbank BBTV, with its 180,000 subscribers, is the next Asian success story. Softbank BBTV claims it is adding 18,000 new subscribers monthly.

IPTV made it to Singapore this July when dominant telco Singapore Telecommunications (SingTel) launched “mio TV”. Described by SingTel as the next generation of TV watching, mio TV provides a range of VoD titles, including movies from major Hollywood movie studios that include Sony Pictures Entertainment, Twentieth Century Fox and Disney. The service will also offer HD content obtained from partnerships with Mega Media and VOOM HD Networks. The mio TV platform has the potential to allow communications using video conferencing and instant messaging, displaying photos and playing music from PCs, all on the TV set.

“We believe the launch of mio TV will open up more channels for interactive content creation and media services, benefiting both consumers and industry with greater choice and content flexibility,” said Christopher Chia, CEO, Media Development Authority of Singapore.

SingTel said new BBC channels such as BBC Knowledge and BBC Lifestyle will make their global debut on mio TV. BBC Kids’ channel Beebies will also be launched. Singapore is among the world’s first to have a free-to-air HD channel carried on an IPTV platform.

IPTV in China

South East Asia is Asia/Pacific’s current leader in IPTV adoption, with seven of 13 countries having rolled out some form of IPTV service, including NOW. Asia is expected to lead other regions with more than 40 percent of global IPTV subscribers by the year 2010. There were less than three million IPTV subscribers in the world in 2006, a third of which were accounted for by Hong Kong’s PCCW.

IPTV is set to grow 26 fold by 2010, with 63 million subscribers worldwide, according to researcher firm iSuppli. The company also said the number of IPTV subscribers worldwide should more than double every year from 2005 to 2009, when it could reach 69 million.

Apart from Hong Kong and Singapore, so far IPTV rollouts in Asia have been small in scale and uptake has been puny in most markets. The reality on the ground is that IPTV faces tough challenges from incumbents and their relatively cheap cable and satellite offerings. Incumbents remain the key driving force behind IPTV growth in Asia/Pacific

Cable remains entrenched in Taiwan and Korea as the main method of TV access. In other countries, free TV broadcasts are also dampening incumbents’ interest in IPTV. Incumbents, however, are looking to provide improved broadband network and service penetration to fend off triple play services from cable players.

The bright spots for IPTV remain Hong Kong, Taiwan and Japan. China will continue to face strict regulatory constraints, while India will remain bedeviled by poor infrastructure.

China, which is IPTV’s largest potential market in Asia, is still years away from solving thorny regulatory issues that will enable telcos to create realistic business models where IPTV can compete against the heavily entrenched cable industry. Cable is dirt cheap in China. To IPTV’s advantage are indications Chinese subscribers appear willing to pay for some of IPTV’s premium services, such as VoD and interactive gaming.

China’s communist leadership still tightly restricts content, whose breadth is the key advantage IPTV offers subscribers. One executive working in China said that if China doesn’t relax on content, “there is no business model, and there will be no demand for IPTV”.

While Chinese telcos, most of which are state owned or controlled corporations, attempt to persuade the central government to grant more leeway on content, they’re focusing on increasing bandwidth and improving the reliability of their access networks. Overall, the status of China as a feasible market for IPTV remains in doubt. Key issues such as regulatory hurdles, content restrictions and the government’s apparent focus on implementing digital cable services will tend to put a brake on IPTV growth in the short term.

IPTV over satellite

According to Northern Sky Research (NSR), IPTV via satellite is a niche offering likely account for a relatively small percentage share of the market potential that terrestrial-based platforms are likely to generate.

Revenue estimates for terrestrial-based services are forecast at some $7 billion for 2010 alone. On the other hand, satellite-based total revenues from 2005 to 2010 are expected to exceed $1.6 billion.

Nevertheless, said NSR, IPTV does provide a unique and growing opportunity for the satellite industry to target. The growing preference for IP that satellite service providers are incorporating in their offerings, and the compelling role of satellite services in the video markets worldwide, make IPTV via satellite services a compelling value proposition for select regions.

“Given the proven broadcast economics of satellites in delivering content cost-effectively to large geographic footprints, particularly in underserved areas, growth of IPTV via satellite services should increase at a steady rate,” said Jose del Rosario, NSR senior analyst.

Firms setting up infrastructure to enable IPTV via satellite services will, for the most part, generate initial demand. These services mainly require transponder lease contracts from satellite operators for the delivery of content to IPTV gateways.

Once the infrastructure is in place, the market is expected to move quickly to retail business models. This is due to the fact that revenue-sharing arrangements between satellite companies and the owners of content will lead to higher margins, as satellite players participate in revenue sharing from the subscribers’ monthly service fees.

“Since ‘content is king’ in the pay-TV business, content aggregation and distribution rights are, and will continue to be, more important from a revenue generation perspective compared to actual service provisioning of IPTV,” del Rosario said.

“The ‘battle for eyeballs’ in any pay-TV platform is where the bulk of revenues will be earned, and IPTV is no exception. The market entry strategy for IPTV via satellite players is to provide a compelling business proposition to the owners of content. Once this has been established, the revenue-sharing arrangements will ensure a healthy market for satellite players”.

Peter I. Galace writes extensively on telecommunications developments in Asia for numerous international publications. He is also co-author of “Heavens Fill with Commerce,” a brief history of the satellite communications industry published in the U.S.