Triple Play Tracker Q1 2009: Scoring the Consumer Market Hat Trick

| June 3, 2009 | Consumer Broadband Services - Europe | Advisory Report

| Analysts: Natasha Rybak, Ben Tudor

New Competitive Intelligence New online tracking tool monitors triple play services from leading European providers. More Information >>

Summary

Triple play is a significant and rapidly evolving consumer market segment providing a competitive edge to companies capable of offering three disparate basic services (fixed voice, broadband Internet and television) within a single package and under a single bill. In this, the first Advisory Report based on research from the European Triple Play Tracker, we look at general issues affecting triple play providers offering bundled packages, and the market trends affecting strategy and product development. The Triple Play Tracker looks at a dozen European operators’ bundled triple play products, examining market positioning, make-up and take-up. Competitive placement, content and pricing are immediate concerns for operators, spanning DSL-based providers, cable players and satellite operators. How are bundled triple play offers being positioned and promoted in the consumer market? What approaches are being taken to structure pricing and aggregate content? How do access methods and service delivery differ, and what are the challenges faced by operators in extending network capabilities in order to enhance product performance and reach?

Current Perspective

Triple play is the provision of phone, broadband and TV services in a single package, paid for with a single bill. Not all elements need be delivered down the same ‘pipe’ – consumers are less concerned with how services are delivered than they are with attributes such as price, quality, usability and features. The key for service providers – whether they deploy services over DSL, fibre, cable, satellite or any combination of these – is how to structure, bundle and promote their triple play packages in a competitive environment rife with multiplay offers. While on-the-ground state of play clearly differs across country markets based on factors such as incumbent DSL reach, cable penetration, regulatory environment and competitive activity, all sizeable operators across Europe (along with numerous smaller players) are looking to triple play and multiplay bundling in order to grow customer numbers and solidify customer lock-in via the take-up of numerous 'must-have' products within a single bundled package.

Promotional Power Plays

Market positioning is the most important factor in terms of promoting and selling a triple play product. Given the state of evolution of this segment, it is a little too early in the game for low-cost, 'value' propositions to have taken hold. For the most part, providers (especially incumbents) have marketed their triple play offers as a premium service from a trusted brand. BT – which, ironically, cannot offer a true triple play service bundle under current regulatory conditions (due for review this year) – is a past master at this form of marketing. The company’s DSL products are not the UK's cheapest by a long shot. However, it has been able to successfully bundle a number of highly attractive offers around the comparatively expensive core broadband product, such as traditional fixed voice and VoIP, DTT, IPTV and mobile elements. Conversely, alternative triple play providers take a different approach. Virgin Media, thanks to its current claim to offer the fastest consumer broadband in Britain, is marketing itself as a fresh alternative to sluggish DSL players like BT, and ‘expensive’ satellite in the form of BSkyB – although BSkyB is happy to counter with its own figures showing it competes on price, assuming consumers buy few, if any, of its premium packages.

The Pricing Game

With talk of recession, credit crunch and anxious consumers cutting back on non-essential spending, triple play pricing remains a significant component of the overall package and the way in which it is promoted. Decisions to compete on price or to market a 'premium' proposition are changeable and vary according to current market dynamics and placement in the competitive hierarchy, in the same way as pricing for single services such as voice or Internet connectivity. France Telecom uses its technically accomplished products to push a technocratic line, presenting its services as the shiniest, most innovative products on the French market. KPN markets a premium IPTV-based triple play offer alongside a standalone DTT product, and Italy's FASTWEB has recently cut prices for its IPTV triple play bundle. With bundling in general and triple play in particular, the general tactic has been to sacrifice margins that would in many cases be higher if a subscriber were to take services separately, in order to drive uptake and contract lock-in in the short-term, with an eye to increasing overall ARPU in the mid- to long-term as the bundled segment matures and begins to stabilise.

The Content Conundrum

The extent to which exclusive content actually factors in to a subscriber's choice of provider is unclear, but certainly the way in which premium content is bundled, priced and promoted is an important component of any triple play package. BSkyB’s early success was due in part to the negotiation of exclusive rights to air football, cricket and boxing matches, as well as first rights to a great deal of other content, including films and television series. BT ensured at the launch of its Vision TV service in December 2006 that content including Premiership football matches was given high billing, along with the availability of content from Setanta Sports. Other operators trading on their content rights deals include France Telecom, Belgacom and Deutsche Telekom, all of which are well established incumbents with the ability to negotiate and pay for exclusive content. The competitive response from alternative players has required greater creativity than simply signing up rights and handing over large amounts of money. In France, Free offers users the chance to broadcast their own content. Numerous operators are also exploiting the ability to provision access to non-video content, such as gaming, gambling and social networking. While good content on its own has been good enough to attract consumers in the past, companies with integrated fixed and mobile capabilities are now threading content through all elements of their triple or multiplay offers, including for example mobile TV and online television and VoD via PC or laptop. An alternate approach is the use of legal complaints, something that has recently had an impact in France, where Orange’s Sports TV channel was briefly taken off the air after legal challenges from competitors.

The Hybrid Approach

Currently, some IPTV-based triple play providers (notably incumbents such as BT, KPN and Telecom Italia) supplement their offers with elements such as DTT or satellite delivery to enhance the overall service proposition and to extend service reach. The same is true of a satellite provider such as BSkyB, which uses DSL in order to provide the broadband Internet component of a triple play bundle to customers. As a technology, IPTV has its weaknesses. In particular, HD content, linear content and, to a lesser extent, on-demand content are not IPTV’s strong points – although all of these problems disappear as broadband and home networks are improved in their ability to support large amounts of data safely and cheaply. The delivery of linear and HD content is more efficient using cable or satellite technology, as well as traditional broadcast methods. In an attempt to counter these difficulties, hybrid offerings are used. Two clear examples of effectively implemented hybrid systems are those from BT and France Telecom. BT’s Vision TV service is provided over DTT and DSL broadband. Linear content is gathered using existing broadcast infrastructure – in the UK, DTT is available free of charge through Freeview. On-demand content is then provided over broadband. This removes large amounts of linear broadcast traffic from BT’s broadband network, leaving it free to carry on-demand content, which is also not so dependent on good network performance. In France, the incumbent was able to implement Orange TV for users in areas with poor broadband capability using satellite; again, linear and HD content are delivered via an agreement with Eutelsat, while on-demand content is provided over DSL. Projects from the likes of NDS (please see IPTV World Forum: NDS Shows OTT TV Service with DRM and Advertising Platform Built In, March 27, 2009) and the BBC’s Canvas proposal, which is currently seeking to build an open standard for IP-enabled content access coupled with DTT (please see BBC Begins Work on Its Canvas with BT and ITV – Open Content Platforms for All , December 15, 2008) will allow alternative ISPs offering telephony and broadband to dip their toes in the waters of triple play for a much less significant outlay than pioneers and incumbents have made.

FTTx and DOCSIS 3.0 – Opportunities and Threats for All

European deployments of FTTx have demonstrated operators’ abilities to share costs and get results in the least likely of places. The ‘French model’ of FTTH deployment is currently being examined by a number of regional operators in other countries as a best practice model; in the Netherlands, KPN has taken the cherrypicking approach, partnering with municipalities and other providers to deploy fibre in areas with a good chance for service uptake; and utility companies are also being pulled into the mix, again entering into joint infrastructure deployments, particularly in the Nordics. The deployment of fibre to increase bandwidth is being matched on the cable side with the implementation of DOCSIS 3.0, a threat to DSL and fibre players because it is relatively cheap to implement compared to FTTx, and because it allows cable operators to roll out triple play quickly of significantly higher capacities across their network footprints. However there are a couple of significant challenges to DOCSIS:

1) Migration from analog: Operators with DOCSIS 3.0 networks still supporting analogue cable TV suffer, because analogue takes up a large chunk of available frequency. For example, Cablecom in Switzerland has a high rate of cable TV adoption – it passes 1.9 million homes, and 1.6 million of these are cable TV subscribers. However, of this number, only 359,000 are digital cable subscribers. Virgin Media plans to convert its remaining analogue subscribers to digital by 2010, freeing up a great deal of capacity and allowing the company, amongst other things, to offer 100 Mbps cable broadband. However, in every case, cable providers will face the task of convincing existing analogue subscribers to switch to digital services, a time-consuming and potentially churn-inducing prospect.

2) Footprint: Cable companies tend not to have coverage equivalent in terms of reach to that of telephony and DSL providers. Cable footprints, quite sensibly, are generally concentrated on cities, exactly where FTTH services are now being deployed.

That said, a determined cable competitor is a major headache for the modern broadband triple play provider, especially as cable providers in countries such as Belgium, the Netherlands and the UK have a long history of offering triple play services, where DSL providers are effectively much newer entrants. The cost of implementing FTTx is higher than that of DOCSIS, but a necessary step that has been imaginatively met by operators exploring cooperative, incremental deployment models as opposed to full scale, gung-ho rollouts.

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