The Value of IPTV— Beyond Video

Internet protocol television (IPTV) uses IP as the transport platform to send video signals to the television via high-speed Internet connections such as fiber-to-the-X connections (FTTx) and/or next-generation digital subscriber lines (xDSL). With this technology, consumers will be in complete control of what, when and where they watch television programming. Moreover, given the versatility of the IP network, consumers will benefit from a host of compelling services and features beyond video.

Among major telecom operators in the U.S., the move to upgrade their networks and embrace more feature-rich services is a defensive posture. However, we would caution these competitive video players to not lose sight of IPTV’s potential benefit to create new revenue streams via advanced services—including bundles of packaged features and services.

As a first step, telecom operators must exchange their role as “traditional fixed-line provider” for that of “experience provider.” Key to this experience will be the provisioning of unique programming packages that will entice consumers to keep their fixed-line service in order to experience advanced TV offerings.

Telecom operators are in an excellent position to monetize bundled services. However, they run the danger—at least in initial stages—of competing on low price alone. Entry-level pricing is certainly appropriate during market entry, but the key for longer-term success in acquiring and retaining customers (and building ARPU) will be in delivering value-added services. So, what exactly are the features and applications on which telecom operators can focus today? Our recently-completed study—Bundled Services & Residential Gateways—provides the following strategic recommendations: Continue to build innovative voice bundles. Because voice services form an integral part of the overall bundled services package, telecom operators need to focus more on integration (between fixed-line and mobile applications, for example) as well as certain convergence features (Caller ID on the television screen).

Explore different broadband offerings. A majority of consumers avoid bundled services because these packages force them to pay for services that they do not use. An à la carte approach to applications and features will be of benefit to consumers who don’t want to feel forced into one particular package. This premise, of course, rests on the carrier’s ability to provision and bill for the individual services in as painless a manner as possible. Consider IPTV as a first step to success. The success of IPTV relies on how well telecom operators can expand and enrich the content options available through the service. This strategy requires several key initiatives.

First, it requires the formation of ongoing partnerships with third-party content owners and aggregators who have access to exclusive or strategic localized content (currently not available through cable or satellite operators). Exclusive sports content is a key component, but others include culturally-specific and more niche programming. Even local community programming can be an important differentiator.

Second, operators should create video packages that reflect consumers’ desires for expanded high-definition and on-demand programming. In addition, our study indicates that packaging programming into tiers (Sports, Family, Entertainment, News, Foreign, etc.) meets the growing consumer desire to have greater choice in programming. Under a tiered approach, certain key groups of consumers are actually willing to pay more per month than they would for a traditional television offering that emphasizes a large selection of digital channels.

Build features that embrace personalization and ease of use. Leveraging their strengths as communications providers, telecom operators should also embrace third-party vendor innovations for such features as:

• Interactive recommendation tools (from friends or family members)
• Personalized interfaces, including program guides
• Photo sharing
• Customized Caller ID
• Interactive services such as multi-player gaming
• Targeted interactive advertising
• Polling and voting

Provisioning these unique and innovative services in a reliable and easy-to-use manner will also be critical to building stronger customer relationships. Telecom operators’ strong history in providing 99.999 percent reliability for dial-tone services has set a critical precedent for addressing next-generation services in a similar manner.

The next stages of competition in video provisioning will center on such factors as personalized and local content (with attached advertising), stronger linkages between communications and entertainment services, and the development of unique and innovative services that go beyond the scope of traditional video offerings. So, what is the outlook for players within the digital lifestyle ecosystem as we examine video competition?

In-home networking equipment—including residential gateways with integrated VoIP adapters—will also accompany many of these rollouts, as service providers seek to provide more seamless services for different areas of the home and for a variety of applications.

We anticipate that—similar to recent moves from cable providers to align themselves more closely with the mobile phone industry—telco equipment vendors and handset developers will also work together to provide for a growing number of “on-the-go” applications that extend from the living room set-top box to mobile environments. Proactively monitoring and managing wide area network and local area network services and platforms becomes more critical to the carrier as they seek to provide an enhanced in-home connectivity experience and reduce—to the greatest extent possible—technical support calls.

Parks Associates is a market research and consulting firm focused on all product and service segments that are “digital” or provide connectivity within the home. The company’s expertise includes home networks, digital entertainment, consumer electronics, broadband and Internet services, and home systems. www.parksassociates.com

Kurt Scherf is vice president and principal analyst for Parks Associates.