[January 25, 2007]

GUEST COLUMN: The IPTV option for LatAm telcos

(BNamericas.com Via Thomson Dialog NewsEdge) By Diego Bubillo, analyst with Signals Telecom Consulting

Diego.Bubillo@signalsconsulting.com

IPTV services are for telcos the gateway to competing in television, which for them is a non-traditional segment. This technology is not only a way to increase the range of products that a telco can offer and thus its revenue streams, it also allows operators to maximize use of their infrastructure and help them retain clients. These issues are more and more important as telcos see decreasing revenues from their traditional services due to various factors, such as substitution of fixed lines by mobile and the advance of competition from Voice over IP (VoIP).

For operators IPTV is attractive for a number of reasons. It enables commercial benefits, such as the option to offer discounts to clients who accept a bundled offering of television, broadband and telephony. It also allows some interesting service options, such as interactive applications, internet access while watching TV, freedom to fast forward, rewind or pause a program and the ability to record programs and view them when convenient.

However, commercial IPTV services are proving slow to appear in Latin America and Signals attributes this to the fact that the region's cable TV operators are already offering these bundled services well before telcos will be able to do so without partnering with a pay-TV provider. Cable TV operators are also investing in technological innovations that undermine the service advantages IPTV can boast. In effect, when IPTV is launched commercially it will not be such an innovative service compared to traditional pay-TV services and will have less impact in this sector.

Furthermore, the broadband connection speeds offered today are not sufficient to support multiple, simultaneous channels, high definition TV (HDTV) signals and excess bandwidth for surfing the internet. The bulk of Latin American broadband users have 256Kbps, 512Kbps or 1Mbps connections, and even the best residential connections available - of 8Mbps or 10Mbps - are not sufficient for a competitive IPTV service.

It is clear that IPTV will not enjoy the mass adoption that mobile telephony has attained. There are other factors that affect the potential for this service. For example, Latin Americans generally do not have the purchasing power that people have in regions like Europe or Japan, where IPTV has developed well. As it is, pay-TV services do not have good penetration in Latin America, partly because of the high rates charged in this region. Operators are particularly unlikely to offer the service to low-income clients if it means investing in network upgrades in areas that do not promise much of a return on the investment. The pool of prospective IPTV clients is therefore reduced to the social classes with the best income and pay-TV clients that are prepared to migrate to a new service.

Another barrier for IPTV is the low overall penetration of broadband in Latin America, with a total of no more than 12.5 million connections. The most developed market is Chile, with broadband density of 6%, and most other countries in the region do not get above 2%. Density is actually below 0.5% in countries like Paraguay, Bolivia, Ecuador and Guatemala.

Signals believes the only way to sell this service to clients with low spending power would be to limit the number of channels each user can subscribe to. Subscribers can therefore restrict the service to their absolute favorite channels, paying a fee per channel, as offered by PCCW Hong Kong, one of the world's most successful IPTV providers with more than 610,000 subscribers.

However, the tendency among Latin American telcos is to offer a fixed menu of channels just as the traditional pay-TV providers do and thus compete on an equal footing.

Signals pinpoints three fundamental factors that IPTV service will need to address to be successful in Latin America: the service has to be attractive, exploiting technical f

Copyright 2006 BNamericas.com

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