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IPTV:

Can Telcos Capitalize on Success?

By Jennifer Kyriakakis

 

The telecommunications and media sectors are on a crash course to form a new, consolidated market called �ICE��information, communications, and entertainment. The current �darling� of the ICE market is IPTV (News - Alert). Touted as the �killer app� of triple-play, IPTV is a must have for traditional telcos to compete effectively in the ICE market and avoid becoming commodity dealers.

Analysts predict that the global IPTV market will grow from $10 billion to $40 billion by 2009, encompassing 53.7 million subscribers. Capital expenditures for IPTV are expected to increase 1,377 perecent over the next four years (Infonetics). Given that five of the ten largest IPTV deployments currently have less than 50k subscribers, these projections seem astounding.

IPTV stands to completely alter the way that information, communications, and media services are consumed at home � transforming the TV experience from a passive to an active, two-way communications model in which every subscriber experience can be unique. Subscribers may choose to receive only the channels and programs they desire, and only pay for the content they consume. Subscribers can also consume other services via their TV, such as instant messaging or video conferencing. This unique, interactive experience definitely qualifies as disruptive technology � but is it enough by itself to fuel massive subscriber adoption?

Telcos think the answer is a definitive �Yes.� A superior, interactive customer experience certainly stands to differentiate IPTV and drive consumers to adopt triple play from the traditional telco providers. But IPTV offerings will not just need to equal the quality of service provided by established television providers; they must exceed subscriber expectations by offering much richer content, highly-targeted advertising, and personalized interactive services such as messaging, home security, and e-commerce. However, this requires some radical re-thinking by telcos as to how they run their business.

How can telcos manage IPTV?

Giving consumers control over what, and when, content is broadcast into their homes makes IPTV a more transactional service. Current pay TV is essentially subscription-based with a small number of VOD or PPV transactions per month. With IPTV, a customer requests the items they want to watch, a channel opens up, and the program is �delivered.� Multiply that by the number of TVs and the amount of available content and suddenly TV is an event-based business with millions of transactions occurring each day that must be tracked so that usage can be understood, properly charged for, and royalties distributed to the content owners or delivery partners.






While telcos are well versed in event-based services, they have limited experience delivering entertainment or TV, and even less experience dealing with media companies and content aggregators that own the distribution rights. Telcos are realizing that most of these relationships will require prepaid guarantees and minimum user levels, and that the revenue share is typically 60 percent to the content rights holder. Unlike traditional telecom and broadband services � where once the network build out is complete, additional service and subscriber costs are close to nothing � IPTV has the ongoing cost of procuring premium content and revenue sharing. Consequently, margins on IPTV will be much lower than traditional telecom and broadband services.

So for telcos to generate meaningful revenue from IPTV, a subscription-only model will not work long term. Telcos will need to offer a hybrid of subscription and charging models while still making the tracking, charging, and billing of IPTV services simple to the end subscriber. Finding the right way to bundle programs and content as well as charge for live events versus static content will be a major differentiator for those who successfully launch IPTV.

To be successful, telcos must also provide a real-time integrated and interactive IPTV customer experience in which user activity is continually monitored � from offerings through to service usage and network transactions�in order to:

� Offer targeted content and advertising based on viewing and service usage patterns;

� Automatically provision more bandwidth when the viewer chooses to view multiple movies or run video calling on multiple set-top boxes;

� Allow customers to choose how they pay for video services: a la carte, on demand, pay-per�view;

� Generate automatic credits in the case of failed delivery or poor quality of service;

� Deliver up-to-the-minute information about a customer� balance, tariff plan, and other account information directly to the set top box;

� Have the ability to track large volumes of events as subscriber numbers grow, so that telcos can assure revenue and margins and settle properly with media and content owners.

Success will be especially challenging given the need to provide more localized content and the unique, discrete subscriber experience that this enables.

An IPTV-friendly Back Office

In the current reality of IPTV, the focus remains on network build out and capacity upgrades. But once the delivery mechanism is in place, the ability to quickly roll out new services, add content and content partners, and segment and target customers with bundling and promotions in a flexible manner will be key to IPTV service penetration. The telco back office system for billing and customer management must be able to support this.

As with any new service, if the back office is not constructed to handle new types of network usage easily, major development work will be needed to enable processing, charging, and guiding IPTV usage to the proper customer account. Spending time and resources developing IPTV-specific back office functionality � or even worse, ripping out and replacing entire billing and customer care systems so that IPTV can be properly marketed, bundled, and charged for � will only delay potential IPTV revenues and add additional CAPEX onto the already staggering network investments required.

Any IPTV-specific billing and subscriber management functionality must be correlated to broadband, VoIP, and value-added service usage to create a meaningful and accurate picture of the consumer and broadband consumption. Once telcos have their networks in place, telcos that have already updated their back office to be NGN-friendly will have a key advantage in service experimentation, business model development, and managing the new consumer experience of IPTV. These service providers will have the ability to quickly roll out IPTV services, bundling and promoting them on a single application together with VoIP and broadband; and to manage a single set of back office business processes for all IP services and revenues.

Already Up and Running

Several first-to-market IPTV service providers in North America and Europe have achieved these core competencies. When originally moving from dial-up to broadband, these service providers were able to put a back office in place that would support the �unknown� service. By building business processes based on converged IP service delivery to the consumer, they were able to launch IPTV services quickly once the networks were in place � one in North America as early as 2003.

A European service provider deployed an IP-based back office solution in 2001, which has enabled them to layer broadband, WiFi (News - Alert), IP content, and now IPTV onto their subscriber offerings. They manage subscribers and revenues centrally, allowing them to be first-to-market and providing the ability to continue to innovate.

Another leading IPTV provider in Europe delivers converged services, including voice, Internet, and television, over a single broadband connection to the home � utilizing a fully IP-based architecture, including both DSL and fiber optics. Since 2000, they have grown from a local ISP into a full service triple play provider utilizing a single billing application to manage all services and revenues. As a pioneer in the IPTV market, they have been very successful not only in subscriber growth, but also in achieving the highest ARPU in double and triple play in their market.

Because these companies were already using next-generation business systems to manage multiple services, they could more easily develop and offer unique service bundles of different IPTV offerings, including channel bundles, PPV, and VOD, and the ability to view billing information directly on the consumers� televisions. The flexibility of the back office has enabled IPTV pioneers to keep existing customers, attract new customers, and maintain competitive advantage.

Capitalizing on IPTV While the focus has been on IPTV CAPEX, with equipment vendors and network upgrades � in the end it will be business models, content offerings, and a unique, interactive customer experience that will prevail and determine whether or not IPTV will live up to subscriber and market expectations. Network infrastructure makes IPTV a possibility, but to deploy IPTV successfully and profitably, it must be an integrated part of the telco�s service portfolio and one that is tailored to � and charges for � the services that the customer wants and perceives as valuable. In the end, networks don�t generate revenues � consumers do. To fully capitalize on the IPTV opportunity, a convergent billing and back office business systems infrastructure will enable telcos to achieve maximum flexibility in determining how they bundle, promote, track, and charge for IPTV services. Proper back office planning will ultimately determine how quickly telcos can adjust business models and service offerings to meet consumer needs and demands. IT

Jennifer Kyriakakis is responsible for IPTV and IP-based billing and Revenue Management strategy for Portal Software, a wholly-owned subsidiary of Oracle (News - Alert). For more information, please visit the company online at www.portal.com.

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