the_big_picture_final_BoozIPTV

8/7/2019 the_big_picture_final_BoozIPTV

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Ghassan HasbaniHadi RaadKais Louizi

Atul Divakaran

Perspective

The Big PictureIPTVs Value and Challenges for

MENA TelecomOperators


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EXECUTIVE

SUMMARY

Despite numerous innovations in television service deliverytechnologies over the years, and high household penetrationof existing services, Internet protocol television (IPTV) maystill offer a potential opportunity for telecom companies inthe Middle East and North Africa (MENA). The region ischaracterized by traditional and conventional television servicethat is delivered primarily via free-to-air satellite and illegal distribution, which offer cost advantages for viewers but littleto no interactivity. This lack of interactive services, along withnegligible competition from cable, makes the MENA regionwell positioned to leverage the advantages of IPTV.

Telecom operators can drawcustomers by offering them greaterinteractivity, a wider choiceof content, and a high level of customization and control over thatcontent. Operators will also bene tby offering advertisers a precise,granular way to target their messages,to reach a more relevant audience.IPTV allows operators in the region tobundle television service with existingservices like voice and data, therebydriving up average revenue per user,and it allows them to move up thevalue chain, from being mere pipesto being media aggregators. A fewMENA operators have launched IPTVservice, and others are in the processof rolling out IPTV in 2009 and 2010.However, operators wishing to launchor expand their IPTV offerings face

several potential challenges: Many

consumers in the MENA region reportbeing satis ed with free-to-air satelliteservice, which has an increasingnumber of channels and no monthlycost. Broadband penetration is low,and most households that do havebroadband connections dont yet havesuf cient bandwidth to support real-time video streaming.

The network capabilities requiredto deliver and support IPTV involvesigni cant expenses, and premiumcontent is costly to produce orprocure, especially in a region withscant copyright protection. Becauseof these factors, IPTV service is notsuitable for all markets, and operatorsconsidering such ventures need tounderstand their consumers and assesswhether there is suf cient demand to

justify the expense.

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Television service delivery technologyhas evolved rapidly over the years,from terrestrial to cable (CATV),satellite (direct-to-home, or DTH),microwave (multichannel multipointdistribution system, or MMDS), and,more recently, broadband IP (IPTV).These increasingly sophisticatedtechnologies have brought a

corresponding increase in the varietyof services offered and they haveintroduced new ways for serviceproviders to differentiate themselvesand attract customers. Speci cadvances include:

A more granular level of audience: from mass broadcast to select mul -ticast (pay TV and pay-per-view)to exclusive unicast (video-on-demand, or VoD).

IPTVs greatest value lies in itsability to empower customers,offering them a greater choice ofcontent and greater control ofthat content.

IPTV allows telecom operatorsto boost their average revenueper user with bundled IPTVand video services, as well astransform themselves from mereconnectivity players into mediacompanies that offer content.

For MENA operators tosuccessfully roll out IPTV,they need to make suf cientinvestments in premium contentacquisition and infrastructuredevelopment, and ensure thattheir service is delivered withconsistently high quality.

KEY FINDINGS

IPTV MODELS

AND SERVICES

Added value for customers: fromplain video services to conver -

gence with voice and data services(including video conferencing andInternet telesites).

Higher levels of viewer interactivity: from simple electronicprogram guides to viewer-interactive television programmingto television commerce. Theinteractivity component has evolvedin conjunction with the means bywhich viewers can interact with theprogramming; this has progressedfrom zero interactivity to virtualinteractivity through the Web,telephone, or SMS (short messageservice), to real interactivitythrough the television itself.

Increased level of personalization: from generic viewing to a speci ccustomized viewer experience,including personalized content andtargeted advertising.

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Note: Linear services refer to standard television service in which the viewer watches a scheduled TV program only at the particular time it is aired and on

the particular channel that airs it.Source: Booz & Company analysis

IPTV can be de ned as digitaltelevision service delivered over a

broadband connection, which supportsall the traditional services offered byCATV and DTH. In addition, onlyIPTV provides a personalized viewerexperience with a high degree of customization and targeted advertisingand high levels of real interactivity(see Exhibit 1) .

IPTV has two differentiating factorsthat enable these features: First, aconvenient return path (the broadband

connection) that can accommodate

viewer commands along the samemedium as the video feed, enabling

a high degree of real programminginteractivity; and second, a unique,IP-based address for each users set-topbox that allows targeted advertisingand other personalized services.

IPTV is typically delivered using theservice providers closed networkinfrastructure and offered atconsistent quality levels approachingthose of DTH and CATV. Thisapproach is different from the delivery

of television or video content over the

public Internet on a best-effort basis,called Internet TV or Web TV, in

which video signals occasionallyget dropped.

Operators in advanced markets,predominantly in Europe, havealready implemented IPTV widely.No single de nitive model exists forhow it should be implemented, andeach markets characteristics must beanalyzed before adopting one of thefollowing models.

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Exhibit 1 IPTV Services

LinearServices

NonlinearServices

SupportingServices

High Level of InteractivityPersonalizationIPTV ExclusiveServices

IPTV/CATV/DTHServices

Dig ital Video Recorder Elec tron ic Program Guide Communica tion Services

Pay-Per-ViewBasic Broadcast Premium Pay

Catch-Up TV Video-on-Demand Time-Shifting


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Wholly IP-based (dedicated IPTV set-top box) vs. hybrid (hybrid

IPTV-satellite or terrestrial set-topbox): In wholly IP-based models,the free-to-air (FTA) broadcastchannels and other video servicesinaddition to traditional voice anddata servicesare delivered over thebroadband connection to a speci c IPaddress. Examples of service providersfollowing this model include FastwebS.p.A. and Free, a subsidiary of theIliad Group.

Hybrid models, by contrast, encom -pass a supply of FTA broadcast chan -nels transmitted over a traditionalmedium such as satellite or terrestrial,

which the operator integrates withcomplimentary video services, such

as VoD, over the broadband connec-tion using hybrid set-top boxes. Theadvantage of hybrid models is thatthey allow a provider to leverage theexisting reach of a wide range of FTAbroadcast content, without burdeningthe broadband network with carryingthis traf c. Companies that use thismodel include BT Visions Freeview.

Streaming vs. downloaded content: Most service providersincludingdu, Qtel, and Maroc Telecomusethe streaming model, in whichprogramming is delivered continuallyto the viewers set-top box. This

approach requires a robust, high-capacity network with redundancies

built in to eliminate service outages.A few others, such as Hanaro (nowpart of SK Broadband) in Korea, havepursued a download strategy for theirIPTV services, wherein pre-selectedprograms can be downloaded to theviewers set-top box. Viewers choosefrom a menu of locally downloadedprograms and view them at theirconvenience. The advantage of adownloaded content model is thatit tends to be less expensive, lessdemanding on the network, andhence less complicated to roll out.

Hybrid models allow a provider toleverage the existing reach of a widerange of FTA broadcast content,without burdening the broadband network with carrying this traf c.


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43%

Average Broadband ARPU, 200607

14

Post-IPTVPre-IPTV

IPTV Componentof ARPU

46

32

ARPU IN EUROS

Average Broadband ARPU, 200607

Post-IPTVPre-IPTV

IPTV Component

of ARPU15

48

33

44%

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IPTVs greatest value lies in its abilityto empower customers, offeringthem a greater choice of content,including services like VoD, user-generated content, and greater controlof content through features liketime-shifting, multi-angle viewing,digital video recorders, and richelectronic program guides (EPG), allwhich enhance the personalizationexperience. Moreover, repairs,upgrades to service, and billing areeasier for consumers to managewhen theyre bundled into triple-play combinations that includevoice, data, and video from a single

provider. Finally, bundles could resultin savings relative to separate stand-alone subscriptions.

From a service provider perspective,IPTV allows operators to boost theiraverage revenue per user (ARPU) withbundled IPTV and video services, asoperators in Europe, the U.S., andAsia have already demonstrated (seeExhibit 2 ). Moreover, IPTV could alsohelp increase Internet and broadbandpenetration, leveraging TV sets asaccess devices, especially in MENAcountries where PC penetration andEnglish literacy are low.

THE VALUEPROPOSITIONOF IPTV

Exhibit 2 Results from Europe and Asia Show That IPTV Has Signi cant Impact on ARPU

Europe : Belgacom increased broadband ARPU by 43 percent with bundled IPTV

Asia: PCCW increased broadband ARPU by 44 percent with bundled IPTV

Source: World Broadband Information Service (WBIS); Booz & Company analysis


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More important, IPTV allowsoperators to transform themselvesfrom mere connectivity players intomedia companies that offer content.When operators have ventured intothe content arena through IPTV,they have typically assumed the roleof a retail media aggregator, withcontent acquisition and aggregationcapabilities. A few Europeanoperators, like France Telecom andFastweb, have gone beyond that and

assumed the role of an integratedmedia company, with their owncontent-production capabilities(see Exhibit 3) .

This shift has been instrumentalin relieving some of the revenuepressures caused by the decliningvalue of traditional voice anddata services. In this way, IPTVrepresents the latest step in mediaconvergence. Just as cable operators

have entered the telecom space andoffer nontraditional services likeInternet access and voice-over-IP viacable-broadband connections, telecomoperators now have an opportunityto expand into the kind of televisionand video-delivery service that wasonce the exclusive province of mediacompanies. The scope of their rolesalong the value chain depends onmarket conditions and telecomoperators capabilities.

Source: Booz & Company

Booz & Company6

Exhibit 3 IPTV Lets Operators Become Media Players

3. Integrated Media Company

2. Retail Media Aggregator

1. Connectivity Player

FastwebFrance Telecom Belgacom

Verizon Various

ContentProduction/Enabling

Network andOperationsPlanning

Internet &VoiceProvisioning

Marketing,Sales, andDistribution

CPEProvisioning

Customer Careand Billing

Content Acquisition/ Aggregation

3 2 1


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The television landscape in theMiddle East and North Africa

(MENA) region is dominated byillegal distribution and FTA satelliteservice, with household penetrationreaching as high as 94 percent incountries such as Saudi Arabia. Thisservice, though popular, offers noreal interactivity and no way for theprovider to communicate with speci csubgroups of the audience. CableTV penetration in MENA is quite

low (about 5 percent). Microwave(MMDS) service is used only in small

pockets in Kuwait, Bahrain, andEgypt, and terrestrial service is notpopular in the region because of itslimited content. Furthermore, thenumber of broadband connectionsin the region is expected to grow bydouble digits, with household pen -etration expected to increase from 9.4percent in 2008 to around 33 percentin 2013 (see Exhibit 4) .

THE ADVENT

OF IPTV IN THEMENA REGION

Source: Informa Telecoms & Media; WBIS 2009; Booz & Company analysis

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Exhibit 4The Number of Broadband Connections in the MENA Region Is Expected to Increase Substantially

2013E

18.5

2012E

16.1

2011E

13.3+32%

2010E

9.8

2009E

6.6

2008

4.7

9.4% 13.0% 18.8% 24.8% 29.4% 33.1%

0.8

1.2

1.6

2.01.0

1.1

0.9

0.8

7.4

4.1

0.7

16.1

6.4

3.5

0.7

13.3

5.1

2.9

0.79.8

3.2

2.3

0.76.6

1.6

1.8

0.60.60.6

4.7

0.71.1

0.60.50.6

MENAHouseholdPenetration

1.2

1.4

2.5

2.9

3.2

2.0

BROADBAND CONNECTIONS, IN MILLIONS

Egypt

Saudi Arabia

Algeria

MoroccoUAE

Others


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These characteristics make the regionrelatively more receptive to new televi -

sion technology, and they give telecomoperators a chance to quickly moveup the value chain and leverage theirexisting infrastructure via IPTV ven -tures. A few operators have recentlylaunched such ventures, and several

more are in the pipeline for 2009and 2010 (see Exhibit 5) . Still, IPTV

household penetration at the begin -ning of 2008 was very lowjust 0.2percent. That gives IPTV the poten -tial for rapid growth in the region,particularly given the appeal of itsfeatures for MENA viewers.

Preliminary data suggests MENAcompanies that have launched IPTV

have improved their ARPU roughly inaccordance with European and Asianbenchmarks, but it is still too soon forironclad numbers, as operations in theregion are still nascent.

Source: Arab Advisors Group; operator Web sites; WBIS; ipTV-Daily

Booz & Company8

Exhibit 5 IPTV Launches in MENA

OPERATOR OPERATOR LAUNCH DATE KEY SERVICES

du UAE July 2006 Linear TV (broadcast and premium); EPG (including favoritechannel listing, profiling, and reminder setting)

Jordan TelecomGroup

Jordan September 2008 Linear TV (broadcast and premium); EPG (including weather,news, and local information); VoD; interactive services

Qtel Qatar May 2007 Linear TV (broadcast, premium, and PPV); EPG(including parental control); VoD; DVR; time-shifting

Etisalat UAE December 2006 Linear TV (broadcast, premium, and PPV); EPG; VoD; interactiveservices (gaming, shopping); advertising

Maroc Telecom Morocco August 2006 Linear TV (broadcast and premium); EPG


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THECHALLENGESFOR MENAOPERATORS

operators do not have the necessarycapabilities to negotiate, secure,and manage content.

Another consideration is the intensityof the competition. Internet televisionservices now offer many nonlinearfeatures such as online DVRs, time-shifting, and VoD. These Web venturecompanies present a dual challengefor operatorsnot only do theysiphon away potential customers,but they transmit their content usingthe operators own broadband dataconnections. This eats up operatorsbandwidth while generating revenuesfor third parties.

The most signi cant issue is that most

homes in the MENA region get theirtelevision service from FTA satellitesor through illegal distribution, whichfeature relatively primitive service butcost a household a minimal amount, if any, outside of initial installation costs.FTA satellites and illegal distributionrepresent up to about 90 percent of TVsubscribers in some MENA countries. 1 Moreover, many FTA channels are ableto transcend national boundaries dueto the common language and culture,

and as such there has been hugegrowth in their number, which reachedaround 500 in 2008. 2 According to arecent survey a majority of viewers aresatis ed with FTA offerings. 3

Despite the advantages for consumersand businesses, IPTV may not be theright choice for all operators in theregion. Service providers needto understand their market andassess the extent to which currentofferings address the needs of viewers.IPTV ventures are expensive andcomplex, and they require consumersto pay higher monthly bills; in somemarkets consumers may balk atpaying those premiums for enhancedtelevision service.

Moreover, those operators thatdecide to launch or expand IPTVventures despite such factors faceseveral challenges. First, broadbandpenetration is still quite low in the

region (excluding Bahrain and theUnited Arab Emirates). Furthermore,broadband speeds are quite slow;even the homes that have connectionssometimes dont have suf cientbandwidth to support streamingtelevision service.

In addition, content remains asigni cant challenge. Operators mustconsider the investment required tosecure exclusive content, which can

be onerous. Theres little local orregional premium content productionin MENA, so shows must be producedelsewhere. That expense can bedaunting, especially given the rampantpiracy in the MENA region. Most

Internet television services not only siphon away potential customers, but they transmit their content using operators ownbroadband data connections.

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For telecom operators in the MENAregion that decide that IPTV is right

for their markets, there are a few keyfactors that are critical to a successfulrollout. For operators that dont havethe capabilities to meet these criteria,IPTV is probably not a viable option.

Operators must be able to developa lineup of services that takes intoaccount the uniqueness of the MENAmedia market, especially with respectto the plethora of illegal distributionand FTA satellite channels on offer.

Hybrid solution: A particularlycompelling implementation optionis to launch hybrid IPTV-satellitesolutions. These could provide thedual bene ts of IPTV services withthe wide range and low cost of FTAprogramming.

Nevertheless, some satellite contentmay be morally objectionable inseveral Middle East societies, andlocal societies may have an interest incountering this service and replacingits pervasive content with moresuitable alternatives. In light of this, a

potential strategy for competing withFTA satellite service is to position

IPTV in conservative markets as acontrolled and decent TV alternative.

Features: Innovative interactiveservices are likely to have signi cantappeal in the region and should be akey part of any IPTV offering. Digitalvideo recorders, which allow viewersto choose the time convenient for themto watch particular programming,could be popular given the time differ -ences with Europe and the U.S. (which

both generate content that is popularin the MENA region) and the limitedsupply of regional premium program -ming alternatives. Pay-per-view couldbe a big attraction given the popular -ity of live football games and Arabicmovies in the region. Interactivity canbe a potential draw given the hypearound reality showsfor instance,viewers can vote off contestants onsome shows directly through theirtelevision, rather than voting via theirphone or over the Internet. As theyoffer IPTV, operators should con -stantly de ne, prioritize, and introduceinnovative interactivity features.

GETTING

IPTV RIGHTIN MENA


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Content: A successful IPTV entryrequires operators to secure

exclusive or premium content thatcan differentiate a service providerfrom its competition. Premiumcontent acquisition is expensive, andoperators must set aside reasonablebudgets for this purpose. But forthe right pairing of audience andcontent, the investment can bejusti ed. For example, ShowtimeArabias viewership has been boostedsigni cantly since it acquired theregionally exclusiveand expensive

rights to broadcast English PremierLeague football.

Operational readiness: IPTV imposessome new requirements in customer

care and eld and video operations,which must be appropriately handledvia insourcing, outsourcing, ormanaged services models.

Infrastructure readiness : Perhapsthe most critical prerequisite isinfrastructure readiness. IPTVruns over high-quality broadbandconnections and it is paramountthat operators ensure they have thenecessary resources in place: Access

networks must be designed withshort local loops that can guarantee

suf cient bandwidth and stability.The core network has to support high

data capacity, exible routing, and ahigh quality of service with low packetdrop, jitter, and latency. The serviceplatform should have the exibilityto support the rapid launch of newservices. The customers set-top boxmust be interoperable with otherexisting broadband equipment intheir homes, and it must be easy toinstall and manage remotely. In short,a sound supporting infrastructureshould be in place to ensure a high-

quality experience for the customer.

IPTV runs over high-qualitybroadband connections and it is paramount that operatorsensure they have the necessaryresources in place.


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Booz & Company12

IPTV presents a unique value proposi -tion for MENA telecom operators.

From a supply perspective, this regionfaces very little competition fromcable, and presents high penetrationlevels of FTA satellite and illegaldistribution. Careful positioning bytelecom operators can give IPTV a bigboost. From a demand perspective,consumers in the region are likely tobe receptive to operators IPTV offer -ing and its bene ts: improved inter-activity, a richer content portfolio,personalization, and the convenienceof one-stop shopping (including sub-scription, billing, maintenance, andupgrades) for all home communica -tion and entertainment needs.

But to be successful in IPTV ventures,operators need to provide consum -

ers with attractive content withsigni cant control over that content,through services like time-shifting,catch-up TV, and VoD. They need tomake suf cient investments in pre-mium content acquisition and infra -structure development, and ensurethat their service is delivered withconsistently high quality. In a regionwhere viewers are used to gettinghundreds of channels for free, onlya particularly compelling package of services will persuade consumers tostart paying for IPTV.

CONCLUSION


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About the Authors

Ghassan Hasbani is a partnerwith Booz & Company based inBeirut and Riyadh. He special-izes in telecommunicationsmarkets assessment, invest-ments strategies, mergers andacquisitions, marketing, productand service development,organizational restructuring andgovernance, technology plans,channel strategy and manage-ment, customer care, businessdevelopment, and CFO andCEO agendas.

Hadi Raad is a senior associatewith Booz & Company basedin Beirut. He specializes intelecom market entry andgrowth strategies, marketingplanning, product development,business development andtransformation, and CFOagenda, covering nancialplanning and valuations,economic analysis, corporate

nance, cost optimization, andvalue-based management.

Kais Louizi is a senior associatewith Booz & Company in Dubai.He focuses on information andcommunication technologiesand has experience in telecomsector development, large-scale privatization programs,strategy-based transformation,market entry strategy, andtechnology strategy.

Atul Divakaran is an associatewith Booz & Company inDubai. He specializes in

telecommunications marketsassessment, marketingstrategies for next-generationtelecom services, telecombusiness portfolio governance,and technology plans.

Endnotes

1 Informa Telecoms and Media

2 Arab Advisors Group

3 Arab Advisors Group


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