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Making the Case for IPTV in India
Himanshu Sahu
Monday, September 1, 2008
Both Direct to Home (DTH) and Internet Protocol Television (IPTV), which is sometimes also referred to as Interactive Personalized TeleViewing in India, offers integrated service providers the opportunity to further grow their revenue while meeting a latent demand of customers—providing video entertainment to subscribers at home with differing levels of willingness to pay for interactivity. To ensure the best economic gains, integrated service providers should holistically look at the customer base, segment it and then address the needs of this segmented customer base in the most optimal way based on the available options for service delivery. From the analysis presented, it appears that DTH addressable market complements IPTV’s customer segments and that IPTV has a higher potential to grow average revenue per user (ARPU).

Exhibit A: Video Entertainment Value Chain Exhibit A provides a pictorial view of the video entertainment value chain. Content producers such as Adlabs, Disney and ESPN produce the actual content while content providers such as Shemaroo, STAR, and ZEE acquire content from the producers and aggregate them for the service providers. The service providers, as content aggregators and distributors of the content, then create and offer bundled packages that will appease the end users and support typical content consumption on their TV screens. In India, this value chain is still evolving and one can see that the content creator could also become the content provider and may choose to distribute the content using other channels of distribution.

The professionally developed contents from the likes of Adlabs, STAR, and ZEE can be delivered through any of the country’s service providers to the home TV. This is as described by the black arrows in the exhibit. However, only IPTV providers can offer interactive content like games, video on demand (VOD), music on demand (MOD), e-learning, polling, televoting, and karaoke the delivery of user generated content from the likes of YouTube, Facebook, Myspace and Yahoo video that users can potentially consume not only on the home TV but also on the mobile devices and personal computers. This is depicted by the red arrows in the exhibit. A work around would only provide limited interactivity on cable and DTH networks.

Identifying Target Markets
DTH service makes business sense when
* There is non-availability of both broadband and physical back-bone network and the video signals are received by each individual home through a mini satellite dish that acts as a receiver of signals.
* Economies of subscriber scale exist. DTH service can scale-up gracefully as the fixed cost is the satellite link, and this cost reduces per subscriber as the number of subscribers increases—the higher the adoption of DTH, the lower is the fixed cost per subscriber.
* There is a need to access a sparsely populated region or a dispersed population, for example semi-urban or rural areas.
* There is a need to reduce the technology risk and to speed time to market while countering the video service offered from the local cable operator (LCO) or multi service operator (MSO). IPTV makes business sense when * The telco has a wireline operation and is a broadband provider. IPTV becomes a revenue stream as the operator plans to fill the pipes to the homes with revenue generating services.
*The cable operators would like to offer interactive services to their customers. *The target segment resides in highly populated areas, for example major cities. This will help contain the cost per house passed.
* Bundling with other communication and information services (triple/quad play).
*Subscribers value differentiating interactive features and would also like to access content independent of access technology.

Segmenting the User Base
Previously, customers had the option of getting video entertainment services at home via Digital Terrestrial Television (DTT) or via their LCO. Now the choice has expanded to include IPTV and Satellite TV, also called DTH. Service providers are now getting into the business of providing video entertainment at home, given the market opportunity and the fragmented base of cable operators. The option they have is to either provide video entertainment either via DTH or via IPTV. If one conceptually charts users ‘Willingness to Pay’ versus ‘Density of Population’, the applicability of choice for access to TV viewing becomes very evident as shown in Exhibit B.

Exhibit B: DTH Complements IPTV Case 1 – When the density of population is high and the willingness to pay (for interactive services) is high, we believe IPTV would be demanded by the customer base.
Case 2 – When the density of population is low and the willingness to pay is high DTH would become a strong contender based on the economics of taking the services to market. Case 3 – When the willingness to pay is low and the density of population is high, entry-level IPTV or DTH could be an option.
Case 4 – Finally, when customers’ willingness to pay and the density of population are low, DTT would be a great choice.

IPTV Service Providers have Higher Potential of Growth Rate in ARPU In cases one, two, and three the goal of the integrated operator would be to access the homes to offer bundled services that include voice, video, data, and wireless. This can help reduce customer churn, reduce subscriber acquisition costs, and improve ARPU as was observed by PCCW, an integrated service provider in Hong Kong.

Based on the information gathered from pure play satellite TV operators such as DISH and DirecTV in the United States and IPTV providers such as PCCW in Hong Kong, it is evident that IPTV operators have a higher growth rate for ARPU (CAGR of 34 percent for IPTV operators as opposed to approximately 5 percent for DTH operators) as can be seen in the Exhibit C.
Exhibit C: IPTV Service Providers have a higher ARPU growth rate potential

The reason PCCW was able grow ARPU in excess to what could be achieved by the pure play DTH providers are as follows:
1. Enhanced High-definition TV (HDTV) viewing experience and unique interactivity *Offered the most comprehensive HD programming including live sports events, world-class documentaries, and entertainment content.
*Offered in-game interactive football information, 4 game-split-screen for the Barclays Premier League, live stock trading, Yellow Pages, Property Search, etc.
2. Widest selection of content with over 155 local and international channels
*Offered more than 80 exclusive world-class movies, sports, news, and general entertainment channels.
*Launched their newest self-produced channel in October 2007 on top of eight sports SD and HD channels.

Take Away
DTH and IPTV have their place of value for customers, and integrated service providers need them both to improve their market position for video entertainment at home and to become significant players in the delivery of video entertainment independent of access devices. Service providers could use a combination of DTH and IPTV capabilities to best monetize their investments; however, IPTV provides a higher potential to grow ARPU.

The author is Assistant Director, Business Development, UTStarcom India Telecom

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