The economics of IPTV - Roland Berger Strategy Consultants

10InfoCom Competence CenterFigure 5: REASONS FOR LAUNCHING IPTV1 Prevent churn (mainly access)by value-added added bundling2 Extend revenue streams byentering content/media realm3 Attack competition from cable on 4 Refresh image by positioningits own territory by adjusting thethe company as an innovationproduct portfolioleader5Utilize bandwidth capacitygenerated by the rollout of highspeedbroadband6Generate additional profit forthe company2.1 Prevent churn – A magic wand?Preventing fixed-line access churn is the reason that companiescite often for launching IPTV. IPTV is a value-addedservice that provides a range of bundling opportunities,raising the "churn barrier" for customers. However, makingthe IPTV investment reliant only on positive churn effectsis a risky approach. Even though IPTV can without doubthave visible impact on churn reduction it is very hard tomeasure cause and effect after implementation. We havecome across several business cases based on this lineof argumentation.2.2 Extend revenue streams – The new frontier?2.3 Attack competition from cable – The ultimateweapon?Some operators enter the IPTV business in order to establisha presence in the area of content, media or TV. How-ever, they often neglect two factors in their argumentation.First, in comparison with the telecommunications market,the content, media and TV market that telecom companiescan actually address is often rather limited. It is highlycompetitive and uncharted territory. Second, the focus onrevenue growth in this segment is a double-edged sword.The margins that companies can generate in these marketsare often significantly below typical telecom returns andgradual margin dilution can be expected.IPTV is giving telecommunications companies a longawaitedopportunity to strike back at cable companiesand others menacing their position in the market. Forsome time, operators have been under attack from cableoperators as they have moved from basic TV service intotelecom services such as broadband and fixed voicetelephony. Typically both traditional telecom and CaTVcompanies are present on customer premises – in the caseof telecom companies for PSTN/ADSL, and in the case ofCaTV companies for TV content/broadband. While CaTVcompanies have been able to extend relatively easy intotelephony and broadband, telecommunications carriershave had limited opportunities for addressing the TVsegment, for example through satellite. In markets withstrong competition from CaTV, IPTV gives telecomcompanies a chance to "cut the cable" on their CaTVcompetitors and become the only ones present on thecustomer premises. However, to date few of them havelooked at other strategic alternatives to fulfill this objective,such as direct-to-home (DTH) satellite TV.