IPTV EXPECTED TO SEGMENT ALREADY FRACTURED MARKET

Carriers expecting to capture huge swaths of the mass market with IP video offerings will be disappointed, but there still is opportunity to gain significant shares of profitable customers with bundles that include IPTV, according to a study from Parks Associates and other data.

Overall, Parks is predicting that the market for IPTV will reach 21.7 million subscribers in 2009, though most of those will be in Asia and Europe. In North America, where Verizon, SBC Communications and BellSouth are expected to launch major IPTV services by early next year, subscriber numbers won't be significant until at least 2008. At the same time, carriers must be prepared for a highly fractured market compared with other continents and even within countries.

“Every country is currently standing at a different position in the IPTV races,” said Deepa Iyer, research analyst for Parks Associates. “We cannot have a general model in the United States. We have to give them the options and allow them to pick and choose.”

In its study, Parks found that offering consumers more control over personalizing their video experience — but making it easy — was among the most appealing aspects of telco-provided video. Translated into specific services, Iyer said, telcos should look at one-button recording capabilities, personalized recommendations and interactive advertising as differentiators from cable and satellite.

The Parks study divided consumers into four segments: the TV on My Terms group, the Interact With Me group, the Converge Me segment and the Do Not Bother Me group. Among all consumers, the groups were roughly equal in size except for the TV on My Terms segment, which was smaller but also encompasses some specific groups (males in their 30s and 40s) much sought after by advertisers.

Telcos can capture parts of all four groups, though they are in the best position to address the first three. In the TV on My Terms group, for instance, IPTV providers will find a ready audience for personalization services such as one-button access to news, weather and recording options.

“[Digital video recorders] play a very important role in our lives today,” Iyer said of this segment. “It changes the way you watch TV, and we really need to address this market in a different way.”

The Interact With Me segment, which is where some interactive advertising would be readily accepted, appears to be the most willing to spend additional money on new services, though it is those classified as Don't Bother Me that currently are spending the most.

One other key for competitive providers is being able to present video applications as different. Iyer noted that consumers don't have any problem spending additional dollars for similar services as long as there is a perceived value. For example, customers will move their spending away from rental video stores to video-on-demand (VOD) based on convenience, value and choice.

Telcos, however, need to address consumers in a more active manner when it comes to bundled services that include video. The Parks study found that 42% of consumers who want a bundle of voice, high-speed data, video and wireless would prefer cable operators as their service provider, while only 15% say they would want that from wireline carriers. Additionally, telcos are seen as providing bundles more associated with PC-type services such as security, not entertainment.

“Cable operators are the first preference because consumers can't envision telecom providers offering a quad play,” Iyer said. “It changes, though, with computer security because it's viewed as a reliability service. Telecom operators really need to address the branding issue.”

In a different study, wireless market research firm Telephia reported that 19% of what it calls “high-tech households” would consider subscribing to a quadruple-play bundle that includes video, Internet, landline and wireless phone from a single service provider. Additionally, about the same percentage of those responding to the survey said they intend to subscribe to a TV/Internet package, typically offered by cable companies, as said they would choose a phone/Internet bundle, which have traditionally been offered by telcos.

Currently, only 4% of high-tech households, which are identified as those currently subscribed to at least three bundled or emerging services, such as wireless data, VOD, voice over IP, satellite radio or broadband, currently subscribe to a quadruple-play bundle from a single service provider. Another 15% already subscribe to a bundle of three of these services.

“What we saw in our report is when you asked people who haven't gotten any bundles why, 27% of them said their services were not offered in a bundle,” said Kanishka Agarwal, vice president of new products for Telephia. “What was even more interesting is that 21% said it's not offered in a bundle by their preferred service provider.”

Among those that currently subscribe to a bundle or intend to, 71% did it because of their preference for one bill for all services, 54% said it was the discount offered in the bundle and 47% wanted the single point of customer care. Those results run counter to the stereotypes of high-tech households not caring about price, Agarwal said.

However, providing discounts on bundles doesn't necessarily mean carriers will be unprofitable, he said, adding that the cost of adding new customers to replace those that churn on any given service is significant.

“[Carriers] may be giving up some revenue with discounts, but their churn is going way down,” he said.

Telephia's survey, “Emerging Personal Communications Options Survey,” didn't break out which service provider high-tech households would prefer, but it did delve into the characteristics of a preferred operator. Number one on the list was high quality and reliability of the service. That was followed by price and breadth of services.

Asking consumers to place specific types of broadband providers into categories, Agarwal said most associate cable operators' service with reliability while DSL is perceived to be a better value.

The company also asked consumers how likely they would be to adopt new services from a non-traditional provider. About 41% of cable customers said they would be likely to adopt home phone service from their cable operator while 36% say the same about wireless service.

“There is an openness in the market to get services from this notion of a preferred service provider that is different from their traditional service provider,” Agarwal said. “It's not established who the preferred service provider is just yet. If I speculate in the near term, it seems cable companies are going to be able to offer voice sooner than RBOCs can offer video. I think it's going to be a little bit of a blood bath.”