August 4, 2009

IPTV’s Value and Challenges for MENA Telecom Operators

Despite FTA satellite penetration of 94% in some countries, IPTV is a strong value proposition for Middle Eastern households.

Despite numerous innovations in television service technologies and high household penetration, Internet protocol television (IPTV) may still offer a potential opportunity for telecom companies in the Middle East and North Africa (MENA) region, finds a new report by Booz & Company. The region is characterized by a traditional, conventional television service—delivered primarily via free-to-air (FTA) satellite, and illegal distribution; offering cost advantages to viewers but limited interactivity. Lack of interactive services and negligible competition from cable makes the MENA region well positioned to leverage the advantages IPTV offers.


IPTV Models and Services

Television service delivery technology has evolved rapidly from terrestrial to cable (CATV), satellite (direct-to-home, or DTH), microwave (multi channel multipoint distribution system, or MMDS), and to broadband IP (IPTV). “These have prompted an increased variety of services and new ways for service providers to differentiate themselves,” stated Ghassan Hasbani, partner at Booz & Company. Specific advances include:

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

  • Added value for customers: from plain video services to convergence with voice and data services (including video conferencing and Internet telesites).

  • Higher levels of viewer interactivity: from simple electronic program guides to viewer-interactive television programming to television commerce. Interactivity has evolved to virtual interactivity through the Web, telephone, or SMS, to real interactivity through the television.

  • Increased level of personalization: from generic viewing to a specific customized viewer experience, including personalized content and targeted advertising. 

IPTV—a digital television service delivered over a broadband connection supports all traditional services offered by CATV and DTH and provides a personalized viewer experience with a high degree of customization, targeted advertising and high levels of real interactivity. “The broadband connection can accommodate viewer commands enabling a high degree of real programming interactivity, and a unique IP-based address for each user’s set-top box allows targeted advertising and personalized services,” commented Hadi Raad, a senior associate at Booz & Company.

IPTV is typically delivered using the service provider’s closed network infrastructure and offered at consistent quality levels. This differs from television or video over the public Internet on a best-effort basis via Internet TV or Web TV, where video signals occasionally get dropped.

No single definitive model exists for how IPTV should be implemented. Each market’s characteristics must be analyzed before adopting one of the following models.

Wholly IP-based (dedicated IPTV set-top box) vs. hybrid (hybrid IPTV-satellite or terrestrial set-top box): In wholly IP-based models, the free-to-air (FTA) broadcast channels and other video services are delivered over the broadband connection to a specific IP address. Alternatively hybrid models encompass FTA broadcast channels transmitted over either satellite or terrestrial, integrated with complementary video services over the broadband connection using hybrid set-top boxes. “The advantage is that they allow a provider to leverage the existing reach of a wide range of FTA broadcast content, without burdening the broadband network,” said Hasbani.

Streaming vs. downloaded content: Many providers including du use the streaming model. Programming is delivered directly to the viewer’s set-top box; requiring a robust, high-capacity network. Others have pursued a download strategy for IPTV services, wherein pre-selected programs can be downloaded to the viewer’s set-top box. A downloaded content model tends to be less expensive, less demanding on the network, and less complicated.


The Value Proposition of IPTV

IPTV’s greatest value is its ability to offer customers a greater choice of premium content, and greater control over that content, with features such as time shifting and rich Electronic Program Guides (EPG), which enhances the personalization experience. Moreover, Repairs, upgrades to services, and billing are easier for consumers to manage when bundled into “triple-play” combinations from a single provider; these could also result in savings.

“IPTV allows operators to boost average revenue per user (ARPU) and can increase Internet and broadband penetration, especially in MENA countries where PC penetration and English literacy are low,” Raad explained. IPTV also allows operators to become media companies offering content and to assume the role of a retail media aggregator. This shift has relieved some revenue pressures from the declining value of traditional voice and data services. IPTV therefore represents the latest step in media convergence, with the expansion of telecom operators’ services.


The Advent of IPTV in the MENA Region

The television landscape in the region is dominated by illegal distribution and a FTA satellite service, with household penetration reaching 94 percent in countries such as Saudi Arabia. This offers no real interactivity or way to communicate with specific audience subgroups. Cable TV penetration in the region is low at around five percent. Microwave (MMDS) service is used in small pockets in Kuwait, Bahrain, and Egypt, and the terrestrial service is unpopular because of limited content. The number of broadband connections in the region is expected to grow by double digits, with household penetration expected to increase from 9.4 percent in 2008 to around 33 percent in 2013.

These make the region more receptive to new television technology, and give operators a chance to quickly move up the value chain. A few operators have recently launched IPTV ventures, and more are in the pipeline. “Still, IPTV household penetration at the beginning of 2008 was low—just 0.2 percent,” Hasbani stated. Preliminary data suggests MENA companies that launched IPTV have improved their ARPU roughly in accordance with European and Asian benchmarks.


The Challenges for MENA Operators

IPTV may not be the right choice for all operators. Ventures are expensive and complex, and require consumers to pay higher monthly bills. Operators that decide to launch or expand IPTV ventures will face several challenges: broadband penetration is still low in the region (excluding Bahrain and the United Arab Emirates) and speeds are also slow; with insufficient bandwidth to support television service streaming.

“Content remains a significant challenge. There’s little local or regional premium content production in the region, so shows must be produced elsewhere, requiring considerable investment,” explained Raad. Another consideration is competition. Internet television services offer nonlinear features and web venture companies siphon away potential customers and transmit content using the operators’ own broadband data connections—taking operators’ bandwidth while generating revenues for third parties.

The biggest issue is that most homes receive television services from FTA satellites or illegal distribution. These represent up to about 90 percent of TV subscribers in some MENA countries. Moreover, many FTA channels are able to transcend national boundaries due to the common language and culture meaning huge growth—reaching around 500 in 2008. According to a recent survey, a majority of viewers are satisfied with FTA offerings.


Getting IPTV Right in the MENA Region

Telecom operators that decide IPTV is right must consider the factors critical to successful rollout. “For those that don’t have such capabilities, IPTV is probably not a viable option. They must be able to develop a lineup of services designed for the MENA media market,” Hasbani said.

Hybrid solution: A hybrid IPTV-satellite solution could provide the dual benefits of IPTV services with FTA programming. Some content may be morally objectionable in some societies, and pervasive content may need to be replaced. A potential strategy for competing with FTA satellite services is to position IPTV as a controlled and decent alternative.

Features: Innovative interactive services will have significant appeal and should be a key part of any IPTV offering. Digital video recorders allowing viewers to choose the viewing time for programming could be popular given time differences with Europe and the U.S. and the limited supply of regional premium programming. “Video-on-demand and Pay-per-view could be a big attraction as can interactivity, especially with reality shows and the chance for viewers to vote  or communicate through their television, rather than via their phone or Internet,” Raad commented. Operators should constantly define, prioritize, and introduce innovative interactivity features.

Content: Successful IPTV entry requires operators to secure exclusive or premium content that can differentiate it from competition. Premium content acquisition is expensive, but if the audience matches the content, then investment is justified.

Operational readiness: IPTV imposes new requirements in customer care and field and video operations, which must be appropriately handled via insourcing, outsourcing, or “managed services” models.

Infrastructure readiness: It is paramount that operators ensure they have the necessary resources in place for a high-quality customer experience, in terms of access networks and the core network. “The service platform should have the flexibility to support the rapid launch of new services, and the customers’ set-top box must be interoperable with other existing broadband equipment,” Hasbani explained.


Conclusion

IPTV presents a unique opportunity for MENA telecom operators. With little competition from cable on the supply side: careful positioning will boost IPTV significantly. On the demand side, consumers are likely to be receptive to IPTV and its benefits. To be successful, operators need to provide consumers with attractive content and significant control over it. They must make sufficient investments in premium content and infrastructure, and ensure they deliver a consistently high quality service. In a region where viewers are used to hundreds of free channels; only a compelling package will persuade consumers to start paying for IPTV.