IDATE, Europe’s premier digital economy think tank, uncovers major disruptions in the telecom, Internet and TV markets
Over the past 15 years, IDATE’s DigiWorld Yearbook has become a vital source of information for industry players, delivering analysis of the developments that have shaped the telecoms, Internet and media markets during the year gone by, identifying core global trends and providing snapshots of what lies ahead. The purpose and scope of the Yearbook has expanded as digital technologies have become an increasingly central component in the different sectors’ transformation: connected cars, financial services, insurance, healthcare, retail sales, the collaborative economy…
IDATE Chairman, François Barrault, is delighted to be celebrating this 15th edition, noting that, “we have entered into a new stage in the digital transformation over the past few months. Today, new intermediaries are coming to shake up the status quo, many of them from outside the industry, taking advantage of new technologies and new consumer cultural behaviour to revolutionise the value chain. Everybody knows how Uber has disrupted the taxi business, and Airbnb the hotel market. But finance, insurance, health and automotive industry leaders have all had to sit up to the risk of digital innovations shaking up their ecosystem, and forcing them to depend on external, unavoidable platforms.” This echoes the central theme of the upcoming DigiWorld Summit (17 – 19 November 2015), as IDATE’s annual conference will be held this year under the banner of: “Digital First”.
“For we here at IDATE,” says CEO, Yves Gassot, “whose business it is to wade through the latest market developments on a daily basis, the process of looking back over the year’s events only confirmed the significance of certain game changers such as mobility, the cloud, the Internet of Things, big data and social media. Some would also add 3D printing and artificial intelligence to the list.”
Scorecard for the digital economy in 2015: back on a growth path, but Europe still lagging behind
After the recovery announced in 2013, DigiWorld markets confirmed a stronger rate of growth in 2014, generating 3,700 billion euros. All segments combined, growth increased to 4.4%, which is 0.5 points more than the year before. These figures are still below those being reported for the economy as a whole: global GDP rose by 5.9% in current value in 2014, compared to 5.3% in 2013. This global recovery will become stronger still in 2015, with DigiWorld markets generating 3,900 billion euros, and climbing to 4,400 billion in 2018.
• This improvement can of course be attributed to Internet services which continue to boast more than 20% annual growth and, despite still accounting for only a fraction of the market, are helping to sustain the whole (growing from 275 billion EUR in 2014 to 475 billion in 2018);
• But also to stronger performances from a large number of more traditional segments – which are typically bundled together as core DigiWorld markets, i.e. telecom and IT equipment and services, consumer electronics, TV services, etc. Growth in these markets, i.e. excluding Internet services, rose from 2.8% in 2013 to 3.2% in 2014.
• Europe as a whole continues to lag behind increasingly vigorous North American markets, and the powerhouse that is emerging Asian markets.
2025: snapshots of 10 key trends and three outlook scenarios for Internet, telecoms and TV markets
For the first time, this year’s edition includes outlook scenarios for Internet, telecom and TV markets and players, provided by IDATE’s teams:
• Internet 2025: Will the top platforms become even more powerful?
• Telecoms 2025: Can the top telcos strike a balance between becoming commodities and competing head on with the top OTT companies?
• TV 2025: How can distributors avoid being cut out of the loop?
About the DigiWorld Yearbook
The finest market insights from IDATE experts who track the changes at work in the globe’s telecom, Internet and media industries throughout the year.
The DigiWorld Yearbook is published in English and French and available in print and PDF format.
> The 2014 edition can be downloaded for free on www.idate.org
> The 2015 edition is available for purchase. Print: €100, incl. VAT; PDF: €69, incl. VAT on www.idate.org
For more information: www.idate.org/digiworldyearbook/
Deputy Managing Director
Director of TV & Digital Content Business Unit
Three recent deals are reshaping the video distribution landscape in the United States. The first is Verizon’s takeover of Intel’s media division, after the latter decided not to launch its own OTT service. The carrier will use Intel technologies to better integrate OTT solutions into its own internet plans, but perhaps and above all to roll out its own internet TV service, which would be available even outside the carrier’s service area.
The second is US cable market leader Comcast’s acquisition of Time-Warner cable, which still needs to be approved by anti-trust authorities. The deal would increase the new entity’s market clout in both OTT services and with American studios. The third major deal is the agreement between Netflix and Comcast, whereby the cableco would be paid to guarantee high quality network access for Netflix customers.
These three deals are milestones in that:
• They take net neutrality debates to a commercial negotiation between services and network operators. If Netflix and Comcast managed to reach an agreement, there is no longer a need for specific regulation, provided network access is still supplied under non-discriminatory conditions.
• They attest to the pressure that triple play operators are under to protect their place in the video distribution chain. Cable TV customers in the United States are a shrinking population, whereas broadband cable customers constitute the majority. As a result, securing good terms from the TV networks has become vital to video distributors’ economic well-being.
• They reveal that size does matter when going head to head with increasingly globalised internet companies. A portion of competition in video distribution today is playing out in the realm of technological innovation. Comcast has been spending heavily on R&D on new video services for the past several years – investments that need to be amortised over a larger number of customers than what it has now.
• Ubiquitous online distribution heralds the disconnection, first between video access services and, second, the supply of premium services, and could augur a future split in the companies that currently supply them both.
Head of "Video Distribution" Practice
The market report entitled, “Hybrid TV: challenges and opportunities for telcos and cablecos” published as part of IDATE’s video distribution series, explores the biggest changes that wireline operators are facing today, and the options available to them. It details the three main strategic options that operators will need to choose from: strengthen their video service provision business, charge for OTT traffic or focus on internet connectivity.
Project Manager Jacques Bajon says that, “how telcos’ and cablos’ video strategy evolves is becoming an increasingly important issue, as the growth of OTT video and its impact on internet traffic will change the balance of power for video distribution on wired networks”.
Verizon recently announced its upcoming takeover of Intel’s Media Assets, a division devoted to developing cloud OTT video products and services, as part of the carrier’s bid to step up the rollout of new generation video services for all devices.
While the impact of these changes will vary depending on the region, the state of competition, the influence of the market leaders and the strategies adopted by operators, broad policies and choices are nevertheless becoming clear. Operators will be able to choose their positioning from, increasingly hybrid, strategies.
Strengthening the role of video service provider
Many telcos have joined cable operators in a providing 'traditional TV' services. The underlying reasons are varied and often non-exclusive, and include improved ARPU, triple-play subscriptions and reduced churn. This strategy can be extended, allowing operators to:
• provide new OTT services,
• become a publisher of TV services,
• go beyond their technical network coverage by relying on broadcast partner networks or 'public Internet'.
Charging for OTT video traffi
With the net neutrality debate still hanging over this option, where discrimination is being tolerated only for operators’ OTT services targeting their customer base:
• The first grey area agreements have been made between some service providers generating large volumes of traffic and telcos
• Development of operator or telco CDNs can help with internet traffic optimisation and can also become a traffic quality solution for third-party service providers.
Relying on online connectivity
With this option, operators can rely primarily on internet subscription revenues by assuming the role of neutral distributor of IP services, including video. For telcos, this is a case of returning to their incumbent business, but is a change of role for cable operators.
• More information on Hybrid TV market insight : Challenges and opportunities for telcos and cable operators
Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013
Summary of this issue: "Video cord-cutting" refers to the process of switching from traditional cable, IPTV, or a satellite video subscription to video services accessed through a broadband connection, so called over-the-top (OTT) video. The impact of cord cutting will probably differ among countries, depending on the level of roll-out of digital cable, fibre optic networks, and/or IPTV, on the tariffs of legacy video services, on the quality of broadband access and on national players’ strategies.
Regulation will play a key role in this new environment, as a strict enforcement of net neutrality could prevent network operators from leveraging their access to customer base to market their own video services.
Interview with Terry DENSON
Vice President, Content Strategy & Acquisition
Conducted by Raul KATZ,
CITI (Columbia Institute for Tele Information),
C&S: Is the telco voice cord-cutting experience at all applicable to video distribution?
I would not necessarily agree that the voice cord-cutting experience is the salient point. I believe the applicable lesson from the transition of voice from wireline to wireless is that the wireline relationship was literally and figuratively connected to the household while the wireless relationship is personal (e.g., it is common for several, if not all, members of a household to have their own device, which is personal to them). I see a similar opportunity in video distribution: the long term winners will be those distributors who are able to develop and offer video relationships (subscription or otherwise) that are targeted toward individuals (and all of their devices) and not solely the household.
What do you believe are the Telco's key assets in facing cord-cutting (either voice or video)?
Telcos have two key assets that make them well-positioned to establish and maintain market leadership in video: 1) The best bundled broadband product; and 2) the best platform for offering consumers a wider and deeper choice of live, recorded and on-demand content across all devices on a personal basis than any OTT player.
How do you believe Telco's fare relative to cable companies to face current and future video cord-cutting trends?
I believe Telcos are in a better position to prosper (especially those with a material wireless business) because they will be better able to: 1) monetize video traffic over the networks through high speed wireless and wireline networks; and 2) deploy compelling video services based upon those networks that provide more value and choice to customers than an OTT only player.
Do you expect any changes in value creation along the chain as a result of future cord-cutting trends?
I expect two long term changes in value creation: 1) the enhanced value of owning the broadband pipe based upon consumers increased reliance on greater capacity; and 2) the expansion of the video pie based upon the proliferation of video access points on devices and increased personal relationships and subscriptions for video access on those devices.
Terry DENSON is Vice President, Content Strategy & Acquisition for Verizon Communications. He is responsible for Verizon's content strategies and acquisition across all platforms including FiOS TV, Broadband, Verizon Wireless and Redbox Instant by Verizon (Verizon's joint venture with Redbox). He previously was vice president of Programming and Marketing, a position he was named to in August 2004 when he joined Verizon. In that position, Denson oversaw the creation and implementation of FiOS TV's content packaging, pricing and marketing strategies and video content acquisitions. Prior to joining Verizon, Denson served as vice president of programming for Insight Communications where he led the acquisition of programming, in addition to the development of analog, digital, video-on-demand, high definition TV, Broadband and interactive content strategies. Previously, as director of business development for the Affiliate Sales and Marketing department of MTV Networks, a division of Viacom International, he negotiated affiliation agreements. As general attorney for ABC, he managed numerous content rights and distribution matters. A graduate of Harvard University, Denson holds a J.D. degree from Georgetown University.
Published in COMMUNICATIONS & STRATEGIES No. 92, 4th Quarter 2013
- For more information about our activities: www.comstrat.org
COMMUNICATIONS & STRATEGIES
They are the key players of the Digital news and the Digital World… they will be at the DigiWorld Summit !
Tivo launches its new box: "Tivo Stream". The device allows one to watch programming that has been record on the TiVo Premiere on any iOS device on the local network. An upgrade for the Android TiVo application is in the works so Android devices should be able to use the device soon. ..
How this type of Personal Cloud will coexist with cloud-based DVR solutions?
Jason WONG, senior Director of International Products, TIVO will participate to the session Smart Devices ecosystems vs. Open Cloud on November 14 at 11:00 am.
Netflix which is now involved in Europe, announced last week that the company added 1.2 million new US customers during the third quarter, bringing their subscriber total to 25.1 million -- almost a third of all homes with broadband… Nevertheless, Morgan Stanley analysts to insist that Netflix needs to raise prices: the company spends more on content as a percentage of subscriber revenue (62%) than cable networks,. They consider that Netflix’s $8-per-month Internet streaming service is too cheap. The problem of course is that Netflix cannot ignore the growing threats from Amazon, HBO and the coming RedBox/Verizon joint venture …
Ted SARANDOS, Chief Content Officer, Netflix, will be one the keynote speaker on November 15 at 10:20.
Verizon is very close to launch its joint venture with RedBox (CoinStar group) to compete with Netflix with a video streaming product…
Terry DENSON, VP, FiOS TV Content Strategy & Acquisition, Verizon will be present to the session From NGN to Next Gen Telcos on November 15 at 11:15am.
> More information on the website DigiWorld Summit 2012.
In a matter of days we have seen several moves get under way that will no doubt have a profound impact on the face of the US mobile market.
It is a market that has been defined most recently by the overwhelming domination of Verizon Wireless (36% market share incomes: 55% Verizon, 45% Vodafone) and AT&T (33% market share), especially when postpaid subscribers, with their higher ARPU and much lower attrition rate, are counted. The top carriers also have a strong lead in LTE rollouts (+10 million subscribers for Verizon and 35% of its traffic).
Behind these two juggernauts lie:
- Sprint (16% market share) mired since its acquisition of Nextel in August 2005 in the migration of its subscribers to the iDen standard and struggling to return to profitability at a time when it must increase its capex in order to obtain a 4G network to compete with the market leaders
- T-Mobile USA (10% market share), subsidiary of Deutsche Telekom
- A gaggle of companies with more limited coverage, though two stand out: MetroPCS (3% market share) and Leap (2%).
This market structure came close to shifting when AT&T and T-Mobile announced a plan to merge in 2011, but the FTC and FCC put the nix on the transaction in December of the same year.
In late September 2012, T-Mobile and MetroPCS announced plans to merge. Sprint, which had more than once expressed an interest in M&A, was expected to respond by taking over Leap or outbidding T-Mobile for MetroPCS, or perhaps waiting until the two operators merged to snap them up together.
But ultimately the bump came from Japan, with Masayoshi Son’s bold investment (+ USD 20 milliards) through Softbank to take control of Sprint. The recapitalization of Sprint will allow it to ramp up its 4G rollout more quickly and increase its stake in Clearwire, which it just did by purchasing Eagle River Holding (MCaw)’s 1.5%, bringing Sprint’s share to 51%. The company (1% US mobile market share) made a name for itself by building a WiMax network at a time when the standard seemed like it could be a viable option to meet the needs of mobile and on-the-go Web users. Sprint, the big cable companies, Intel and Google had all invested in it. But the company has since had to acknowledge the failure of WiMax and the rise of LTE (driven by Verizon Wireless). Despite its debt, the operator had refocused on LTE, opting for TD-LTE technology (which is fairly close to WiMax) to use the 150 MHz it holds in the 2.5 GHz spectrum in many metropolitan areas. With a spectrum crunch looming, this will definitely be another asset for the new Sprint. Note that Softbank is also a proponent of TD-LTE for 4G.
This is a pretty bold move considering the premium Softbank paid, the increase in its debt and the difficult situation Sprint is in. But if it succeeds, it could deal a blow to the near-duopoly of Verizon and AT&T. Their ARPUs—which have been high and remarkably stable over recent years, as rising data revenues offset the erosion of voice income—could take a nosedive, shrinking margins for the two operators.
In the meantime, Deutsche Telekom can continue to bemoan the lost opportunity for its subsidiary to be purchased by AT&T in 2011, for the benefit of the synergies expected in the merger with MetroPCS seems meager indeed compared to the ambition of the new Sprint.
Over the medium term, it will be interesting to see if these new circumstances prove auspicious for the Verizon spinoff some investors would like to see: separating the landline and business services (formerly MCI) from the pure mobile player, which could then be combined with the European leader Vodafone.
But we’re not there yet. In the meantime, revenues from mobile services continue to grow at a rate of 5% to 6% YOY in the US, while in Europe we’re closer to -4%.
Yves GASSOT, CEO