Ofcom UK Communications Report

Ofcom issued a 334 page Communications Report that discusses TV, Radio, Telecommunications, and convergence.

It has a lot of interesting information. Three points that stuck out were:

• More than a quarter of consumers (27%) claimed to use a DVR at the end of Q1
  2009, equivalent to 7 million homes, according to Ofcom research. This rose to
  nearly a third of consumers (31%) in multichannel television homes. These figures
  are a little lower than those from operator and sales data, which suggest that nearly 9
  million DVRs had been sold in the UK at the end of Q1 2009.
• High-definition television gained traction over the past 12 months, as new HD
  channels launched and more platforms developed their HD propositions. By the end
  of the first quarter of 2009, 2.3 million homes (9%) had reception equipment capable
  of accessing linear or on-demand HD content. Thirty-three per cent of UK homes
  claimed to have HD-ready television sets at the end of 2008, according to its
  research.
• Online catch-up TV began to enter the mainstream in 2008, largely thanks to the
  growing popularity of the BBC iPlayer. Twenty-three per cent of households claim to
  watch programmes online, rising to 33% among 15-24s. But 10% of people aged 65+
  reported that someone in their household watched catch-up TV online.

We should all thank Ofcom for continuing to publish these comprehensive reports that shed light on important trends.

BT Adds 45K IPTV Subscribers in 1Q09

BT added 45,000 IPTV subscribers to its BT Vision service leaving it with a total of 423,000 at the end of the quarter. It now has over 430,000 IPTV subscribers. It said that 90 percent of its new subscribers are taking a subscription and that its ARPU for the service has doubled.

BT is continuing to make progress in a competitive market. It appears that its strategy of riding on Freeview's coat tails is working well for it.

BBC Canvas to Compete with BT Vision IPTV

The BBC is considering its Canvas Project that will compete with BT's BT Vision IPTV service.

The BBC is seeking permission to form a new joint venture partnership with other broadcasters and Internet Service Providers to define and promote a set of standards for digital television delivered via broadband Internet connections (IPTV) as well as digital broadcasts via DSat and DTT.

Users would need to buy a new set top box or other device which takes its broadcast signal from an aerial, like Freeview, or from a satellite dish, like Freesat.

Canvas users would also require a broadband connection to take advantage of on-demand features. They would need to:

• Subscribe to a broadband service which usually carries a monthly fee, or
• Utilise their existing broadband connection. It is possible they may need to
• upgrade their existing broadband packages to a faster connection, or
• upgrade their existing broadband packages to one which allows greater volumes of data downloads

The BBC said that Canvas would help protect the competitiveness of free-to-air platforms (like Freeview) and allow audiences who do not wish to pay for subscription television services to access a range of on-demand and linear services.

It wishes to develop Canvas in conjunction with the planned launch of HD services on the DTT platform (Freeview). Subject to approval, Canvas would launch at some point in 2010.

This is an interesting approach by a broadcaster to utilize broadband to reach its audience in addition to its over the air broadcasting. It looks very much like BT Vision to me. I wonder how BT will survive with this kind of competition from the broadcaster. This is a model that could be exported to other countries and create a new competitor to the existing Pay TV outlets.

BT Adds 56K IPTV Subscribers in 4Q08

BT added 56,000 BT-Vision IPTV subscribers in 4Q08 giving it a total of 376,000 at the end of the year.

Subscriptions picked up a bit in the quarter. The market in the UK is quite competitive with a strong satellite service leading the pack. BT is facing a problem in delivering competitive HD services due to the relatively low speeds of its broadband services. It has not yet committed strongly to VDSL or FTTH architectures.

BT Adds 38K IPTV Subscribers in 3Q08

British Telecom added 38,000 new BT Vision IPTV subscribers in 3Q08, giving it a total of 320,000 at the end of the quarter. This total has increased to 340,000 since the end of the quarter. An average of 83 percent of the customers added in 3Q08 chose to take a subscription pack, nearly three times as many as last year.

The rate at which BT added new customers to its BT Vision IPTV service declined sharply in the quarter. Apparently this rate is holding steady in 4Q08, since the company has added 20,000 new subscribers half way through the quarter. Consumer belt tightening may be a significant issue at this time.

Orange Backs off IPTV in the UK

France Telecom's Orange has run a trial of an IPTV service in the UK following its success in France and has been ready to roll out. But it has decided that this IPTV service was too similar to BT Vision, and wants to rethink how the service should work. The company is looking at different business models.

Orange is also building out its own broadband network, rather than renting lines from BT, which will give it more control and better profit margins.

There has been a lot of discussion that Orange would roll out IPTV in the UK before the end of 2008. This is not going to happen. It looks like Orange is trying to reestablish its position in the UK broadband market. It does not appear that its chances for long term success are very good.

BT Working Toward 2010 VDSL Rollout

BT has announced that it will operate two VDSL trials of about 15,000 customers each starting in the summer of 2009. It plans to provide up to 40 Mbps as part of this service. BT expects to announce plans for the initial market VDSL deployment in early 2010.

It looks like BT is taking a very orderly process that will lead to a commercial VDSL roll out starting some time in 2010. BT will be experiencing serious bandwidth pressures from the demand for HD content well before this. I would not be surprised to see it accelerate this schedule due to significant competitive pressure.

BT Vision to add a Download HD Service

BT Vision has entered an agreement with NBC Universal International Television for feature films that will appear on BT Vision's HD movie download service. Current HD films will be priced at 4.96 pounds each and library titles at 2.95 pounds.

The viewer selects an HD film and it is downloaded to the V-box set-top box that comes with the BT Vision service. The viewer is charged after the film has completely downloaded and viewing has started. The film may be watched repeatedly during a 48 hour rental period.

It is good that BT is supporting HD content; however its approach is technically not much different than over the top Internet downloading. BT's access network does not have the bandwidth to support HD streaming today. BT needs to deploy VDSL or FTTH to support streamed HD. This will put at a competitive disadvantage compared to satellite and cable in the UK.

Changes in UK Consumer Behavor

Oxygen8, a UK new media advertising company, has released market research results that indicate that:

• Digital media now accounts for almost 50% of daily media consumption and is the preferred medium for receiving marketing messages
• 41% of consumers chose the Internet as the medium they could not live without
• Only 62% of TV is now watched in real time
• 75% of the UK population rarely watch TV adverts when viewing recorded programs

Two thirds of of the advertisers recognise that consumers are less receptive to traditional advertising, 76 per cent feel that Internet advertising is more effective than both TV and print. 83 per cent of the media companies feel that SMS and email is more effective than the traditional channels. 13 per cent of the media companies and 23 per cent of the advertisers believe that traditional media is still more important than digital media.

This research was performed by industry analyst Redshift Research for Oxygen8.

Oxygen8 clearly has an agenda here, but these results appear to be pretty good. The lesson here is that the IPTV companies have to position themselves as new media with interactive advertising rather than old line TV content delivery companies.

BT Adds 68K IPTV Subscribers

BT add 68 thousand BT Vision IPTV subscribers in 2Q08 ending with a total of 282 thousand. It has enhanced its sports offerings with Setanta Sports 1 for free with a package along with other sports content enhancements such as increased coverage of the Scottish Premier League.

BT continues to add IPTV subscribers at a good rate. It would be interesting to have more information on how well its business model is working. It offers BT Vision as a free service and depends on premium subscriptions and on demand content to generate revenue from the service.

BT's FTTH Plans

BT announced a $3B plan to deploy FTTH services to as many as 10 million homes by 2012. Ir plans to offer speeds up to 100 Mbps.

It stated that a supportive regulatory environment is essential for this program to take place. This would include removing current barriers to investment and making sure that any company investing in fiber can earn a fair rate of return.

BT also stated that it is committed to wholesaling its new services. It will press for any other next generation access network in the UK to be open to all companies as well.

This is a necessary move by BT. HD is becoming a major competitive issue for TV services in the UK. It will be interesting to see how much of a problem the regulatory issues become.

Ofcom Says 68% of UK TVs Are Connected to Digital Services

Ofcom, the UK regulator, published and article that stated that 68 percent of the 60 million TVs in teh UK are connected to digital services. The full study is also available on its website.

• There are over 10 million households with 23 million TVs using the Freeview digital terrestrial service.
• Sky has 8.3 million subscribers to its satellite service
• Virgin Media has 3.5 million subscribers to its cable services

The article and full study are worth reviewing. The study identified 50 thousand IPTV subscribers, which are likely to be Tiscali subscribers. The 214 thousand BT Vision customers are include in the Freeview numbers since they receive their broadcast content using Freeview.

BT at 250K IPTV Subscribers

BT announced that it had 214 thousand IPTV subscribers at the end of 1Q08, which is an increase of 94 thousand during the quarter. It had 250 thousand IPTV subscribers as of its announcement on May 15, 2008.

BT stated that it added more TV subscribers during 1Q08. It said that Sky satellite added 56 thousand subscribers and Virgin cable added 37 thousand subscribers during 1Q08.

BT stated that 68 percent of its BT Vision subscribers take a premium package when they subscribe to the service. It offers 4,660 hours of on demand content and had an average of 29 views per month per subscriber.

BT had an excellent quarter with its BT Vision IPTV service. It appears that its strategy of supplementing Freeview digital terrestrial broadcast TV with on demand services seems to be working for it. The one question is what kind of ARPU is it generating.

Tiscali to Expand IPTV Footprint in Italy

Tiscali announced that its IPTV service is now available in nine citiees in Italy. It just added six cities (Bologna, Florence, Genoa, Naples, Palermo and Turin) in addition to the three cities that it launched in December 2007 (Cagliari, Milan and Rome). It can provide IPTV service to 4 million lines today and plans to be able to provide it to 9 million lines by the end of 2008.

Tiscali's IPTV service includes 48 hour time shifting, video on demand, and HD programming. It has content agreements with Disney and Sony.

Tiscali has not announced the number of IPTV subscribers that it serves either in Italy or in France. As usual, I assume that this is because the numbers are nothing to brag about.

Pace Wins BT Order

Pace has won a significant order for set-top boxes from BT for its BT Vision service. Pace recently acquired the IPTV set-top box business from Philips, which has supplied set-top boxes for BT Vision since it started in December 2006. BT also signed a contract for IPTV set-top boxes with Motorola in January 2008.

This is an important piece of business for Pace and a major reason why it acquired the Philips IPTV set-top box business. It is quite natural that BT would bring Motorola in as a second vendor for a service as large as BT Vision is likely to become.

Limitations of Internet TV

The Telegraph published and interesting article laying out some of the limitations of watching TV over the Internet and the trade offs between downloading and streaming. It points out that the download caps will limit many broadband users to about one our or so of viewing per day with many UK broadband ISPs. It also points out that the other broadband ISPs without download caps have fair use policies that may also limit the amount of downloading.

The article points out that streaming to the PC uses much less bandwidth and, therefor, permits much more viewing.

This is a real limitation that will limit watching content from the Internet on the TV to only one or two programs each day. With these limitations, the Internet will not provide a real alternative to Telco IPTV, cable, or broadcast TV services and only be a supplement.

BT Reaches 150K IPTV Subscribers

BT ended 2007 with 120 thousand IPTV subscribers and currently has 150 thousand. This is an increase from 60 thousand IPTV subscribers at the end of 3Q07.

BT is continuing to make strong progress with its BT Vision IPTV service. This service is provided to any BT broadband subscriber with at least a 2 Mbps DSL connection. It includes access to the Freeview digital terrestrial services for broadcast channels. It appears that 2008 will be an excellent year for this service.

Packet Vision Targeted Advertising Trial

Packet Vision ran a targeted, addressable advertising trial on the Inuk PC-based Internet IPTV service. Inuk provides TV services to about 150 thousand college and university students in the UK using a PC-based client.

The campaign featuring a Mediacom financial client ran daily on Channel 4 in the UK between 16 and 31 October. It was specifically targeted at university students across the UK so that during the same 40 seconds in which the ad spot ran, students saw an ad from a different brand to the rest of the general viewing population.

Packet Vision worked closely with Channel 4 to support the ad insertion trial. Local ad insertion is not generally available in the UK or the rest of Europe, so the programming that Channel 4 provided to Inuk had to be modified to provide the time slots for the ad insertions.

There were 44 ad insertions made during this two week period. The ads were targeted to students located in the UK but not in Scotland or Northern Ireland. Raw viewing data was provided by Inuk to Packet Vision. Packet Vision created reports for Mediacom that gave exact counts of viewers along with some demographic profiling. This is a more precise measure than the estimates ususally provided by viewer surveys.

Inuk and Packet Vision are working on a more extensive trial that will probably be five weeks long and provide more precise geographic and affinity group targeting. Packet Vision is also working with IPTV service providers in France and in Spain to set up similar trials. It is also working with Channel 4 in the UK to smooth out the sales and operational processes to support these targeted services.

Packet Vision stated that these targeting techiniques will be implement in North America, because there is already a well established infrastructure for ad insertion. The broadcasters already provide video streams that are prepared for ad insertion.

The techniques that Pacet Vision is pioneering in Europe are extremely important to IPTV. The revenue streams from advertising will be a significant addition to the IPTV business case. There is a lot of work to be done in Europe, but the potential returns are well worth it.

BT Upgrading Access Network

BT is now installing ADSL-2+ in its access network and plans to offer a 24 Mbps service in 1H08. BT is also deploying Huawei GPON systems to support a greenfield FTTH service in a new development in the Southeast of England. This development is planned to grow to 10 thousand homes over the next 25 years.

BT will offer wholesale access to this FTTH network with a service at 10 Mbps downstream and 2 Mbps upstream. 30 Mbps downstream and 100 Mbps downstream services will also be available.

BT is not planning a fiber overbuild at this time because it does not believe that this investment will produce adequate returns.

BT has been slow to upgrade its access network. The rest of Europe started moving to ADSL-2+ two years ago. The introduction of HDTV by satellite and digital terrestrial will put pressure for more bandwidth on the BT Vision IPTV service. ADSL-2+ will be an answer for those users close enough to get at least 15 Mbps, but fiber will be required in the long run.

BT to use Motorola Set-top Boxes

BT has stated that Motorola will be the lead set-top box vendor for its BT Vision IPTV service. BT stated that Motorola's experience working with the Microsoft Mediaroom software that supports BT Vision. (Motorola was the lead set-top box vendor in 2007 at both AT&T and Deutsche Telekom, both of which also use Mediaroom.)

This is another significant set-top box win for Motorola, which further cements the number one position that we stated that it enjoys in our Opportunities in TelcoTV report that we published a few months ago.