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Telcos should take 'content-lite' approach to triple play

Triple-play strategies have helped to reverse fixed-line declines in many European markets, but buying expensive premium content is not the right way to go for incumbent telecoms operators, a new report published on Tuesday claims.

According to the eighth edition of the annual Exane BNP Paribas-Arthur D Little joint report on telecoms operators, European fixed-line revenues have been under pressure for years, and incumbents' revenues have fallen by an average of 2-3% a year. This has been due to the annual 5.7% decline in fixed lines since 2005, caused by fixed-mobile substitution and unbundling.

Introducing triple-play services has enabled incumbents to hang onto their existing customers, and the report estimates that the rate of line loss will halve to around 2.5% a year from 2008 to 2015. In addition, in some markets such as France, triple play has forced a consolidation of the broadband market, leading to higher ARPU and more stable market share for existing players.

But while content, which is being increasingly offered by telcos with their IPTV services, may appear to be an attractive way to make more revenue, investing in premium content is a risky strategy for incumbents due to the high barrier to entry.

The report notes that existing pay-TV providers can pay up to €2 billion a year for content, but warns that: "Such costs cannot be amortised on a telco's customer base."

"A high investment in content is not a sensible business for telcos," said Antoine Pradayrol, sector head, telecoms operators, at Exane BNP Paribas. U.K. incumbent BT, for example, "cannot compete with the likes of BSkyB," he said.

According to Mark Mulcahey, managing director of Arthur D Little UK, the bulk of current pay-TV providers' investment is in sports.

"And competing in sports is just too expensive," he said.

But telcos do need a content strategy.

"We suggest a light-premium bundle to retain customers," Mulcahey added.

Pradayrol noted that France Telecom/Orange's move to buy content rights for football "could be the first and last example" of this kind of deal by a telco: In February 2008, France Telecom agreed to pay €203 million per season for the live rights for the top Saturday night match, a video-on-demand package, and the mobile-phone rights from France's premier football division.

But a French commercial court Monday told France Telecom to stop linking subscriptions to its Orange Foot soccer channel exclusively to its broadband packages. Rival broadband providers Iliad and Neuf Cegetel, now owned by Vivendi SA's SFR, had complained to the court that it was unfair for Orange Foot to be available only to France Telecom's broadband subscribers. The French incumbent is now considering what steps to take.

Pradayrol noted that regulatory measures as well as the development of new types of boxes to access content in the home, ranging from the Xbox to Apple TV, will make the bundling of content and access impossible.

Mulcahey said telcos will probably show an increasing desire to partner for content. "People are going to stick to what they know and not try to do more," he said.

The report also noted that that the opportunity for telcos with IPTV varies considerably from country to country as it depends on the existing penetration of pay-TV services. For example, telcos have been able to make headway in markets such as France, Spain, Italy and Portugal where pay-TV penetration was low, as well as in markets such as Belgium and the Netherlands where there is a duopoly between the incumbent operator and the cable operator.

The U.K., however, has an extremely strong pay-TV market thanks to BSkyB and Virgin Media, while Germany has a strong cable TV market.

Источник: Total Telecom

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