Mobile Television in Italy: the Key to Success,Intellect the Cause of Failure Distribute Not ABSTRACT KEYWORDS 1

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JDTV 3 (1) pp. 53–68 Intellect Limited 2012

TOM EVENS Ghent University

BENEDETTA PRARIO University of Lugano 2012 Mobile television in Italy: The key to success,Intellect the cause of failure Distribute Not ABSTRACT KEYWORDS 1. Several years ago, the mobile and audio-visual industry was betting on Digital Video mobile television 2. Broadcasting –Copyright Handheld (DVB-H)Do and mobile television as the newest growth business models 3. opportunity. But today, commercial deployments are scarce and end-user adoption is DVB-H 4. below expectations. This article focuses on developments within the Italian market, 3G 5. known as the best developed market for mobile television services in Europe. Making digital dividend 6. a case study analysis, the article aims to provide an in-depth overview of the Italian case study 7. mobile television market, and a better insight into the business model design issues Italy 8. mobile service providers face with regard to mobile television. Such an understanding 9. of the pioneering Italian mobile market makes it possible to identify the key factors 10. of the initial success and eventual failure of DVB-H services, setting perspectives for 11. future mobile television services and industries all over the world. 12. 13. 14. INTRODUCTION 15. Originally, mobile television raised high hopes of major growth for both 16. the telecommunications and media industries all over the world, but these 17. expectations have not been met for different reasons. Undeniably, still now 18.

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the development perspectives of mobile television industries are fundamen- 1. tal. First, for the digital dividend policy, which is at the top of the European 2. governments agenda, and second, because of technological developments 3. that are driving the uptake of mobile Internet and video. 4. In this article, specific focus will be placed on the business model of mobile 5. broadcasting services in Italy. Whereas operators in most European countries 6. were reluctant to invest in building a Digital Video Broadcasting – Handheld 7. (DVB-H) network to convince customers to buy DVB-H-enabled handsets, 8. Italy became known as the main developed mobile television deployment in 9. Europe. However, market growth proved considerably lower than expected. 10. In addition, the main Italian mobile operator, Telecom Italia Mobile (TIM), 11. decided to stop its DVB-H offer in late 2010. The aim of the article is to give 12. an in-depth analysis of the Italian mobile television market and provide a 13. better understanding of several business model design issues mobile service 14. providers face with regard to mobile television. Such a thorough understand- 15. ing of the pioneering Italian market should make it possible to identify the 16. key factors of initial success and eventual failure of DVB-H services, setting 17. perspectives for future mobile television services. The most significant insight 18. provided by the following analysis of Italy is that DVB-H is regarded as 19. less promising than third-generation (3G) and2012 4G mobile telecommunica- 20. tions technology as a way of providing future mobile television services. 21. Assessing this future may not only have far-reaching implications for the 22. mobile industry, but may have relevance for policy-makers as well. Now that 23. analogue terrestrial television has been switched off in (most countries in) 24. Europe, the question as to how to benefit from this released spectrum is at 25. stake. The allocation of these frequencies allows for the creation of new distri- 26. bution networks, such as digital terrestrial television (DTT), and the support 27. of innovative wireless services,Intellect including mobile television and mobile broad- 28. band. As mobile television has failed to deliver added value, it can be ques- 29. tioned whether allocating additionalDistribute spectrum to mobile television eventually 30. leads to the creation of public and private value, and whether this spectrum 31. should be allocated to providing ‘real’ value-added services (Evens et al. 2010). 32. In their analysis of the Notdigital dividend in Austria, Börnsen et al. (2011) have 33. shown that mobile broadband would generate considerably higher economic 34. value than digital television services. 35. 36. CopyrightDo 37. RISE AND FALL OF MOBILE TELEVISION 38. Since the mid-1990s, advances in digital equipment and network technology 39. have encouraged a rapid growth in the individual consumption and personal 40. experience of multimedia content. These developments not only enable view- 41. ers to personalize preferred content they want to watch, thanks to interactive 42. services (anytime) and the multitude of advanced user terminals (anyhow), 43. viewers can adapt their viewing behaviour to their preferences. As part of 44. this trend towards more personalized media consumption, and alongside 45. the growth of the mobile telecommunications sector, ‘the place of viewing is 46. no longer limited to the television receiver at home, but is widened to allow 47. personalised viewing of television by individuals wherever they are located’ 48. (DigiTAG 2005: 5). Thus, mobile broadcasting offers the opportunity to watch 49. regular television and interactive programming directly on one’s mobile hand- 50. set while being ‘on the move’ – in public transport, waiting for an appointment 51. or at work. This idea of watching television on the move is anything but new. 52.

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1. As Trefzger (2005) has illustrated, Sony introduced its first portable television, 2. the Watchman, in 1982, but unlike with its music peer the Sony Walkman 3. consumer adoption remained low. There were several reasons for the failure 4. of the Watchman, e.g. its dimensions (nearly 20 cm high and 9 cm wide), 5. its screen (tiny) and its battery power (too low) (Günthör 2005). However, 6. technological innovations now offer digital image quality and the possibil- 7. ity of reception on a consumer device that provides people with ubiquitous 8. and permanent connectivity: the mobile phone (Castells 2006). Consumers 9. are increasingly using these advanced phones for information and entertain- 10. ment purposes, such as watching video clips, listening to music, browsing the 11. Internet, posting social media status updates, etc. As mobile devices and tele- 12. vision are strongly rooted within people’s daily lives, a bright future has been 13. predicted for mobile broadcasting since the beginning of the century. Being a 14. prime example of the enduring convergence spiral, mobile television has been 15. widely discussed in analyst reports, trade magazines and academic papers, 16. and has typically generated overenthusiasm and unrealistic expectations. 17. Equipment manufacturers and especially mobile service operators had several 18. incentives to invest in the deployment of mobile television services since they have 19. to cope with saturating markets. In most parts of the world, mobile subscription 20. rates are close to or even over 100 per cent penetration (Andersson2012 2005). Faced 21. with falling average revenue per user (ARPU) due to intensified competition, the 22. entrance of low-usage consumers, and regulatory interventions regarding roam- 23. ing fees and termination tariffs, the European mobile industry saw opportuni- 24. ties for additional revenues and began to roll out a dedicated DVB-H network 25. infrastructure. The creation of a new kind of ‘mobile multimedia’ would enable 26. mobile network operators to increase the ARPU by opening up the market 27. potential of media industries. On the other hand, traditional business models 28. of these media industries, and the audio-visualIntellect industry in particular, became 29. highly challenged by audience fragmentation induced by the proliferation of new 30. digital channels and the omnipresence of distributionDistribute platforms (e.g. cable oper- 31. ators and IPTV, but also online video aggregators YouTube, Hulu, etc.). For the 32. television industry, mobile television would mean a new distribution platform 33. for its content (Urban 2007) and for connectingNot with new and existing audi- 34. ences (Södergård 2003). Despite these supply-side expectations, however, there 35. was little enthusiasm on the demand side. In addition, the industry identified 36. (yet unrealized) business opportunities for adding revenue, but willingness to 37. pay among consumersCopyright provedDo rather disappointing since added value of mobile 38. television was far from obvious. These diverging expectations and interests of the 39. supply and demand sides regarding the product in the value chain eventually led 40. to a questionable business model (Jarvenpaa and Loebbecke 2009). 41. 42. 43. METHODOLOGICAL FRAMEWORK 44. The resource-based view of the firm (see Wernerfelt 1984; Dierickx and 45. Cool 1989; Barney 1991) and the institutional theory serve as the theoretical 46. framework for the analysis of the mobile television market in Italy. As argued by 47. Pagani et al. (2005), exclusive resources are considered the main source of sustain- 48. able competitive advantage for a given firm. Collins and Montgomery (1998) 49. distinguish between material and immaterial resources and organizational 50. capabilities. Whereas material resources are tangible and easily identifiable, 51. immaterial resources include reputation, brands, corporate culture and busi- 52. ness intelligence. Organizational capabilities mainly refer to a firm’s ability to

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efficiently combine these resources in planning and implementing its value- 1. creating strategy. Whereas these resources should ideally be neither perfectly 2. imitable nor substitutable without great effort in order to reinforce a strategic 3. position in the market, competitors are often able to counter the firm’s value- 4. creating strategy with a substitute (Barney 1986). Institutional theory deals 5. with these instances of imitation and differentiation amongst organizations 6. competing in the same market. As in the mobile television industry, telecom- 7. munication operators mostly enter into exclusive partnerships with content 8. suppliers, and this rationale applies to this emerging market. Furthermore, 9. as suggested by Powell and Di Maggio (1983), successful organizations are 10. regarded as the sector benchmark, which other organizations are likely to 11. imitate. Within telecommunication markets, the ARPU serves as the main 12. indicator of market performance. Hence, product and pricing strategies as well 13. as business models of incumbent operators are often imitated by challengers 14. illustrating, the importance of long-term innovation in the sector. 15. Although the emergence of digital technology has broadened the broad- 16. casting ecosystem, the success of new end-user applications such as mobile 17. television services will depend on multiple factors, which go far beyond 18. the technological issues. As Braet and Ballon (2008) argue, the main design 19. choices for framing mobile television business models2012 to be addressed are not 20. predominantly technological in nature, but rather related to the cross-impact 21. of strategic cooperation and competition issues, market expectations, and 22. legacy situations. In this perspective, business model design issues were almost 23. completely overlooked while launching mobile television services as a result 24. of a technology-narrowed perspective. Although technology was the driver 25. for these new innovative services, its business model seemed severely under- 26. developed and the establishment of a sustainable mobile ecosystem failed. 27. The growing body of literatureIntellect on business model design (e.g. Ballon 2007; 28. Bouwman et al. 2008) defines four interrelated design domains of business 29. models for mobile services, i.e. service,Distribute technology, organization and financial. 30. The Italian mobile television market (both 3G and DVB-H) is examined 31. as a particular case of the mobile industry while focusing on the abovemen- 32. tioned aspects of the businessNot model design: market structure and cooperation 33. models (organization), industry revenues and subscription rates (financial), 34. content supply and pricing (service) and transmission technologies (tech- 35. nology). Because some of these issues are closely intertwined, they will be 36. Copyrightdiscussed in variousDo sections throughout the text. The goal of this case study 37. is to understand the dynamics in the Italian mobile television market and 38. examine the strategies and business models deployed by the present players 39. regarding the DVB-H technology. This business model analysis should help 40. to rethink the future of DVB-H in particular and mobile television services in 41. general. The case study is based on a multi-method research approach that 42. includes six face-to-face interviews with representatives from all main service 43. operators, and document analysis of corporate publications (annual reports, 44. press releases, etc.) and publicly available information (press coverage). 45. 46. CASE STUDY: ITALY 47. 48. General telecom market overview 49. In terms of the penetration of mobile services, Italy is considered the most 50. developed country in Europe. According to the OECD (2011), Italy has 51. the highest penetration rate of cellular mobile devices in the world. With a 52.

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1. penetration rate of 146.1 per cent (91.4 million subscriptions in a total popu- 2. lation of roughly 59 million people), Italy is one of the leading countries – 3. compared to a global average of 102.6 mobile subscribers per 100 inhabitants. 4. About 85 per cent of all mobile subscriptions are pre-paid, which mainly 5. explains the extraordinary growth of mobile services in the Italian market. 6. Although pre-paid cards have benefits both for operators (reducing consumer 7. acquisition and billing costs, targeting new consumer segments, etc.) and 8. consumers (better cost control, lower switching costs, etc.), this flexible type of 9. service does not guarantee a stable source of income and allows the entrance 10. of low-usage consumers (Gruber 2005). Hence, it is no surprise that Italy has 11. one of the lowest mobile ARPUs in the world ( 16.2 compared to a global 12. average of 24.3), which is decreasing year by year. 13. Mobile revenues account for nearly 17.6 billion, constituting over half of 14. total telecommunications revenues in the Italian market, one of the highest 15. percentages in Europe. This proportion may indicate the strategic importance 16. of the mobile sector in the overall Italian telecommunications market, and 17. helps explain the mobile industry’s focus on further growth opportunities by 18. means of launching innovative end-user services. Although regulation towards 19. lower end-user tariffs led to a 4.4% decrease in mobile revenues in 2009, the 20. mobile industry is still the most important revenue-generating2012 and profitable 21. branch of telecommunications in Italy (AGCom 2010). Simultaneously, the 22. market for 3G services is growing rapidly in Italy, in contrast to many other 23. European countries, where the transition to 3G services is taking longer than 24. originally planned and has taken off only in recent years. Whereas already 25. 24.6 million Italians (or 43%, considerably higher than the global average 26. of 18%) had already purchased a Web-ready mobile terminal in 2007, pene- 27. tration grew to 57% with more than 33 million advanced end-user terminals 28. (mainly smartphones) in the market inIntellect 2009 (OECD 2011). The number of 29. unique users regularly consuming mobile Internet is more than ten million. 30. Total revenues for mobile Internet among allDistribute operators are estimated at 31. around 400 million (Politecnico di Milano 2010). 32. As in other European telecommunications markets, one public opera- 33. tor (all state-owned telecom activitiesNot were concentrated in Telecom Italia) 34. was granted a monopoly until the liberalization in the mid-1990s. In 1993, all 35. mobile-related telecommunications operations were transferred to its subsidi- 36. ary TIM. A second mobile operator was announced in 1990 and licenced 37. in 1994. The contestCopyright was wonDo by Omnitel (today Vodafone Italy), whose entry 38. triggered off a very rapid growth in terms of subscribers. Additional compe- 39. tition arrived with the entrance of Wind and Blu (the latter failed in 2002). 40. In 2000, five Universal Mobile Telecommunications System (UMTS) licences 41. for 3G mobile telecommunications services were auctioned by the Italian 42. government. Incumbent 2G operators TIM, Omnitel and Wind were granted 43. a licence, as well as new market entrants H3G and Ipse. The first commer- 44. cial 3G launch was undertaken by H3G subsidiary ‘3 Italia’ during 2003. 45. Adoption of 3G services was slower than expected due to limited availability 46. of 3G-enabled handsets. In addition, incumbent 2G firms were not keen on 47. promoting 3G services after they had invested in upgrading 2G networks to 48. deliver advanced services (such as multimedia messaging) and wanted to gain 49. back these investments. Only the new entrant H3G showed a real interest in 50. advancing 3G adoption (Gruber 2005). 51. Today, the structure of the Italian mobile telecom market has evolved to an 52. oligopoly with two leading players and two challengers (see Table 1). Thanks

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1996 2001 2006 2009 1. 2. TIM (%) 89 52.3 42.8 40.4 3. Vodafone (%) 35.9 35.7 4. Wind (%) 13.6 16.9 5. H3G (%) 7.7 7.0 6. Blu-Wind-Omnitel (%) 11 47.7 7. Revenues (in billion) 3.3 12.1 18.1 17.6 8. 9. HHI-index 8042 4153 3365 3244 10. Table 1: Market shares and revenues for mobile telecommunications (AGCom 2010, 11. own elaboration). 12. 13. 14. to competition in the market, the pioneering company TIM has lost its domi- 15. nant position, but is still the leading player with 40.4% market share, followed 16. by Vodafone Italy (35.7%), Wind (16.9%) and H3G (7.1%). It is expected that 17. especially Wind and H3G will gain market shares in the coming years at the 18. expense of the former monopolist TIM. Simultaneously, the mobile industry is 19. suffering from market saturation while mobile 2012revenues have been declining 20. in recent years. Due to increasing competition, market concentration has been 21. gradually declining since the liberalization of the sector and the introduction 22. of 3G licences (HHI concentration index of 8042 in 1996 to 3242 in 2009). 23. 24. 25. Mobile television market structure 26. Italy has been a pioneer in deploying mobile television services in Europe. 27. 3 Italia (an H3G subsidiary)Intellect was the first in Europe to launch a commercial 28. DVB-H service during the soccer World Cup in Germany in 2006 (UMTS 29. already in 2005). In addition, TIM andDistribute Vodafone came up with a DVB-H supply 30. several months later. Today, three operators offer mobile television services 31. using UMTS (H3G, Vodafone and TIM) and DVB-H (H3G and Vodafone). In 32. late 2010, TIM announcedNot that it would stop its DVB-H offer. The market for 33. mobile television services (both 3G and DVB-H) rapidly expanded after its 34. launch, but the market soon saturated and subscription figures began drop- 35. ping. Indeed, Table 2 shows that the number of subscribers has been growing 36. Copyrightfor two years, Doand started to decline since 2007. At the launch of its service, 37. 3 Italia forecasted about seven million Italian users by 2011. To date, however, 38. ‘only’ some 600,000 Italians are subscribing to mobile television services (either 39. paid or free). In 2007, a report by market analysis firm Juniper Research fore- 40. casted that the number of mobile TV subscribers in Western Europe would 41. pass twenty million by 2011. However, the actual number of mobile television 42. subscribers in Europe is estimated at 6.2 million, including 1.1 million to broad- 43. cast (DVB-H) and 5.1 million to unicast (UMTS) television services (EAO 2009). 44. These figures suggest that consumer enthusiasm has remained below expec- 45. tations and that the forecast penetration and revenues for mobile television 46. services were roughly overestimated in the past (Arthur D. Little 2009). 47. In Italy, no standard tender process for DVB-H licences was organized. 48. At the beginning of 2006, mobile operator H3G acquired Canale 7, a DTT 49. network operator and broadcaster, paying 220 million. This way, 3 Italia 50. was able to implement a DVB-H network and launch a broadcast supply. 51. A second DVB-H multiplex was acquired by Reti Televisive Italiane (RTI), part 52.

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1. 2005 2006 2007 2008 2009 2007–2009 (%) 2. Unicast (UMTS) 32.57 92.14 85.62 58.28 38.48 −55 3. Broadcast (DVB-H) 0 369.61 888.82 734.92 557.75 −38 4. 5. Total Italy 32.57 461.75 974.44 793.2 596.24 −39 6. Table 2: Mobile television subscriptions in Italy (in 1000s) (EAO 2009). 7. 8. 9. 10. of the Mediaset Group, through its acquisition of Europe TV. For competition 11. reasons, Mediaset was prohibited to offer retail mobile TV services to end- 12. users and generate advertising revenues. The network would have to provide 13. wholesale access to telecom operators, which could acquire spectrum under 14. equal, transparent and non-discriminatory conditions. Additionally, the plat- 15. form would also transport third-party and non-affiliated content (Vesa 2009). 16. Eventually, Vodafone and TIM agreed to use Mediaset’s multiplex for a period 17. of five years with an option for a further five years. 18. Today, 3 Italia is the market leader for mobile television services in Italy. 19. It has a roaming agreement with TIM allowing its customers to connect to 20. 2G services when they move out of 3G coverage (about 90 2012per cent of the 21. Italian area). The company was the first to launch its ‘3TV’ service over DVB-H, 22. and plays a key role as a vertically integrated operator that owns both the 23. network and the content. By controlling the entire value chain, 3 Italia is 24. able to manage the network infrastructure, select and package channels, 25. and take care of the billing procedures. The mobile supply is composed of 26. the in-house-produced La3 channels, in addition to satellite broadcaster Sky 27. and public broadcaster RAI. It does not provide the popular Mediaset chan- 28. nels. TIM is the leading mobile operatorIntellect and was the first to provide mobile 29. television (‘Maxxi Mobile TV’, now rebranded ‘TIM TV’) based on the UMTS 30. technology. The pay-TV supply is composed of streamingDistribute traditional broadcast 31. channels (except for the public broadcaster RAI), video-on-demand and addi- 32. tional content. In 2010, TIM shut off its DVB-H-based television service by not 33. renewing its five-year contract with Mediaset.Not The company argued that the 34. DVB-H technology proved too weak for delivering a compelling user expe- 35. rience and decided to bet on the competing UMTS platform for launching 36. mobile TV services. Finally, Vodafone Italy launched its service in 2006, making 37. use of its ownCopyright transmissionDo infrastructure in conjunction with the DVB-H 38. capacity provided by Mediaset. Similarly, to TIM, the company entered into 39. a five-year contract with the multiplex operator. The company offers broad- 40. cast content mainly from Sky and Mediaset, and on-demand content (football, 41. entertainment) via its ‘Vodafone Live!’ portal. 42. 43. 44. Service offerings 45. Following on from an overview of the Italian mobile television market struc- 46. ture, this section focuses on the operators’ mobile television service offerings. 47. In literature, content bundling, together with pricing, is regarded as an essential 48. component in the value proposition of mobile service platforms (Prario 2007). 49. Therefore, the acquisition and packaging of content are major business model 50. design issues to tackle (Evens et al. 2011). From several pilot projects and 51. commercial mobile broadcasting deployments, it can be ascertained that the 52. quality and the range of supplied content are highly critical for user acceptance.

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The diffusion of mobile television services depends crucially on content availa- 1. bility and attractiveness (Schuurman et al. 2009). Whereas some experts believe 2. that conventional broadcasting content should suffice, others argue that mobile- 3. specific content is a vital asset for creating value in the longer term. However, the 4. development of content specifically designed for mobile consumption is expen- 5. sive, and may undermine the viability of the business model. Consequently, 6. mobile service providers can gain a competitive advantage over other operators 7. when establishing easy, direct and cheap access to (premium) content. 8. Table 3 summarizes the content offerings and prices of all three mobile 9. television operators in the Italian market. Without discussing this overview in 10. detail, it shows that all operators have opted for a pay-TV strategy instead of 11. a free-to-air supply. Although the Italian competition authority ruled that TIM 12. and Vodafone cannot be obliged to share advertising income with Mediaset, it 13. seems that both chose a pay-for-content strategy (either flat fee or pay-per- 14. view). The benefit of this strategy is that it can be applied both to DVB-H and 15. UMTS. This pay-TV strategy relates to the diverging interests between supply 16. and demand. Whereas operators hope to generate extra revenues from mobile 17. television, consumers regard it as a (free) complementary service on top of 18. basic voice and data services. Although prices seem reasonable at first glance, 19. pricing may be a major threshold for service adoption2012 and may limit the serv- 20. ices’ penetration. Although this pay-TV supply may be attractive to a small 21. innovative segment of the population, this strategy failed to convince a critical 22. mass of consumers needed to create a sustainable revenue basis. 23. In terms of content, all operators provide three main types of video 24. content: (1) traditional broadcasting channels in live streaming, (2) video- 25. on-demand (sports, news, music clips, etc.) and (3) mobile multimedia 26. content (MMS, games, music, chat, etc.). Mobile television thus includes 27. linear broadcasting streamsIntellect as well as interactive services. Although mobile- 28. specific content was predicted as a success factor, only 3 Italia provides 29. mobile-suited programming specificallyDistribute developed for mobile viewing. This 30. may be due to the high production costs related to this type of content (3 Italy 31. uses in-house productions). When examining the channels offered, no opera- 32. tor combines the two mostNot watched television channels in Italy (i.e. RAI Uno 33. and Mediaset’s Canale 5) in the same package. 3 Italia has no agreement 34. with Mediaset whereas Vodafone (and TIM) has no partnership with RAI (or 35. La3). Thanks to the supply of La3, 3 Italia is able to provide most compelling 36. Copyrightmarket offer inDo terms of content supply – albeit the most expensive offer for 37. the consumer. However, the analysis reveals that the content supply remains 38. limited and does not provide the consumer with a wide array of broadcast- 39. ers. This lack of content – only nine channels are available with 3 Italia and 40. Vodafone offerings – may be one important explanation for the slow market 41. developments of mobile television in Italy. 42. 43. Cooperation models 44. 45. In addition to the above-mentioned value proposition, cooperation models may 46. explain the performance of the three operators. As illustrated by Prario (2007), 47. two different business models emerged in Italy: an operator-centric model and 48. a wholesale model. As discussed, 3 Italia operates along the entire value chain 49. (content provision partially outsourced). By acquiring national free-to-air 50. channel Canale 7, it obtained a DVB-H frequency and is able to offer broad- 51. cast content directly to the consumer. The operator is pursuing agreements 52.

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1. Streaming VoD/PPV Others 2. Operator Content Price Content Price Content Price 3. 4. Channels of Up 1.49 to News 2.99 for Backgrounds Access to La3 (e.g. La3, 2.29 per down- the portal is 5. Entertainment Ringers 6. La3 Cinema) day loaded free Concerts video Games 7. Sky channels The price of (avaible for 8. (especially the ‘other Football 72 hours) Music 9. Sky TG24, Fox matches content’ 10. Mobile) 1.49 for Traffic news depends on 11. Concerts telefilm, its typology Channels of Ticket one 12. cartoon RAI Soap opera Cinema 13. portal 14. Concerti 3 Adult content Chat 15. Quiz 16. 3 Sport TV 17. Cartoon 18. Network 19. 20. Soap TV 2012 21. Channels 1.5 per The main offer Cost per Backgrounds 2–4 for 22. week, is called ‘100 channel: ringers Mediaset Ringers 23. 5 for per cent Video’ 1.5 1–2 per 24. Sky unlimited and includes Games 1.50 for logo 25. access horoscope, the goals 26. Telecom during meteo, news Logo 27. Media Group 30 days 28. (La7, MTV) IntellectGoal of football 29. Sky Mobile matches (Serie 30. TV package ADistribute TIM) available 31. Videoclips 32. at 1.5 per 33. weekNot Traffic news 34. (traffic cam) 35. 36. Adult content 37. CopyrightChannels Do1.49 per Video goal Backgrounds 1–2 per 38. week of football ringer Sky Ringers 39. matches (Serie 2.5 per 40. Mediaset A Vodafone) Games 41. game (Mediaset News (TG5, ca. 500k 42. 1.5 per Fiction– TG1) songs 43. logo Mediaset 44. Cartoon 45. Entertainment) 46. Fiction 47. Adult content 48. 49. (Winter 50. Olympics) 51. 52. Table 3: Services and prices of mobile TV operators (own elaboration).

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with different broadcasters to create its bouquet of channels, complemented 1. with its own La3 channels. 3 Italia’s business model is completely different 2. from the one used by Vodafone and TIM until December 2010 (see Figure 1). 3. As they do not own a DVB-H licence, both operators have an agreement with 4. multiplex operator (and broadcaster) Mediaset, which manages the network 5. operations and provides wholesale access to third parties. This way, Vodafone 6. is able to exploit its brand as a distribution platform for third-party content 7. and service providers by entering into long-term partnerships and developing 8. business synergies (TIM previously applied the same strategy). In the literature 9. (conditions for) such partnerships were found important for market success. 10. The consequences for both cooperation models may be obvious in terms 11. of financial performance, but they have no major implications for consumers 12. (since all service providers ‘own’ the customer). Its vertical integrated business 13. model allows 3 Italia to control the entire value chain and to play a central 14. role in the mobile television market. The company fulfils all business roles 15. (content provision, packaging, transmission and access) and is able to create 16. operational synergies, internalize content costs and capture all profit margins. 17. Owning its own broadcast channels allows 3 Italia to acquire content at a rela- 18. tively low cost – although it has to make substantial investments in infrastruc- 19. ture establishment and maintenance – and allows2012 the company to achieve 20. operational excellence. This contrasts with the wholesale model deployed by 21. TIM and Vodafone, which generates considerably lower profit margins due 22. to higher costs for content affiliation (and DVB-H capacity). In 2009, TIM 23. reported 149 million payments to television operators (particularly Mediaset 24. and Sky Italia) to provide ‘TIM TV’, contributing to high fixed costs and 25. lower profit margins. In this cooperation model, Mediaset owns the network 26. capacity and acts as a gatekeeper for both operators that seek access to the 27. consumer. According to theIntellect terms of the contract, TIM and Vodafone have 28. been paying Mediaset 14 million per year to access spectrum. In most coun- 29. tries with DVB-H deployments, however,Distribute the mobile television value chain is 30. based on an operator-centric model. 31. 32. Not 33. 34. 35. 36. CopyrightDo 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. Figure 1: Mobile TV value chain (IDATE 2008). 52.

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1. Technology design 2. Except for TIM, which abandoned DVB-H in 2010, Vodafone and 3 Italia opted 3. for a mobile television service delivered via both the DVB-H and 3G network, 4. whereas TIM abandoned DVB-H in 2010. Apart from 3 Italia (together with 5. wholesale provider Mediaset), which also built its own dedicated DVB-H 6. network, all mobile operators heavily invested in the further establishment of 7. 3G networks, as they saw revenue opportunities in delivering mobile data serv- 8. ices. Vodafone Italia, for example, has reported investments of around 9 billion 9. in rolling out and optimizing UMTS network infrastructure since 2005. These 10. investments may mainly explain TIM’s strategic move to abandon DVB-H. 11. Given the considerable costs for content partnerships and network leasing, 12. and given the poorly developed demand side and disappointing revenues, 13. the decision should be understood from a return-on-investment perspective. 14. Although TIM argued that its exit was technology-related due to the technical 15. complexity of an end-to-end mobile broadcasting system, the difficulties with 16. mobile television are predominantly financial. Taking into account the shrink- 17. ing consumer market for DVB-H services, the cost of accessing content and 18. spectrum could no longer be justified. Therefore, TIM decided to prioritize an 19. optimizing coverage of its own 3G network, which is more flexible to other 20. services than the DVB-H technology and allows the carriage of2012 multiple end- 21. user services. Increasingly, the company is faced with a continuing demand 22. growth of mobile broadband and data services (+13.2 per cent revenues 23. in 2009/2010) thanks to the expansion of the smartphone market. In contrast 24. to dedicated DVB-H networks, 3G can be applied for multiple purposes and 25. services including mobile television, mobile Internet, Internet telephony and 26. mobile gaming. Following this rationale, it is expected that Vodafone is consid- 27. ering a similar move and is likely to closeIntellect its DVB-H service after its five-year 28. agreement with Mediaset has expired. This way, these mobile operators try to 29. obtain more control over their network and services,Distribute and will be less depend- 30. ent on external capacity suppliers. Finally, this strategy could also be explained 31. using cost control logic, as mobile telecommunications in Italy are faced with 32. decreasing revenues and profits (party due to price regulations). TIM, for 33. example, reported that 2010 revenuesNot declined, with 10.5 per cent compared 34. to 2009. This may also increase the need for more efficiency, cost-cutting and 35. product rationalization with the incumbent operator. 36. 37. CopyrightDo 38. DISCUSSION: FUTURE PERSPECTIVES 39. In the previous section, it was illustrated that the leading Italian mobile 40. operator TIM abandoned DVB-H mainly for financial rather than technical 41. reasons, and it was suggested that other operators (in case Vodafone) will 42. allegedly imitate this exit strategy. The failure of DVB-H, however, should 43. not automatically imply the demise of mobile television services in Italy and 44. elsewhere. As Kivisaari et al. (2008) argue, service operators were focusing 45. mainly on the technical aspects of the service, thereby neglecting various 46. organizational and financial components of the mobile television business 47. model. Conflicting interests between several stakeholders in the mobile 48. ecosystem eventually resulted in an unsustainable business model. However, 49. the coincidence of multiple technological developments may now provide 50. new growth opportunities for mobile television and video usage. 51. First, telecommunication operators report an expanding demand for 52. mobile Internet and especially an exponential growth in video content due

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to the popularity of social networking sites and streaming video platforms. 1. As a result, the proportion of video traffic in the overall mobile broadband 2. traffic has increased to over 50 per cent and is expected to grow further in 3. coming years (Levy 2010). According to the yearly Cisco Networking Index 4. (Cisco 2011), global mobile data traffic will increase 26-fold between 2010 5. and 2015, with video accounting for 62 per cent of global mobile IP traffic. 6. Second, the advent of mobile IP-connected devices such as smartphones 7. and tablet PCs is now moving the market to better consumer experience and 8. more viable business models for mobile television services. These devices with 9. improved back lighting, larger screen sizes and improved image quality allow 10. for hyper-personalized media consumption and have contributed to increased 11. viewing time and optimized viewing experience. The availability of applica- 12. tions will enhance this evolution towards mobile viewing. Third, these devices 13. are equipped to stream content over 3G and especially Wi-Fi connections. 14. From a technological perspective, Wi-Fi is more reliable than 3G, consumes 15. less battery power and requires no additional subscription charges. Fourth, 16. by prioritizing traffic and utilizing both cellular and wireless networks for 17. mobile television, mobile carriers minimize network bottlenecks and reduce 18. upgrade investments. Whereas previously the business model for mobile tele- 19. vision was uncertain due to conflicting interests 2012between several stakeholders, 20. chicken-and-egg problems for available content and handsets, and expensive 21. costs related to the DVB-H infrastructure, these problems could be resolved in 22. today’s ‘always-on’ mobile consumer market. 23. The increasing penetration of smartphones and tablet PCs, and the 24. sound technology behind delivering video quality to mobile devices could 25. open the way for a bright mobile TV future. From a user perspective, this 3G 26. scenario may provide several benefits. Apart from the improved quality of 27. experience, existing 3G-basedIntellect mobile television services include a much 28. wider array of channels. Whereas Italian consumers had access to only nine 29. streaming DVB-H channels, the FrenchDistribute mobile television packages supplied 30. by Canal-Sat and Orange, which are exclusively delivered over 3G, include 31. more than 60 channels. In addition, consumers are not obliged to buy an 32. entirely new mobile deviceNot for accessing DVB-H channels, but can rely on 33. their trusted 3G-enabled device to watch multimedia content. This belief is 34. shared both by broadcasters and operators, who now enter a struggle for 35. platform leadership (Curwen and Whalley 2008). Whereas the latter aim 36. Copyrightto preserve theirDo powerful gatekeeper role, the former see opportunities in 37. connecting directly with the consumer and building up a customer relation- 38. ship. Several broadcasters are now launching mobile phone and second- 39. screen applications allowing consumers to pull and interact with streamed 40. video content. In an extreme case, broadcasters could set themselves as 41. virtual mobile network operators (MVNOs) and retail mobile content 42. directly to the consumer. Managing the customer relationship (owning the 43. customer) allows broadcasters to exploit customer data and generate addi- 44. tional advertising revenues. Mobile carriers have similar strategies and are 45. launching apps and portals that provide access to streaming content services 46. preferably over 3G connections. 47. Because this growth in mobile data consumption is occurring faster than 48. carriers can add capacity, this evolution may stretch the capabilities of exist- 49. ing network infrastructure and now encourages operators to heavily invest in 50. network upgrades in order to ensure quality of the viewing experience. Telecom 51. experts consider 3G cellular networks’ throughput and latency performance 52.

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1. inadequate for mobile television services, and expect that the deployment of 2. 4G/LTE (Long-Term Evolution) will enable a significant improved multime- 3. dia experience. However, current expenditures in upgrading 3G networks may 4. hold back operators’ investments in future-proof 4G/LTE networks (Bohlin 5. et al. 2007). From a policy perspective, the allocation and assignment of spec- 6. trum for LTE (and beyond) is an essential part of the digital dividend spec- 7. trum. In October 2011, Italian mobile operators acquired 4G radio frequencies, 8. paying a total of 3.9 billion, and will start LTE trials in 2012. This may suggest 9. that mobile operators consider the use of LTE for supplying amongst other 10. mobile videos However, since network operators are forced to invest in network 11. upgrades, they may be eager to pass the bill to those platforms that are driving 12. this growth in data consumption. As this increased traffic comes from online 13. platforms such as Google, Facebook and YouTube, this may trigger off disputes 14. on cost sharing for network investments. This refers to the topical net neutrality 15. policy, according to which telecommunication operators could charge service 16. and content providers for delivering higher quality of experience and prioritiza- 17. tion of traffic. Should broadcasters be asked to pay transmission costs for their 18. mobile supply, this could form an important threat to the business model of 19. mobile television services and cease the renewed future of mobile television. 20. 2012 21. 22. CONCLUSIONS 23. By means of a case study analysis, this article investigated the deployment of 24. mobile television services in Italy. The goal was to understand the main opera- 25. tors’ strategies regarding DVB-H technology and mobile television supply. The 26. Italian market has long been considered one of the most developed markets 27. in the world, but market growth and service penetration remained below the 28. expectations. Leading mobile operator IntellectTIM decided to abandon DVB-H in 29. late 2010, pricking the mobile television ‘bubble’. In order to identify the keys 30. to success and the causes of failure, several aspectsDistribute of the business model 31. (service, technology, organizational and financial design) were considered 32. and analysed from a resource-based view of the firm. The analysis revealed 33. that no single operator is able to provideNot a comprehensive supply of television 34. channels that could compete with traditional offerings. The channel supply 35. was rather limited, with either the popular Mediaset or RAI missing. Being 36. the largest operator in the market, TIM had the most developed subscriber 37. base and the Copyrightmost well-knownDo brand, whereas H3G has two very important 38. tangible assets, which gave it a strategic and competitive advantage. First, 39. owning the DVB-H licence allows H3G to act as a central gatekeeper and 40. to control the transmission of the mobile product. Second, the ownership of 41. the La3 broadcasting group allows the operator to have relatively cheap and 42. easy access to content and to internalize all profit margins. Combining the 43. roles of network operator and content provider, 3 Italia functions as a verti- 44. cally integrated network operator so that the company can control the entire 45. value chain and realize scale economies. This is completely different from the 46. situation of TIM (and also Vodafone), which relies on the wholesale access 47. provided by Mediaset to operate a mobile television service. Since TIM and 48. Vodafone cannot internalize frequency leasing and content acquisition costs, 49. both have higher operational costs and fewer incentives to stay in the under- 50. performing DVB-H market than H3G. Hence, it is expected that Vodafone 51. will imitate TIM’s exit strategy and fully concentrate on 3G services. Thanks 52. to the rapidly increasing penetration of smartphones and tablets, which are

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driving the demand for mobile Internet, experts predict a renewed and even 1. brighter future for mobile television services. Mobile video consumption may 2. still represent a real consumer need and an expanding market. Although the 3. technology design for mobile television (i.e. DVB-H) failed, most operators 4. and broadcasters now bet on IP-based technology platforms (Wi-Fi, 3G and 5. beyond) to deliver video quality to mobile end-consumers. 6. The analysis presented in this article only took into account the specific 7. market circumstances of the Italian mobile television case. However, this anal- 8. ysis could be placed within a broader European and even global perspective as 9. well. All over the world, except for Japan and South Korea, mobile broadcast 10. services based on the DVB-H technology have struggled to develop a sustain- 11. able ecosystem and to build a substantial subscriber base. Hence, mobile 12. operators have abandoned dedicated DVB-H networks and optimized multi- 13. purpose 3G networks that can meet the demand for mobile Internet, mobile 14. video, mobile gaming, etc. This case study analysis could be relevant not only 15. for scholars, but also for industrial stakeholders, which are keen to provide 16. value-added services to their customers, and for policy-makers, who are eager 17. to develop a cohesive vision on digital dividend issues to strengthen European 18. competitiveness in the mobile industry. In this perspective, spectrum should 19. not be safeguarded to DVB-H-based services, but2012 can be assigned to mobile 20. data applications through WiMAX, LTE and systems beyond. 21. 22. 23. REFERENCES 24. AGCom (2010), ‘Annual report. Activities and work programmes 2010’. 25. Andersson, C. (2005), Mobile Media and Applications, from Concept to Cash: 26. Successful Service Creation and Launch, Chichester: Wiley. 27. Arthur D. Little (2009), ‘MobileIntellect TV: Tuning in or switching off’, http://www. 28. adlittle.com/downloads/tx_adlreports/ADL_Report_Mobile_TV.pdf acces- 29. sed 6 April 2011. Distribute 30. Ballon, P. (2007), ‘Business modelling revisited: The configuration of 31. control and value’, Info: The Journal of Policy, Regulation and Strategy for 32. Telecommunications, NotInformation and Media, 9: 5, pp. 6–19. 33. Barney, J. B. (1986), ‘Strategic factor markets: Expectations, luck and business 34. strategy’, Management Science, 32: 10, pp. 1231–41. 35. —— (1991), ‘Firm resources and sustained competitive advantage’, Journal of 36. CopyrightManagementDo, 17: 1, pp. 99–120. 37. Bohlin, E., Burgelman, J.-C. and Casal, C. R. (2007), ‘The future of mobile 38. communications in the EU’, Telematics and Informatics, 24: 3, pp. 238–42. 39. Börnsen, A., Braulke, T., Kruse, J. and Latzer, M. (2011), ‘The allocation of the 40. digital dividend in Austria’, International Journal of Digital Television, 2: 2, 41. pp. 161–79. 42. Bouwman, H., Haaker, T. and De Vos, H. (2008), Mobile Service Innovation and 43. Business Models, Berlin: Springer. 44. Braet, O. and Ballon, P. (2008), ‘Cooperation models for mobile television in 45. Europe’, Telematics and Informatics, 25: 3, pp. 216–36. 46. Castells, M. (2006), Mobile Communication and Society. A Global Perspective, 47. Cambridge: MIT Press. 48. Cisco (2011), ‘Cisco Visual Networking Index: Global mobile data traffic fore- 49. cast update, 2010–2015’, http://www.cisco.com/en/US/solutions/collateral/ 50. ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.pdf accessed 51. 3 June 2011. 52.

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Schuurman, D., De Marez, L., Veevaete, P. and Evens, T. (2009), ‘Content and 1. context for mobile television. Integrating trial, expert and user findings’, 2. Telematics and Informatics, 26: 3, pp. 293–305. 3. Södergård, C. (2003), Mobile Television – Technology and User Experience, 4. Helsinki: VTT Publications. 5. Trefzger, J. (2005), Mobile Television-Launch in Germany – Challenger and 6. Implications, Cologne, Germany: Institut für Rundfunkökonomie and der 7. Universität zu Köln. 8. Urban, A. (2007), ‘Mobile television: Is it just a hype or a real consumer need?’, 9. Observatorio (OBS*) Journal, 1: 3, pp. 45–58. 10. Vesa, J. (2009), ‘Functional separation or functional integration: Lessons from 11. the broadcast mobile TV markets in Finland and Italy’, http://www.notinno- 12. vatedhere.fi/media/download_gallery/Vesa%20(2009)%20Functional%20 13. separation%20or%20integration%20-%20case%20MobileTV.pdf accessed 14. 11 July 2011. 15. Wernerfelt, B. (1984), ‘The resource-based view of the firm’, Strategic 16. Management Journal, 5: 2, pp. 171–80. 17. 18. SUGGESTED CITATION 19. 20. Evens, T. and Prario, B. (2012), ‘Mobile television2012 in Italy: The key to success, 21. the cause of failure’, Journal of Digital Television 3: 1, pp. 53–68, doi: 10.1386/ 22. jdtv.3.1.53_1 23. 24. CONTRIBUTOR DETAILS 25. Tom Evens is a researcher at the Research Group for Media & ICT, which is 26. affiliated to the department of Communication Sciences (Ghent University, 27. Belgium) and the InterdisciplinaryIntellect Institute for Broadband Technology (IBBT). 28. His research focuses on the political economy of new media and ICT, busi- 29. ness model analysis and public policyDistribute aspects of new media. He is pursuing 30. a Ph.D. on competitive advantage and the distribution of market power in 31. broadcasting markets. 32. Not 33. Contact: 34. E-mail: [email protected] 35. 36. CopyrightBenedetta PrarioDo is a lecturer at the Faculty of Communication Sciences 37. (Institute of Media and Journalism) at the University of Lugano (Switzerland). 38. Her research focuses on the new media and in particular on the new forms of 39. television such as digital television, mobile television and IPTV. 40. Contact: 41. E-mail: [email protected] 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52.

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