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TV As the Convergence Catalyst, the Road to Quad-Play

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TV As the Convergence Catalyst, the Road to Quad-Play TV, the Telco way TV, the Telco way TV as the Convergence netgem.com netgem.com catalyst, the Road to netgem netgem Quad-Play TV, the Telco way TV, the Telco way netgem.com netgem.com netgem netgem TV, the Telco way TV, the Telco way Summary There is a lot of activity in advanced markets focussed on the roll out or promotion of TV services to support triple and quad-plays. Quad-playnet is gema term that.com has been around a while but actually netit gem.com is early days in this space - less than 5% of the global population receive quad-play services from a single provider. “The greatest change in corporate culture - and the way business is being conducted - may be Quad-play provision is growing fast. A lot of attention has been the accelerated growth of relationships based... focused on large acquisitions by Tier 1 Telcos. In reality, these on partnership.” Peter F. Drucker acquisitions are generally more about consolidation than delivering quad-plays.net Thisgem paper explains why for most Telcos looking atnet TV, gem acquisition or building a service from scratch will neither be a viable, nor the best route, to deliver a compelling TV service. Partnering is normally the best route to market. Given there are many different constituent parts to a TV service, Telcos need to think through how best to partner to launch a TV service and then run the TV service. Opting for a full managed service - (or ‘TV as a Service’) TV, the Telco way TV, the Telco way is the best route for many Telcos. Netgem expect the market to grow rapidly over the coming years with the adoption of the full managed TV service model. netgem.com netgem.com netgem netgem TV, the Telco way TV, the Telco way The concept of Telcos bundling services together is not new. There is a surge of activity occurring now to support triple and quad-plays. In Europe, there was a record level of M&A activity in 2014 and 2015 with convergence plays as one central rationale Introduction alongside the ongoing consolidation of the market. The current wave of convergence plays is different from its predecessors and tends to be driven by the need to offer integrated propositions to consumers via true Triple- and Quad-plays across TV, Mobile, Fixed Telephony and Broadband. The convergence is also multidirectional across Mobile, Fixed, ISP and TV providers: for mobile operators this means expanding from mobile into broadband and TV, for fixed providers into TV and wireless, for TV providers netgemphone.com into fixed and mobile.netgem.com There are a range of strategic rationales for these convergence plays which arise from 4 different areas: • Bundling services as a mechanism to boost ‘net adds’ , reduce churn rates and drive customer acquisition while impacting positively on revenue metrics • Respond to actual convergence plays from direct competitors in market netgem • Driving usage andnet comparativegem advantage primarily from network assets (e.g. 4G or Fibre networks) but also from other company assets (e.g. retail or channel capabilities) • Defensive plays against disruptive entrants such as OTT players mobile TV, the Telco way TV, the Telco way TV internet netgem.com netgem.com netgem netgem Number of recent Telco M&A deals: the shift form TV, the Telco way TV, the Telco way in-market consolidation to cross-sector M&A. European M&A Activity 7 7 These drivers for convergence will continue to underpin convergence across 6 the sector and if anything their intensity will increase over time as more marketsnet mature.gem From a.com TV service perspective, two additionalnet factorsgem will .com only amplify these convergence drivers: 5 • Increasingly high speed and enhanced network capabilities enable 4 TV offers and also play to a Telco strength. High quality fixed/cable infrastructure is one trigger. On the mobile side, pervasive 4G and Telco grade Wi-Fi networks access is a necessary condition for true out-of-home TV experience.netgem netgem 2 2 • Customer behaviour for TV consumption and use will increasingly be more multiscreen, mobile and interactive (see our Netgem white- 1 1 1 paper: ‘Millennial TV. TV, the Millennial Way’ [ http://www.netgem.com/ news/index.php/home-page/millennial-tv/ ]). The rise of OTT players is 2011 2012 2013 2014 2015 one manifestation of this changing behaviour. This usage pattern also TV, the Telco way TV, the Telco way opens up opportunities for Telco provision as consumption increasingly In-market Cross-sector occurs on mobile and computing device on fixed and mobile networks. consolidation M&A deals deals Source: Convergence: Repositioning in an Expanded Mobile Ecosystem GSMA, November 2015 netgem.com netgem.com netgem netgem Quad-Play Services: Market Penetration 56% 46% TV, the Telco way TV, the Telco way 42% 38% 36% 36% 32% 27% 29% 24% Quad-Play Penetration 21% Although the term has been around for a while, quad-play as really integrated offers to end users are in their relative infancy. 8% 7% 7% netgem.com netgem.com 5% 5% Even in the developed world, penetration rates typically are low. Some Belgium France Spain Australia UK Denmark US Germany suggest this is evidence of a lack of demand from end-users. The Netgem view is that quad-play offers will take significant share of market as long Use all Use all as the necessary conditions are meet with regard to network, content, four services, four services, one delivery, price and positioning combining to create attractive offers. multiple providers provider (quad-play This view is derived from our experience in leading quad-play markets such asnet Francegem and our view of how the TV market will evolve netglobally.gem In more mature quad-play markets, penetration rates for quad-play offers are higher and TV becomes both a key differentiator and the “glue” for the overall quad-play offers. Simply, these Telco’s have learnt over time how to manage and deliver each service as well as deliver across the portfolio. Although there can be exceptions, the lower penetration rates in some markets reflect either the TV, the Telco way TV, the Telco way immaturity of the quad play service (and/or execution failure of the Telco or Service Provider as they integrate the parts and learn to take them to market). Source: Convergence: Repositioning in an Expanded Mobile Ecosystem GSMA, November 2015 netgem.com netgem.com netgem netgem TV, the Telco way TV, the Telco way TV is Different It is not surprising that triple‐play tended to come before quad. This was partly due to technology synergies with fixed, broadband and mobile being naturally adjacent markets. Historically, the network and network capability has been netcentralgem to service .comprovision for each of these areas. At somenet level,gem voice, data.com and access have played a central part of the service mix across all three areas. Although not simple, the evolution to move across these areas is moving to adjacent markets. The triple-play challenges have often been more to do with organisational size and history and the associated complexity of merging rather than inherent services, technology or customer preference issues. TV is content-based and content is different. First of all, content requires commercial competences that are not inherent to Telcos. These competences include ensuring the right content mix is created that attracts and fits the marketnet or a segmentgem of the market and each market is different.net Big gemforces are changing and shaping and impacting the TV industry ‐ including market, technology, regulatory and customer shifts. Digitization, the internet and mobility are just three forces that, by themselves, would radically reshape the TV industry. The changes in consumer behaviour and usage are fundamental and require TV services that can evolve and match the evolving customer need. These changes create opportunities for new TV providers but also require astute commercial judgment to navigate the industry and get that mix and positioning right at launch and over time asTV, the the Telco way TV, the Telco way market changes. netgem.com netgem.com netgem netgem TV, the Telco way TV, the Telco way TV is Different These content competences also include actually acquiring the content from a range of owners and publishers and rights holders across the world so that it can be distributed in the market.net The gemrange of content.com players, content rights and commercialnet structuresgem are.com complex and varied and need to be appropriately negotiated to ensure the right mix and the right “[Proximus]reported that an annualized 2.8% of its returns for a TV service. Finally, content needs to be dynamically managed to ensure the content mix is updated to reflect market changes. The content lifecycle is dynamic with a “quad-play” customers—those that buy the full package varying shelflife. These characteristics again do not fit naturally with the inherently longer of mobile, fixed line, broadband and television—left in planning and operating horizon within the Telco. the first quarter, compared with 20.8% for those that buy just one service.” June 2016 Wall Street Journal The technicalnetgem challenges of delivering TV content are significantnet and againgem different from the Telcos core business. There are a whole range of challenges from the backend to the front; starting from the initial consolidation of terrestrial, IP and OTT content, through to the content management capabilities and processes required to deliver TV content in the system and then across networks to end users on different devices with the right quality of service. With users moving to computing and mobile device and more out-of-home consumption, presenting TV content across multiple screens for consumption, control and companion use TV, the Telco way TV, the Telco way cases is a key challenge.
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