1. The European way to think the Digital World www.idate.org Technological convergence and new business models: the example of TV over DSL Extending ICT Opportunities to All: The Role of the Private Sector Bernard Sanchez – IDATE b.sanchez@idate.org

2. IDATE www.idate.org 2 Technological convergence and new business models: the example of TV over DSL March 2005 The convergence : Numerous definitions Industrial Convergence Firms convergence Network Convergence Products and services Convergences Regulatory Convergence But in most of the cases, Technological Convergence is at the beginning of all the convergences

3. IDATE www.idate.org 3 Technological convergence and new business models: the example of TV over DSL March 2005 TV on ADSL Background on TV on ADSL Operators strategies and economics models The perspectives of the TV over IP

4. IDATE www.idate.org 4 Technological convergence and new business models: the example of TV over DSL March 2005 TV on ADSL Background on TV on ADSL Operators strategies and economics models The perspectives of the TV over IP

5. IDATE www.idate.org 5 Technological convergence and new business models: the example of TV over DSL March 2005 Background on TV on ADSL  First services of TV on ADSL are differently deployed on the different markets. We can find different raisons: -The level of concurrence of the telecommunication networks; The implementation of TV on ADSL supposes a concurrence on the access market for Internet and conditions on local loop unbundling that facilitate new entrance. -The penetration rate of TV package network; The opportunity of launching services of TV on ADSL could be lower if cable or satellite already address a large fraction of the population. -The development of the free TV; Bundle a free TV offer with Internet access is interesting for markets where free TV offer is limited to a few number of channels for the majority of households. -The level of concurrence on the TV market. The concurrence on TV market induces the research of new distribution networks by the operators. -The regulation

6. IDATE www.idate.org 6 Technological convergence and new business models: the example of TV over DSL March 2005 A strong geographical constraint induce strong difference between households 01234567 0 10 20 30 40 50 60 70 80 90 100 Italy U.K. Germany India U.S. Percentage of Customers Reached Spain Km between household and the local exchange  There are strong variations between countries in the number of addressable households.

7. IDATE www.idate.org 7 Technological convergence and new business models: the example of TV over DSL March 2005 ADSL has proved to be competitive with other TV networks  For low penetration rates (10%) ADSL is more efficient than DTT or cable, less efficient than satellite.  For a 25% penetration rate, satellite and cable are more efficient than ADSL and DTT.  Cable is strongly competitive if initial investments have been written off.  However, from the point of view of the TV operator, ADSL has a strong incentive: a very limited proportion of fixed costs. Yearly costs for serving one channel to one subscriber according to the penetration rate (€)

8. IDATE www.idate.org 8 Technological convergence and new business models: the example of TV over DSL March 2005 The IPTV : State of the diffusion Operational IPTV services at the end of 2004 IPTV Services announced for 2005 The IPTV market remains in a preliminary stage. At the end of 2004, there is around 1 million of subscribers in the world. A transition phase begins where commercial offers follow now the experimental stage. * yc certaines offres destinées au PC *Including some offers for PC

9. IDATE www.idate.org 9 Technological convergence and new business models: the example of TV over DSL March 2005 TV on ADSL Background on TV on ADSL Operators strategies and economics models The perspectives of the TV over IP

10. IDATE www.idate.org 10 Technological convergence and new business models: the example of TV over DSL March 2005 The impact on the value chain (Model 1) Free TV channel Integrated telecom operator Subscriber Triple-play subscription Pay TV channel Fee Model 1: An unique provider for contents and access The telecom operator provides Internet access and at least a first level of TV and phone services -There is an unique subscription for all the services. -Example: Free, FastWeb, BB Cable TV.  The pay-TV channels may loose the direct contact with the subscriber, as triple play-offers are marketed by the Internet access provider

11. IDATE www.idate.org 11 Technological convergence and new business models: the example of TV over DSL March 2005 The impact on the value chain (Model 2) Telecom operator Subscriber Video access subscription Pay-TV service provider Pay-TV subscription Pay TV channel fee Model 2: Separation of the access function and contents provider -The services provider displays an offer independent of the network distribution and of the access operator. -Examples : TPSL/ FranceTélécom (MaLigneTV), Canal+/FranceTélécom (MaLigneTV), Canal+/9Télécom  Unlike cable, the customer pays two bills, one for the access, one for the service

12. IDATE www.idate.org 12 Technological convergence and new business models: the example of TV over DSL March 2005 The impact on the value chain (Mix of Models 1 and 2) TV premium services -The telecom operator sells a first panel of Internet, Phone and TV services. The subscriber buys an additional subscribtion to a provider of premium television services. -Exemple: Free/Canal+

13. IDATE www.idate.org 13 Technological convergence and new business models: the example of TV over DSL March 2005 IPTV : Operators stategies  The business-models: The telecom operator -The model for telecom operator moves from traffic to access providing. Become the access provider of a customer gives the possibility to be the unique provider for the whole services using ADSL (Television, Internet, Phone); Gain a share of the access market is the condition of development for the operators. -Include a TV offer in the access offer increases the attractiveness of the access offers and allows the possibility to keep previous subscribers and to gain new clients -In a second stage, the television offers provide additional revenues. (fees for distribution or for managing the billing of the premium offer, but those revenues are not the core of the business model of the operators). -Telecom players aim to: In a first stage, differentiate/ increase the penetration rate of their fast internet services; In a second stage, increase the level of ARPU thanks to the distribution of pay-TV services.

14. IDATE www.idate.org 14 Technological convergence and new business models: the example of TV over DSL March 2005 IPTV : Operators stategies  business-model: The pay TV operator -The market slows in Western Europe and in the United States -ADSL could be a new network of diffusion able to generate new subscriptions or marketing conditions more advantageous. -Pay-TV players aim to: Reach additional markets  business-model: The TV channel -Context: The big TV channel want to be present on all the networks -The increase of the number of distribution networks gives new opportunities An increase of the fees from pay TV operators. Increase the advertising potential revenues. -TheTV players aim to: Find new distribution outlets beside terrestrial, cable and satellite

15. IDATE www.idate.org 15 Technological convergence and new business models: the example of TV over DSL March 2005 Background on TV on ADSL Operators strategies and economics models The perspectives of the TV over IP

16. IDATE www.idate.org 16 Technological convergence and new business models: the example of TV over DSL March 2005 The impact of TV over ADSL  Increase of the minimum number of TV channels available for free to all the consumers: France, UK, Spain migrate to the northern European countries model of free multichannel television.  New competition for satellite and pay-TV implies the need to differentiate their pay premium offers.  Television becomes a commodity of Internet access. However, video represents the highest share of bandwidth usage.  Free reallocation of bandwidth between ADSL TV services and plain Internet access boosts the efficiency of non-legal peer-to-peer video services.  TV over ADSL accelerates the introduction of video on demand and time-shifted television.

17. IDATE www.idate.org 17 Technological convergence and new business models: the example of TV over DSL March 2005 Some potential contradictions  The bundling of Fast Internet and TV services may lead to contradictions:  Most fast internet access subscribers will want to maintain a level of choice between pay-TV providers;  Most pay-TV subsscribers will want to keep the choice of their fast Internet access;  But only one telecom operator can operate a given DSL line

18. IDATE www.idate.org 18 Technological convergence and new business models: the example of TV over DSL March 2005 Television over IP: Perspectives TDG Research forecasts 20 millions IPTV subscribers in 2010.