High growth in digital content offers significant opportunities for telecommunications service providers (telcos). But telcos' ability to capitalize on this potential is a point of contention and debate. Telcos clearly need upgraded networks and technology platforms to handle more sophisticated content and to extend their addressable market. But equally important, they must begin delivering value beyond just access – providing a step-change in consumer experience and grabbing their share of emerging channel advertising revenue.
The market for digital content is growing rapidly and is forecast to reach US$135 billion by 2010. Naturally, the telecommunications (telecom) industry is focused on gaining a sizeable share of this market, as voice telephony revenues decline. With digital convergence blurring the boundaries of telecom and media and spawning a convergent ‘telemedia' industry, telecom providers can now expand their addressable market to include areas of media and advertising that were once beyond their reach.
In the U.S. , the likes of Comcast have reorganized themselves to focus on selling triple play bundles and have attracted new customers as a result. In the UK , satellite provider BSkyB acquired the altnet Easynet and Virgin Mobile merged with NTL, the largest cable provider to offer triple and quadruple play services. In Belgium and Holland , cable companies and unbundled local loop providers have taken share from the incumbent telecom providers. Similarly, most of the incumbent telecom providers in the U.S. have lost lines to cable triple play providers.
In response, telecom providers like Verizon, KPN and AT&T are offering a range of content and digital media services including IPTV. France Telecom is rolling out TV services and both Belgacom and T-Mobile have acquired broadcast rights to their respective national football league matches.
As cable companies, satellite broadcasters, ISPs and telecom providers fish in each others' ponds, the convergence of formerly separate services is creating both new opportunities and risks for participants throughout the ‘telemedia' value chain.
Looming bandwidth crunch
The most promising areas of advanced content services are television and video. However, delivering all but the most basic digital content services over networks that were originally designed for voice communications and Web browsing is challenging, and telecom operators will, in all likelihood, have to upgrade their networks to compete. Even with higher compression technology like MPEG-4, delivering HDTV, multi-room TV and the like, as well as voice, gaming, Internet surfing and other communication services means that every home must have a bandwidth of 20 M/bits or more. Delivering additional HD streams into the home will require even higher bandwidth which is not easy to deliver over an access network originally designed to carry narrowband voice.
As demand for high-definition television (HDTV), real-time video on demand (VoD) and other next-generation services increases, we are heading toward a bandwidth crunch in many countries with the possible exception of parts of south-east Asia including Singapore and Korea, where 95 -100 percent of households can obtain very high speed access.
To deliver bandwidth-intensive content services and the experience consumers demand, telecom providers will have to make major investments in upgrading their networks with returns that are highly uncertain and likely to be positive only in the long term.
IBM's model of the economic implications for investing in the two alternatives to ADSL – fiber-to-the-cabinet (FTTCab) and fiber-to-the-home (FTTH) – shows that additional revenue from content is critical to the business case. However, the investment case for upgrading existing networks is also critically dependent on achieving high penetration rates - in the range of 30 to 50 percent, depending on the option chosen .
Differentiation beyond access
Increasingly consumers are demanding flexibility, choice and control. The young and technologically savvy, in particular, do not want to be passive consumers; they want to control their own schedules, produce their own content and share it with their peers. They are demanding control over what they consume and how and when they consume it.
Thankfully, the telecom industry has some unique capabilities to satisfy this trend toward flexibility , choice and control namely: Extending the scope and scale of the services; delivering a convenient user experience; and empowering individual users and communities.
Extending scope of services involves augmenting content services, often created and deployed as IT applications or services, with traditional telecom network-based services such as location, presence, conferencing, voice communications messaging and chat, to create new combinational and interactive services that were previously not feasible. Examples include interactive multiplayer gaming, instant conferencing and even interactive television. There is evidence that such interactive services reduce churn and increase loyalty but more critically, they drive non-content revenues such as voice and messaging from which telecom providers derive significantly higher margins.
Delivering a convenient user experience is about delivering the “4A vision” of making content accessible from any device (PC, handheld, television) across any network (wireless, wireline) at anytime and by anyone. This will require telecom providers to resolve the complexity of rights management, content portability and charges across platforms. Crucially, it also involves delivering and managing end-to-service service quality and the consumer experience regardless of the device or network over which content is consumed.
Empowering individual users and communities involves stimulating the consumer experience in the ‘walled garden' of a telecom provider for both IPTV and mobile whilst enabling access to telecom services from applications in open distribution platforms such as MySpace or even Second Life.
In IBM's most recent Media and Entertainment point-of-view , we identified four emerging media business models:
Traditional media of professionally produced content within a conditional access environment;
New platform aggregators (e.g. YouTube, MySpace and Second Life) that rely substantially on user generated content in open distribution environments;
Walled communities that embrace user and community contributions but within a walled environment; and
Content hyper-syndication where professional content owners bypass traditional distributors and make content directly available to consumers in open distribution platforms.
Telecom providers will have to be careful to avoid becoming clones of traditional media distributors when incumbent media companies are themselves grappling with disruptions caused by new platform aggregators such as YouTube and Myspace.com.
Reinventing ‘walled experiences' involves leveraging capabilities such as presence and location to enhance collaboration amongst subscriber social networks ; providing trusted and third party authentication among participants in a social network; and encouraging user and community content such as college sports and community programming over IPTV. Telecom providers can also provide a ‘white label' content distribution service to third-parties to distribute branded content to their subscriber base without having to invest in building their own infrastructure. These ‘virtual' branded content distributors within a ‘walled garden' could become the digital content equivalents of MVNOs and could also bundle other telecom services (such as voice and broadband) in their offerings.
Telecom providers can also collaborate with new platform aggregators by exposing and enabling the integration of network capabilities such as location, presence, voice and conferencing in Web 2.0 and virtual world applications such as Second Life.
Finally, as professional content owners bypass traditional content distributors and deliver content directly to consumers, telecom providers can lower their entry costs by providing them with managed open content distribution platforms with end-to-end service quality and management and multi-channel capabilities.
In short, telcos must look to combine their investment in service delivery platforms and IMS with new digital content services; invest in service quality management to enhance the end-to-end user experience across multiple networks and devices and enable users to control their content experiences.
Source: IBM Institute for Business Value
As with traditional media, advertising will be a critical component of digital content revenues but telecom providers still haven't figured out how to attract ‘ad' share.
However, telecom providers have a number of unique capabilities that should make them attractive as an advertising channel especially as the proliferation of digital channels and audience fragmentation impels advertisers to seek new ways to reach consumers. Interactivity, presence, location, customer insight, control of more than two billion mobile devices and, in some cases, close relationships with local advertisers from the yellow pages heritage have the potential to make telecom IPTV and mobile attractive channels for a share of future advertising revenues. Telecom providers need to find ways of exploiting these unique attributes to attract ‘ad' share to subsidize investments in content services, because users will be unwilling pay for the full cost of content.
The digital content market offers traditional telecom operators significant opportunities for adding value, but it also carries perils – not least of which are the scale of the capital expenditure required to deliver advanced video services . Bundling rich content with combinational interactive services, delivering on the ‘4A' vision of content accessible, anywhere, anytime, on any device and by anyone and investing in end-to-end service quality management, offer opportunities for differentiation.
Advertising will be important but above all, telecom providers will have to undergo organizational, cultural, technological, operational and business model transformation as they transition from being providers of network connectivity to enablers of the consumer's digital experience.
See A future in content(ion), IBM Institute for Business Value, February 2007.
Navigating the media divide: Innovating business models with new and old partners, IBM Institute for Business Value (2007