France has been one of the dominant forces in the global IPTV market. According to the French telecoms regulator, ARCEP, 37% of xDSL subscribers were able to access IPTV as at the end of 2008 (Exhibit 1), either through subscriptions or via the triple-play bundles that are a feature of the French broadband market. The audience measurement company Mediametrie claimed that IPTV overtook cable TV in terms of subscribers in mid-2008.

All three main IPTV players in France – Iliad, France Telecom and Neuf Cegetel – offer bundled telephony, Internet via ADSL and TV, for less than EUR30 (around NZD51, at purchasing power parity rates) per month.

Exhibit 1: IPTV-enabled subscribers over xDSL, France [Source: ARCEP]

So why has IPTV been so successful in France?

Fierce competition in the broadband market
The launch of local loop unbundling in 2002 was a key factor in encouraging lively competition, as a result of which France became one of the fastest growing broadband markets in Europe. As at December 2008, the OECD ranked France 13th in terms of broadband take-up, with 28 subscribers per 100 inhabitants.

Fragmentation in the pay TV market
Until 2004 the coverage area of cable operators could not encompass more than eight million people (roughly three million households), which resulted in four major operators across a heavily fragmented market. Following the repeal of this legislation, the market has consolidated, with only one major cable operator (Numericable) remaining, although since 2003 growth in the cable market has flattened. In addition, there were two satellite pay TV operators (subsequently merged in 2006) plus pay terrestrial TV.

Satellite penetration constrained
Planning restrictions prevented the installation of satellite dishes in some, mainly urban, areas, thus limiting the take-up of satellite pay TV services.

Attractive content
The Canal+ Groupe is both a major content provider (Canal+ owns a number of channels, including major football and movie channels, as well as Canal Studios, the major film producer in France) and a pay TV (satellite and terrestrial TV) operator. One of the conditions imposed for the 2006 merger of the two French satellite operators – the Canal+ subsidiary CanalSat and TPS – was the requirement that Canal+ wholesale seven basic channels to any pay TV distributors that wished to carry them, on a non-exclusive and unbundled basis. This arrangement did not include the sport and movie Le Bouquetchannels, however Canal+ was required to make these premium channels available on all platforms, and ensure that arrangements with other platform operators were to be “transparent, objective and non-discriminatory”, but was under no obligation to license the channels to other retailers. These conditions, together with the market fragmentation and constraints (as described above), encouraged Canal+ to offer premium content to IPTV operators.

Hong Kong has been another leader in IPTV take-up, with the telecom operator PCCW being one of the first operators in the world to launch commercial IPTV services in 2003. The company reported that by December 2008 there was an installed subscriber base of 953,000, of which 72% were paying subscribers. Note that there are around 2.3 million households in Hong Kong.

The service offers 29 free-to-air channels, and subscribers may add individual premium channels or bundled premium channels for a monthly fee (hence the company’s distinction between the subscriber base and paying subscribers). There are over 160 channels available. HDTV was launched in 2008.

The “now tv” service was a key part of PCCW’s strategy to compete with Hong Kong’s monopoly cable TV provider (i-Cable) when it introduced bundled voice, Internet and video. PCCW delivers the service over either VDSL or fibre broadband connections.

Key drivers behind the success of the IPTV uptake in Hong Kong are seen to be:

• low entry barriers
• localised content offerings – the majority of content is in Chinese or with Chinese subtitles
• exclusive content offerings
• customers’ willingness and ability to pay for premium content services
• demand for interactive services
• high population density, which is a factor that encourages the deployment of affordable high-speed broadband services.

Furthermore, PCCW was able to attract content providers by offering a secure network for content delivery. The company developed its own content protection platform, which is located in PCCW’s local exchange rather than in the subscriber’s set-top box (which is used by other digital rights management or conditional access technologies). PCCW claimed it was able to obtain better terms from the content providers than those offered to cable operators, partly because PCCW was able to ensure content was not able to be pirated – a major problem in Asia.

In contrast to France and Hong Kong, regulations are seen to be a barrier for IPTV uptake in several of the key Latin American markets. Telecoms operators are not permitted to be broadcasters in Argentina and Brazil, while in Mexico the largest telecoms operator (Telmex) is prevented from entering the IPTV market.

The first IPTV service in Latin America was launched by Telefónica Chile (a subsidiary of the Spanish incumbent telecoms operator) in mid 2007. During 2008 another three operators – Telefónica del Sur in Chile, Maxcom in Mexico and UNE in Colombia – commenced commercial operations. Other operators – including Telecom Argentina, Cantv in Venezuela, ETB in Colombia and Pacifitel in Ecuador – have indicated plans to launch IPTV services.

Despite the ban on broadcasting, the incumbent operator Telefónica de Argentina (TdA – also part of the Spanish Telefónica Group) has been trialling IPTV offering a video on demand (VoD) service, which is considered to be a value-added service and thus not subject to the ban. Argentinian regulations are currently being reviewed, however Government is facing pressure from the cable TV companies not to open the broadcast market to telcos.

These existing regulations mean that IPTV may not pose a serious threat to the cable operators in the short to medium term, nonetheless the presence of IPTV services appears to have brought forward the launch of new cable services, such as VoD and high definition TV (HDTV).

Even once the regulatory barriers are addressed, it is likely to be difficult for IPTV in Latin America to capture market share from the existing pay TV providers or to persuade the untapped market segments – those which do not subscribe to pay TV either due to affordability issues or lack of interest – to take up services.

As illustrated by these examples, the success of IPTV is crucially dependent on several factors:

• availability of appealing content
• the strength of the pay TV market and operators
• the regulatory environment
• accessible and affordable high speed broadband services.

As in any business venture, the success of an IPTV strategy will depend on favourable market and regulatory conditions – and ultimately the ability of the operator to deliver attractive content at an affordable price.