Summary
1) We need to define convergence from a consumer perspective – and ensure that useful convergent end-services are delivered.
2) The end-game may be ‘multi-play’, i.e. one very high speed connection, one bill, multiple integrated services.
3) Many companies have a vision of a ubiquitous value network, with all devices connected so that you can enjoy content anytime, anywhere.
4) Convergence is not a myth when it focuses on well thought-out products that meet consumer needs.
5) It is conclusive that bundling (e.g. triple play) reduces churn, increases tenure, extends ARPU and maximises customer lifetime value. Clearly, the icing on the cake is the cross-product services such as the digital photos in Europe.
6) The article is absolutely correct in stating the case for increasing bandwidth. Providers are increasingly investing in traffic shaping and prioritisation software to better manage bandwidth – and ensure a good quality of service.
Analysis
We need to define convergence from a consumer perspective – triple play, quad play are too often bandied around by the Consultant, Technology, Network, Product and Analyst community with scant regard for the end-consumer whose needs/goals must be met.
Consumer psychographic data in Europe indicates that the future end-game may be ‘multi-play’, i.e. one very high speed connection, one bill, multiple integrated services. Some cable companies provide this – for instance Liberty Media’s UPC in Europe. ntl:Telewest (re-branded as Virgin Media) in the UK aspires to this – but must get the basics of billing and customer service right first. Convergent, multi-play services meet very little and, of course, will be uneconomic without the basics of billing and service being provided and then relevant convergent services being provided (example later).
‘Convergence’ – and indeed, the ‘connected home of the future’ – has a long history. But it has always remained well in the future. Indeed, Answers magazine in 1893 (yes the 19th century) enthused about the electrical home of the future that was "fitted throughout with electricity, electric stoves in every room…can be lighted by pressing a button at the bed side…doors and windows fitted with electric fastenings". And yet, more than 100 years later, we still can’t achieve it on a mass consumer scale – despite elements of consumer need being present.
However, the Internet and ‘digitising’ of information, communications and entertainment is helping to re-ignite this vision. Many companies have a vision of a ubiquitous value network, with all devices connected so that you can enjoy content anytime, anywhere. Consumers are now starting not to demand, but to request this – once the basics of a single bill and a great customer service proposition have been fulfilled.
Convergence is not a myth when it focuses on well thought-out products that meet consumer needs. For instance, UPC and Virgin Media cable services allow customers to upload digital photos online using their computer and cable broadband service, and then send a code to a cable digital TV viewer who can then in turn view those photos on their TV set. This represents a great example of useful convergent services over the technology provided. Convergence has to be more than just the lazy terms of ‘triple-play’ and ‘quad-play’.
When looking at how services (telephony and Internet in particular) have become commoditised, providers need to differentiate and provide consumers with reasons to stay (or barriers to exit by binding useful services into the consumers’ life). This is required in order to extend tenure and customer lifetime value. It is conclusive that bundling (e.g. triple play) reduces churn, increases tenure, extends ARPU and maximises customer lifetime value. Clearly, the icing on the cake is the cross-product (or dare I say it convergent) services such as the digital photo example from earlier. I disagree with the Forrester analysis being used in a stand-alone fashion - having studied many reports such as Goldman Sachs on SBC, Bear Sterns and Citigroup on ntl and UPC and undertaken my own analysis. Bundling and convergent services leads to significant increases in customer lifetime value (analysing margin and tenure) and so increases in free cash flow.
Another danger is that too many people are once again hung up on technology, IPTV will not necessary drive triple play. For instance, in the UK News Corporation’s BSkyB TV broadcasts digital TV over satellite, provides broadband (DSL) over copper via unbundling of the local loop and traditional fixed line telephony via Carrier Pre-Select over a British Telecom phone line. Likewise, Virgin Media provides TV via coaxial cable, broadband via cable, fixed line telephony over its own copper and wireless services via an MVNO with O2.
Indeed networks may all be moving to IP and the home of the future will consume significant bandwidth via increased Internet usage (including voice, video, gaming, file sharing services) and possible SD and HD TV channels being viewed (over IP). The key thing here is not be get hung up by technology, but get hung upon the consumer and their problems, needs and goals – and then use the armoury of technology to solve them (as in the digital photo example) or indeed Internet on the television as being used by The Digital Bridge in London for disadvantaged areas.
Returning to the original article, high margin voice services continue to suffer the double whammy of fixed to mobile substitution and VoIP. Aside from telcos providing monthly bundles of fixed minutes to generate a more certain revenue flow there is little that they can do in the fixed voice arena. Clearly with utility services being commoditised and increasing pressure on ARPU – traditional telcos are therefore investing in network infrastructure and delivering TV services and cablecos are taking a share of fixed line voice revenues via VoIP.
Indeed the reason many people continue to keep a fixed telephony line is so that they can receive DSL broadband. There are few countries where ‘naked’ DSL broadband services exist; however in Denmark we can see the effect of naked broadband in further eroding the fixed telephony line market.
Consumers see VoIP services as an application of broadband as opposed to being only a substitute for their fixed line/mobile phones. Though not a consumer phenomenon, a brief survey by the Institute of Directors in the UK provided evidence of business uses substituting mobile for VoIP (when in a fixed location). However, overall mobile minutes were also increasing!
The article is absolutely correct in stating the case for increasing bandwidth – though VoIP services are not the driver given the minimal bandwidth they take. Transfer of video, file sharing (and to a much less extent online gaming and VoIP) are the key drivers. In the future, IPTV may also be a key driver also – especially if HD services are broadcast. In Italy, Fastweb are a great example of this and are seen as the case-study of triple play over IP – providing additional convergent services to consumers (e.g. video conference from the home TV).
Wired News and Telegeography report that network operators continue to build for increased bandwidth consumption, with international demand growing by 42% and carriers adding 62% more capacity. Clearly, this is being driven by the adoption of broadband, growth of P2P, pervasiveness of digital devices – as discussed earlier. However, P2P consumes 60%-80% of an ISP’s capacity.
In addition, the network is consumed disproportionately with a minority of users ‘hogging’ most bandwidth. This is common across many providers, US providers report 2% of their user base consumes 80% of traffic (believed to be Comcast). There may be consumer niches that may be prepared to pay for greater bandwidth.
Providers are increasingly investing in traffic shaping and prioritisation software to better manage bandwidth – and ensure a good quality of service to browsers, online shoppers, VoIP users, online gamers (most probably at the slight detriment of P2P file sharers). The winners here will be: a) the carriers with the most robust networks as the Network will become the key competitive asset in delivering and shaping products and services for end-users, and b) the network traffic profiling/management systems who can make those networks more efficient.
