Carl Weinschenk spoke with Shane Walker, industry analyst, IMS Research. Walker wrote a report, "The IMS Research study IPTV: A Global Market Analysis - 2008 Edition," which the firm released earlier this month.
Weinschenk: What did the research look at regarding IPTV?
Walker: We covered 60 countries in depth. We looked at what operators are doing. They could be telcos that had been deploying for three or four years or are in trials. It was interesting to see what was happening in the emerging markets such as Eastern Europe and established countries in Western Europe, which also have interesting growth. IMS historically has been conservative in its view and forecasting of IPTV. We've been proven correct. This research is definitely more optimistic than it's been in past. We see close to 65 million IPTV households by the end of 2012. The current market at the end of 2007 was 13 million. This report is a change in our view of where the market is going.
Weinschenk: So you folks see it shaping up positively.
Walker: The future for IPTV is brighter than it was in the last couple of years. Our last report was in 2005. At that point, from 2005 to 2007, we were more conservative. We were proven right. From 2007, we are seeing a lot of growth, significant uptake. Set-top box shipments are going to reflect that. Some companies are growing, there will be alliances and convergence between vendors. There will be an annual growth rate year to year of a bit over 50 percent. There are a lot of vendors coming into the market.
Weinschenk: Where is the growth?
Walker: We are seeing rampant uptake in China and South Korea as governments relax the rules. The U.S. has the AT&T and Verizon deployments. Those will be driving growth through 2012. That growth was very speculative before. China and South Korea was restricted to push VOD, which limits the uptake. China is a little more complicated. It was not necessarily restricted to push, but IPTV is heavily regulated. The situation had been that digital television must be available in an area before IPTV. They've now become a bit more relaxed.
Weinschenk: What about the Americas?
Walker: We saw increased rollout in the Americas for tier-1 telcos like AT&T and Verizon. The acceleration in North America in the 2010 time frame will be to IPTV. Because Verizon is not all IP, we do not classify them as IPTV today. We have to cover them in our report. But in the numbers, we do not count them as IPTV households before 2010. They are part of the 65 million at the end of 2012 but, prior to 2010, they are not in the household numbers.
Weinschenk: Why is the momentum changing?
Walker: The technology is definitely more solidified, tested and proven. That includes Microsoft's Media Room. Major telcos worldwide have adopted Media Room and can continue pushing the service with confidence. That is one of the factors. Microsoft is one of the major players when it comes to IPTV software platforms. I also see content acquisition as a factor. There are more agreements between telcos and content providers. It is becoming more of a mature relationship. The content being offered is pretty much what consumers can get elsewhere. There is competitive parity. In places like the U.S., we see alliances of SES Americom, a satellite service, the NRTC, the National Rural Telecommunications Cooperative's IP-Prime service, which provides IPTV to tier-2 and tier-3 telcos. The market still is small compared to total television households. We do expect to see rapid growth in the next few years. There is also significant investment in Western Europe. The infrastructure is going to ADSL 2+ and VDSL. So those upgrades are delivering better service, obviously.
Weinschenk: Did IMS see this coming - but not definitely enough to change your predictions - or is all this really a big surprise?
Walker: We definitely saw some of this coming. I think among the things that could be predicted in 2005 were some of the regulatory changes in China and South Korea. We couldn't predict when they would happen. We had a good idea they were going to happen, but not when. [For instance, interview subjects in] South Korea say that there will be true broadcast IPTV, but nobody is certain when. They are still waiting for the final word. It looks like it will be fairly soon and will lead to significant uptakes of subscribers by carriers such as KT and Hanaro.
Weinschenk: Does the interest in IPTV have a synergistic effect on infrastructure creation?
Walker: It is encouraging investment in the infrastructure, clearly. In Western and Eastern Europe as well, there are operators investing more and more in infrastructure. That is going to happen globally, AT&T is doing it in the U.S.; Verizon is doing it. Operators in Canada are doing it as well.
Weinschenk: Is it pushing fiber to the home and similar initiatives?
Walker: In Western Europe, it is ADSL 2+ and VDSL; in the U.S., Verizon is using fiber and AT&T is as well. It's more expensive. It's definitely going to continue. I don't have a number off the top of my head as to when and how fast it will replace ADSL or VDSL. In the U.S., we looked at AT&T, SureWest in Northern California and the Pioneer Telephone cooperative. AT&T is using fiber, SureWest is using fiber, Pioneer is using fiber. AT&T is also using ADSL 2+ and MPEG 4, SureWest is using MPEG 2 and MPEG 4, and Pioneer is using MPEG 2.
Weinschenk: What does that tell you?
Walker: This primarily is for equipment suppliers, but it does give you an idea of what level of service consumers can expect from the operators. The standards as far as MPEG 4 and MPEG 2 matter because there is a significant bandwidth improvement when you go to MPEG 4 and it determines whether you will be able to deliver HDTV services. AT&T delivers IPTV, HDTV, DVR, mobile Internet service, VoIP, fixed line and premises security. They cover a lot of ground and can offer a lot of bundles, which is a very important factor when looking at whether an operator has competitive parity or an advantage against cable or satellite. Premises security is beginning to be an issue.
Weinschenk: So the bundle is where the action is.
Walker: The proliferation of triple and quadruple and even five play offerings. These are coming from cable satellite and telcos. It is a key behind telcos adding digital TV. Another driver of the numbers is the entry of more telcos. We're talking tier-2 and 3 telcos. This is happening in South America [for instance] and not just tier 2 and 3. Spain's Telefonica is making significant moves in South America to establish a foothold there. If a telco wants to remain competitive, it has virtually no choice but to enter a market with a bundle that must include video. No telco I talk to today doesn't feel that video is a necessity. It is pretty essential at this point.