Giovanni Gagliardi
Senior Manager, Communications and High Tech, Accenture

Michelangelo Barbera
Senior Executive, Communications and High Tech, Accenture

Silvio Romeo
Analyst, Communications and High Tech, Accenture

The expectations for IPTV business rose substantially last year, mainly because of the gradual falling of technical barriers. Today, IPTV is considered a business opportunity by telco operators-not only for the service itself, but also for the prospects it can open up in terms of integration with other services.

On one hand, if in the upcoming years IPTV will succeed in imposing itself as a leading technology in the TV market, or at least gain a significant share of the TV business, telco operators could expand their roles into a new business area while supporting penetration and average revenue per unit (ARPU) increases of broadband connections.

On the other hand, IPTV carries many big challenges for telcos; in fact, in order to successfully enter this market, they have to do the following:

• Acquire new expertise in areas not usually related to their core business (e.g., program schedules)
• Elaborate a winning business model and commercial offer in order to meet the customers' expectations and overcome rival technologies already consolidated on the market, such as satellite, cable, etc.
• Develop good business relationships with content providers and establish fair agreements for revenue sharing
• Exploit the interactive aspects of the service, leveraging the competitive advance of the return channel
• Implement effective and scalable service architecture in a market where all the technologies are still pioneering and there is no de facto standard available

In past years, telcos have successfully launched the broadband access that became a viable replacement for the declining switched-voice business, deriving mainly from fixed-mobile substitution. Broadband access is becoming a market that is subject to price declines for the acquisition of the same bandwidth. In many countries, telcos' market dominance is threatened by cable operators' triple-play offerings, which provide broadband access, TV, and telephony on a single platform. In this scenario, it is critical for telcos to support broadband penetration and ARPU through value-added services (VAS). IPTV could be a possible key VAS that supports telcos in reaching these objectives.

The technical barriers, which slowed down IPTV's growth in past years, are gradually falling down. Thanks to the increase in the bandwidth supplied for broadband access and to the newly available CODECs-which greatly improved the ratio quality of distributed content/bandwidth occupation-the delivery of high-quality video content over broadband access is increasingly no longer an issue. In fact, just a couple of years ago, there were few operators selling broadband connections at 4 Mbps, and the set-top boxes (STBs) were not ready to support advanced protocols such as H.264 to deliver video on "slow" broadband connections. Moreover, the development of new technologies for content protection made the content provider more willing to distribute its content through the IPTV medium. IPTV is increasingly seen as a possible means to limit illegal digital content distribution and access.

Main Features of the IPTV Service
Telco operators are able to implement traditional services on IPTV that are already available on rival technologies (e.g., satellite), such as the following:

• Free to air (FTA) broadcast channels
• Premium broadcast channels
• Radio channels
• Live events (in pay-per-view [PPV] or included in the base subscription)
• Parental controls
• Interactive electronic program guide (EPG) and short EPG
• Near video on demand (VoD)
• STB-based personal video recording (PVR) and time-shifted television (TST)

Thanks to the high-speed connection and to the "return channel" always on, telcos are also able to implement interactive services such as the following:

• Real-time VoD, which grants customers access to a library of titles and enables them to watch their favorite movies, with DVD quality and VCR commands
• T-mail, which allows customers to access their e-mail accounts from the television
• T-browsing, which allows customers to surf the Web from the television
• T-services, which enable shopping or banking services on TV
• T-SMS and T-MMS
• Gaming (stand-alone or group gaming)
• Gambling on-line
• Network PVR and network TST
• Voting and polling. (These services are available also on satellite, but there is great resistance from customers to plug the STB into a phone line.)
• Interactive advertising

Main Opportunities
The large number of customers who have broadband access is a good base of potential customers for IPTV-according to the most recent analysis, there are today nearly 61 million broadband access users in Asia, 48 million each in Europe and America, and 1.6 million in Africa and the Middle East. IPTV can be a great opportunity for further expanding the broadband market for telcos, which will also attract customers not familiar with the new technologies toward the world of IP services.

It is possible to think of people who do not own a PC but who will buy IPTV (e.g., to see premium content, such as football matches.) The challenge for the telcos is to design a client-oriented service that completely hides all of the technical aspects, since the basic users of television service are not aware of asymmetric DSL (ADSL), modems, integrated access devices (IADs), and other specific components of the service. At the beginning, customers will probably look only for premium or specific video content, but telcos will have the opportunity to stimulate the progressive use of other advanced interactive services offered (e.g., T-SMS, T-Web, or video communication). IPTV could therefore become an effective means to distribute VAS to customers not accustomed to high-tech equipment but who are very familiar with the TV.

At the present time, the jury is still out on which device will entrench itself as the "home hub" to the digital world and on which features it will have. The operator that will be able to put its hub in customers' houses will provide a privileged means to distribute its services to customers.

Besides, it is critical to provide customers with solid and reliable platforms that can be used in a wide variety of ways (interactivity) and on a wide variety of devices, such as TVs, PCs, pocket PCs, and mobile phones. The advantage of IPTV versus other rival technologies (DTT, cable TV, and satellite TV) is the greater interactivity, mainly due to the native integration with the wider IP world.

Entry into the IPTV business poses challenges to the telco operators in three main areas:

1. Business model
2. Operating model
3. Technological capabilities

Overcoming these challenges will require creating new processes and technological capabilities, adapting organizational roles and competencies, and innovating business models.

Business Model
The novelty of the service, the absence of significant successful business experiences at scale, and the important size of the required investments (e.g., content and technology) make it critical to define successful business models and effective commercial offers.

The telco operators could have to solve important trade-offs and find the right mix between, for example, the service and content offerings, the cost of content and the price of service, and the ARPU and the lifetime customer value (overall telco services and IPTV services specific).

Content Management
In order to enter the IPTV business, a telco has to merge its competencies in broadband services with specific expertise in the media industry. For example, delivering an IPTV offer requires the following:

• A team dedicated to content selection and program schedule management
• A commercial team, supported by a legal team, for content acquisition (negotiations with content providers, contract agreements, revenue assurance policies definition, etc.)
• Resources dedicated to commercial offer definition (even cross-selling, e.g., the customer receives a free VoD for each upgrade of his fixed phone subscription), promotional-offers management and definition of the content-refreshing policies
• A digital asset management platform for content ingestion from content providers, content encoding and encryption, catalog management, metadata and rich media content management, content storage, and distribution to the delivery network
• A team dedicated to the design, implementation, maintenance, and upgrades of the graphical user interface (GUI)
• A quality assurance process for content delivered by providers
• A process to check the compliance of the content delivered by providers against the legal provider-to-telco agreement

Service Control
Services such as network-based PVR, network-based TST, and network VoD distribution require an intense usage of network resources. It is impossible for telco operators to tailor the network architecture in order to grant to all the customers a full usage of all the services at the same time. On the other hand, load peaks must be handled in order to avoid a service failing, which could exclude all the customers from the service fruition. As a consequence, it is necessary to implement a quality of service (QoS) management and service control architecture, capable, in the worst scenario, to limit access to certain services in case of an overload of the network devices or the video servers.

End-to-End Service Assurance
Customers are not aware of the technological aspects behind the service delivery: they call customer care when they are unable to see the television content, but they are usually unable to help in identifying the source of the problem. The spread architecture, typical of IPTV frameworks, worsens the situation: the problem can be on the TV, CPE, STB, content encoding/encryption, conditional access system, network, etc. So, it is necessary to provide tools capable of doing the following:

• Monitor all the end-to-end architecture
• Signal if some segment is in critical status and eventually start the automatic process of trouble management and recovery
• Identify the effect of hanging problems on service fruition
• Identify the customers who could be affected by the problem

There is a strong need for real-time troubleshooting operations-a fault preventing the fruition of an important live event must be solved before the beginning of the event itself or the telco will lose that revenue-while problems such as video-quality management and conditional-access management will present new challenges for the telcos.

Commercial and Customer Care
Today, telcos' customer care staff has a higher workload during the daytime (8:00 am to 8:00 pm), but with the introduction of IPTV, the peak will shift toward prime-time hours (8:00 pm to midnight). The customer care people will also have to learn to use new tools capable of performing real-time operations, such as unblocking the customer's PIN, buying VoD or PPV events for customers, modifying the subscribed for packages, etc.

Another important change is in the selling process. In the usual wireline telcos' business, the consumer market sales are mostly driven by the customer care department. With IPTV, the trade and external dealers become increasingly important for effective commercialization. As a consequence, logistics of the STB and other physical goods (e.g., keyboards, remote controls) will also become an area of operational focus. Also, the customers will be able to self-modify their subscription directly from the STB, through the GUI.

Billing
An important competitive factor owned by telcos is the possibility to invoice IPTV purchases directly on the phone bill, thereby using a very familiar medium for the customers. This feature requires integrating the IPTV billing processes with the billing processes already in place. The telcos also have the possibility to bundle TV services with voice and data services, building attractive commercial offers (e.g., the customer purchasing a VoD receives minutes for free calls). This requires a real-time charging system and a real-time rating engine. In order to allow customers to pay with different means (credit card, scratch card, direct bank charging, etc.), it is necessary to design new billing processes and to build the required interfaces toward the external systems.

Pioneering Technology
The decision about which infrastructure to use (STBs, video servers, DSLAMs, etc.) is a point of concern for telcos, mainly because the market is in the early phases, and there are no de facto standards that are driving the evolution of these services. Telco operators could follow two different approaches:

1. Define fixed architecture protocols and standards and ask suppliers to adapt their solutions to this scenario.
2. Use off-the-shelf products, which have to be integrated into the telco's architecture.

In the first case, the cost of the hardware would probably be higher, but telcos would have the possibility to contain the required integration effort and define their own solutions. In the second case, hardware would be cheaper, but the telco would have to take care of the overall integration effort in its environment.

STBs
One of the key hardware elements in the IPTV chain is the STB, which basically sets the following:

• The main features of the service (e.g., the video quality, GUI capabilities, and interactive services that it is possible to distribute)
• The cost that the customers must pay to enter the service

Today, the market offers inexpensive STBs (less than $100) able to deliver basic IPTV services with old-fashioned interfaces. This kind of STB offers a low barrier to customers but makes the service less attractive. On the other hand, high-range STBs are available and enable a very powerful user experience (supporting HTML features and the latest version of Flash) and also offer advanced features, such as local-based PVR and TST and advanced gaming.

The challenge is to design a product concept for both high-range STBs and less expensive ones. Usually, the marketing department designs the product concept, tailoring it to the capabilities of the more powerful STBs in order not to hurt people investing more money in STBs. Of course, this kind of GUI cannot work correctly on less expensive STBs. This means that it is necessary to design different GUIs for different types of STBs that are enabled to access the service.

Graphical User Interface
The "basic" IPTV user can be very unfamiliar with complex, Web-like GUIs. Graphical objects, such as listboxes, checkboxes, and widgets, are certainly attractive and can ease navigation for expert users, but they can be incomprehensible to basic users and can even cast them off. They can also degrade the performance on less expensive STBs.

On the T-browsing side, telcos must consider that modern Web sites use very complex applications and features that are sometimes not compatible with the available STBs and browsers. A possible solution is to build a "walled garden," which allows customers to T-browse only in specific areas whose compatibility with the STB is granted-either because of the native structure of the site or by an elaboration performed by the telco.

Following the diffusion of broadband access, and thanks to recent technological enhancements, the IPTV market is considered a business opportunity by telco operators. Several telcos are entering into the IPTV market to support the increase in revenues deriving from broadband services and to contrast the decline of switched-access services. For this reason, telcos, in order to beat the rivalry of other technologies, such as DTT, cable, and satellite, will probably stress the aspects of the interactivity and of services integration. However, telcos will face several relevant challenges in defining new business, adjusting operating models and expertise to the specifics of IPTV, and developing the required technological capabilities. In particular, the choice of the architecture and of the hardware to use when implementing IPTV is a point of concern, because the market is not yet mature and there is no leading technology driving the evolution.

Educational content provided by Accenture © 2005. All rights reserved.