Please cite this paper as:
`
`OECD (2007-12-19), “IPTV: Market Developments and
`Regulatory Treatment”, OECD Digital Economy Papers,
`No. 137, OECD Publishing, Paris.
`http://dx.doi.org/10.1787/230651165186
`
`OECD Digital Economy Papers No. 137
`
`IPTV: Market Developments
`and Regulatory Treatment
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`OECD
`
`F5-1019
`U.S. Patent 8,248,940
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`

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`Unclassified
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`Organisation de CoopØration et de DØveloppement Economiques
` 19-Dec-2007
`Organisation for Economic Co-operation and Development
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`English - Or. English
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`DSTI/ICCP/CISP(2006)5/FINAL
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`DIRECTORATE FOR SCIENCE, TECHNOLOGY AND INDUSTRY
`COMMITTEE FOR INFORMATION, COMPUTER AND COMMUNICATIONS POLICY
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`Working Party on Communication Infrastructures and Services Policy
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`IPTV: MARKET DEVELOPMENTS AND REGULATORY TREATMENT
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`DSTI/ICCP/CISP(2006)5/FINAL
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`FOREWORD
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`The Working Party on Communication and Information Services Policy discussed this paper at its
`37th and 38th meetings and agreed to recommend the declassification of the paper to the ICCP Committee.
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`The ICCP Committee agreed to declassify this paper at its meeting in October 2007. The paper was
`drafted by Mr. Jaebum Lee.
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`DSTI/ICCP/CISP(2006)5/FINAL
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`TABLE OF CONTENTS
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`FOREWORD .................................................................................................................................................. 2
`TABLE OF CONTENTS ................................................................................................................................ 3
`MAIN POINTS ............................................................................................................................................... 4
`I. INTRODUCTION ....................................................................................................................................... 6
`Definition of IPTV and scope ..................................................................................................................... 6
`How IPTV Works........................................................................................................................................ 7
`II. MARKET TRENDS ................................................................................................................................ 10
`IPTV markets: competitive outlook .......................................................................................................... 10
`IPTV markets: At an early stage ............................................................................................................... 11
`Upgrading DSL networks to support IPTV ............................................................................................... 11
`Differentiation of services by IPTV operators .......................................................................................... 12
`On-demand content is increasing .............................................................................................................. 13
`Access to Premium Content ...................................................................................................................... 13
`III. REGULATORY TRENDS ..................................................................................................................... 14
`Reviewing regulations ............................................................................................................................... 14
`Importance of regulatory framework for IPTV ......................................................................................... 15
`Access to Local Loops .............................................................................................................................. 15
`IV. COUNTRY INFORMATION ................................................................................................................ 17
`AUSTRALIA ............................................................................................................................................ 19
`AUSTRIA ................................................................................................................................................. 20
`BELGIUM ................................................................................................................................................. 21
`CANADA .................................................................................................................................................. 21
`CZECH REPUBLIC ................................................................................................................................. 23
`FRANCE ................................................................................................................................................... 23
`GERMANY ............................................................................................................................................... 25
`HUNGARY ............................................................................................................................................... 26
`ITALY ....................................................................................................................................................... 27
`JAPAN ...................................................................................................................................................... 27
`KOREA ..................................................................................................................................................... 28
`NETHERLANDS ...................................................................................................................................... 28
`PORTUGAL ............................................................................................................................................. 29
`SPAIN ....................................................................................................................................................... 30
`SWEDEN .................................................................................................................................................. 30
`SWITZERLAND ...................................................................................................................................... 31
`UNITED KINGDOM ................................................................................................................................ 31
`UNITED STATES .................................................................................................................................... 33
`NOTES ......................................................................................................................................................... 36
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`DSTI/ICCP/CISP(2006)5/FINAL
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`MAIN POINTS
`
`This paper examines current market trends and regulations for IPTV and also provides information on
`developments in the provision of IPTV service in a number of OECD countries. IPTV is difficult to define.
`For the purposes of this paper, in order to capture some of the most interesting market developments in
`OECD member countries, IPTV is defined as video and ancillary services such as audio/text/data delivered
`over the Internet Protocol and offered as a channels of linear and/or non-linear programming of broadcast
`quality designed to be viewed on a television.
`
`Current market trends in the IPTV area include:
`
`! Fixed-line telecommunications operators - competitive outlook: Market data indicate that
`telecommunications operators1 are likely to become competitive in the market for video
`programming distribution as one of the services offered with their IPTV services. These
`predictions take into account the multiple services that IPTV providers offer, also called (cid:147)multiple-
`play.(cid:148) Despite successful entry into the market, however, it is unlikely that these new entrants will
`attain revenues in IPTV markets commensurate with the revenues of their more entrenched
`competitors, at least at the outset.
`! IPTV markets - At an early stage. Fixed-line telecommunication operators need to upgrade their
`DSL networks to provide competitive IPTV service offerings. This is one of the reasons why IPTV
`markets are at an early stage except in a few countries such as France, Italy, and Spain where IPTV
`services are starting to become a mass market service.
`! Upgrading networks to support IPTV: Fixed-line telecommunications operators are upgrading
`their existing DSL networks or replacing them with fibre optic cable to support IPTV and other
`multimedia services. However, the timing and exact technology to be adopted vary depending on a
`number of complex factors including the level of competition in the market, the state of the
`existing network, population density, and the structure of the housing market.
`! Differentiation of services by IPTV operators: Though the competitive process results in various
`competitors offering very similar products or bundles of products, IPTV operators may be more
`innovative than their traditional counterparts, and may try harder to differentiate their service
`offerings.
`! On-demand content is increasing: Consumers are increasingly attracted to time/place-shifted
`viewing and the video-on-demand (VoD) market is already showing strong growth. In addition to
`consumer demand, other factors driving the VoD market include the growing availability of VoD
`video content with more favorable access conditions, the emergence of High Definition DVD
`recorders, a growing market for mobile video/TV, and the increasing use of personal video
`recorders (PVRs).
`! Access to Premium Content: IPTV operators need to purchase premium content demanded by
`viewers. However, premium content owners are concerned that their content will be freely
`available through peer-to-peer distribution over the Internet. The success of the legal online music
`download market, however, may be changing the perceptions of premium content owners. As a
`result, IPTV operators are increasingly obtaining premium content because they are applying
`digital rights management (DRM) technologies to the content, to assure premium content owners
`that the content they provide will be adequately protected.
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`Current regulatory treatments of IPTV services include:
`
`! Reviewing regulations: The development of IP based networks for transmitting video content, as
`well as the development of different types of video content and availability of a wide range of
`different distribution models used to distribute video content requires a review of existing
`regulatory frameworks in order not to stifle innovation and the diffusion of new services. A
`number of OECD countries have begun to take steps in this direction.
`! Importance of regulatory framework for IPTV: The development of IPTV services has benefited
`from a regulatory framework in most countries which has facilitated access to broadband networks
`by new entrants through local loop unbundling (LLU), as well as by light touch regulation which
`has prevailed with respect to abstaining from imposing any onerous requirements for the provision
`of IPTV. There has been increasing policy recognition of technological convergence and this has
`facilitated the development of IPTV.
`! Access to local loops: Local loop unbundling allows ISPs to replicate local loops of incumbent
`operators on a cost basis while allowing service differentiation from the service offerings by the
`incumbents, and thus can stimulate new entry into the IPTV market. While in most OECD
`countries cable TV operators are not subject to unbundling, some countries have decided to apply
`LLU to cable networks also.
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`5
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`DSTI/ICCP/CISP(2006)5/FINAL
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`I. INTRODUCTION
`
`The purpose of this paper is to look at current trends of the market and the regulatory treatment for
`IPTV in OECD countries.
`
`Definition of IPTV and scope
`
`IPTV is (cid:147)television(cid:148) delivered over Internet Protocol. Traditional (cid:147)television(cid:148) service normally refers
`to linear programming (one-way scheduled audiovisual programming) of broadcast quality offered as
`a channel/channels designed to be viewed on a TV set. However, as technology develops, the definition of
`(cid:147)television(cid:148) may change in at least one of the areas cited below with implications as well for the definition
`of IPTV.
`
`Linear Programming (cid:150) Electronic programming guides (EPG) and digital video recorders (DVR)
`allow viewers to easily record scheduled television programming for watching at times of their choices.
`Interactive functionality also enables viewers to escape from scheduled programming toward Video on
`Demand (VoD). Viewers may start to regard, in the future, DVR-recorded video and non-linear
`programming as (cid:147)television programmes.(cid:148)
`
`Broadcast quality - Quality of video can also be a factor in determining if a programme is meant to be
`viewed on a PC or on a TV, but as bandwidth and processing power increase, the distinction between
`(cid:147)broadcast quality2(cid:148) and non-broadcast quality is likely to disappear.
`
`Offered as a Channel/Channels (cid:150) Choosing an arbitrary threshold between a series of programming in
`a channel/channels and a (cid:147)video clip(cid:148) may provide a further distinction between TV programmes and
`(cid:147)non-TV programmes(cid:148). However, as Internet video providers such as (cid:147)MSN Video3,(cid:148) (cid:147)CBS News Video4(cid:148)
`provide (cid:147)playlist(cid:148) functions, stringing video clips together, viewers would simply tune in to a channel of
`custom-defined content.
`
`View on a Television Set (cid:150) As technology converges, the line separating television sets and computer
`monitors is blurring. As computers become more multimedia focused, viewers can view television
`programming on a computer monitor, while advanced set-top boxes such as Apple(cid:146)s Apple TV permit
`viewing on a TV through the use of a PC.
`
`In light of these considerations, a range of IPTV definitions is possible. This paper does not seek to
`define IPTV in a regulatory context.5 This means that even though an IP-based TV service is categorised as
`an IPTV offering in this paper, the IP-based service is not necessarily subject to the same regulations
`applied to the other types of IPTV offerings. Also this does not imply that traditional broadcasting
`regulations need to be applied to the defined IPTV services, rather it could imply that the broadcasting
`regulations may be deregulated due to the increased competitive level in the relevant market(s).
`
`That said, for the purpose of this paper, in order to capture some of the most interesting market
`developments in OECD member countries, IPTV is defined to be video and ancillary services such as
`audio/text/data delivered over the Internet Protocol and offered as a channel/channels of linear and/or non-
`linear programming of broadcast quality designed to be viewed on a television.6 With this operational
`IPTV definition, the paper covers linear, broadcast style services, and also pure VoD offerings.7 For the
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`DSTI/ICCP/CISP(2006)5/FINAL
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`purpose of this paper, IPTV does not have to be operated over a private/managed networks8. Private
`networks are necessary to deliver consistent quality. This can occur even if the service passes in whole or
`in part over the public Internet. However, it does not include services designed to be primarily viewed over
`personal computers, or services which provide a library of short clips. The definition of IPTV thus
`incorporates such services as Akimbo, which provides access to cable channels wholly over the Internet
`and then through a set-top-box allowing them to be displayed on a television(cid:148).
`
`With respect to the regulatory definition of IPTV services, most countries are applying regulations to
`the television broadcast service component of IPTV services. Most of the EU and OECD countries
`introduced horizontal regulatory frameworks which apply minimum broadcast regulations to broadcasting
`audiovisual services and allow new services such as IPTV to be provided without being subject to ex ante
`regulations before the services prove to be substitute services in the relevant communications markets. In
`the EU, the policy framework for television broadcast regulation is the Television Without Frontiers
`Directive of 1997 (TWF) and subsequent revisions, which includes minimum harmonisation regulations
`including country of origin requirements.9 In Japan, a new streamlined law on (cid:147)Broadcasting Using
`Telecommunications Services(cid:148) was enacted
`in 2001
`to
`regulate
`television broadcast using
`telecommunications services. According to the law, only registration is needed for telecommunication
`operators to provide IP-based television broadcasts. In Canada, the independent regulator CRTC exempted
`broadcasting services and mobile television service over the public Internet from licensing or other
`requirements of the Broadcasting Act of 1999 and 2006 although the CRTC did not exempt television
`broadcasts over managed IP-based networks. In the United States, the FCC is letting IP-enabled services
`including IPTV develop in the market while it is examining issues relating to services and applications
`making use of Internet Protocol. These light touch approaches by most OECD countries may be based on a
`common perception that innovative services such as IPTV can significantly enhance consumer benefit and
`the level of competition. Thus, IPTV provides excellent opportunities to review and deregulate traditional
`broadcasting regulations in order to avoid a situation where heavy-handed regulations block market entry
`of innovative services.
`
`How IPTV Works10
`
`An IPTV network is divided into three major segments: the head-end user (or hub office), the
`network, and the customer premises. The head-end is where the content is aggregated and prepared for
`transmission on the network. The network can be copper, copper upgraded to support broadband or fibre
`and while traditionally configured for voice and data it is now capable of carrying video. The customer
`premise represents the delivery point of the video and audio transmission. It is noted that the architecture
`of other networks, including cable TV networks, is not very different from that of an IPTV network. The
`head-end and the network is typically the same, however, the last connection, which is delivery to the
`home, differs.11
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`Most video content is aggregated at the IPTV operator(cid:146)s head-end, where video feeds are received,
`aggregated, and encoded to be delivered to the network. Much of the content is transmitted to the head-end
`via fibre or by satellite. Video on Demand (VoD) content is pre-encoded. Video encoders encode video
`streams into packets (encoding) and encapsulate the encoded video packets into IP packets12
`(encapsulation; the IP packet is by default an MPEG-2 Transport Stream13). A single IP packet contains
`seven MPEG-2 encoded packets (see Figure 1). Video streams are encoded using different codec, a
`compression algorithm, such as MPEG-2, MPEG-4 (H.264, Windows Media VC-1). For local
`programming, video encoders are located in regional head-ends.
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`DSTI/ICCP/CISP(2006)5/FINAL
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`Figure 1. IP Encapsulation (MPEG-2 Transport Stream) of seven MPEG-2 encoded packets
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`Source: Kenelm D. Deen, Contribution and distribution over IP networks.
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`
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`MPEG-2 has been the encoding method for digital cable and digital satellite systems for about
`15 years. The cost of MPEG-2 encoders, which can be installed in a set-top box or a PC, is thus low due to
`economies of scale. However, the compression efficiency of MPEG-2 is not sufficient for twisted copper
`pair loops, whereas cable systems can send all the video channels using the MPEG2 codec since the
`bandwidth of hybrid fibre coaxial (HFC) cable can be near 4.5Gbps. Moving to H.264 typically provides a
`40% saving in bandwidth over MPEG-2 encoded content, enabling IPTV operators to offer High
`Definition (HD) services to the home.14
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`If an IPTV operator does not have sufficient bandwidth and cannot prioritise the video traffic along
`the IP network end-to-end with quality of service (QoS) tools, it is technically possible that the video
`traffic may be delayed or fragmented.
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`Following encapsulation, the IP packets (normally, MPEG-2 TS) are streamed onto the network. The
`process of encapsulation and streaming happens in real-time. The video streams are received by the local
`switch office, which sends the streams to individual customers. The local switch office is normally where
`local content from TV stations, video servers and advertising are added and mixed. Video servers are
`computer based devices connected to large storage systems. Video servers are mostly used for Video on
`Demand (VoD). Video servers are also used for Network Personal Video Recorders (network PVR) which
`allow subscribers to record video streams (including both live and VoD content) remotely on a storage
`device located at the operator site. The local switch office is also a place where the IPTV middleware is
`housed. The middleware is a distributed operating system that runs both on servers located at the IPTV
`operator(cid:146)s location and on the set-top box, and handles user authentication, TV channel change requests,
`billing, VoD requests, etc.
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`All scheduled video channels in an operator(cid:146)s offer can be broadcast simultaneously from the head-
`end to local switch offices because the core network is normally a fibre optic cable, but the access network
`of the local DSL loop from the local office to the customer(cid:146)s set-top box does not have sufficient capacity
`to stream all the live channels at once. Current ADSL broadband networks can typically support download
`speeds of up to 8Mbps and upload up to 256 kbps within a 1.5 km distance from the central office (or
`wherever the DSLAM is located). More advanced access technology, ADSL2+, for example, can provide
`downstream speed of up to 24Mbps. If a video programme is encoded with a MPEG-2 codec, an ADSL
`loop can accommodate at maximum 2 standard definition (SD) channels (8 Mbps/4Mbps = 2 channels),
`while an ADSL2+ network can allow up to 6 SD channels (24/4=6) or 1 HD channels and 2 SD channels
`(15 Mbps x 1 + 4 Mbps x 2 = 23 Mbps) on the condition that the local loop is used only for video delivery.
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`Table 1. Bandwidth demand for encoding technology
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`Encoding
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`Average SD
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`Average HD
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`MPEG-2
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`4 Mbits/s
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`Digital Right Management
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`No
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`No
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`Source: Kenelm D. Deen, Contribution and distribution over IP networks
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`8
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`MPEG-4 part 10 (H.264)
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`VC-1
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`1.5 Mbits/s
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`15 Mbits/s
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`8 Mbits/s
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`1.5 Mbits/s
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`8 Mbits/s
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`Yes
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`DSTI/ICCP/CISP(2006)5/FINAL
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`Given the limitation of the bandwidth of twisted copper wire, telecommunication IPTV operators are
`providing hundreds of video channels to customers by sending only selected video channels at a time from
`local offices to set-top boxes, instead of broadcasting all the video channels simultaneously. To do this,
`operators are using switched digital video technology which switches a video stream to individual set-top
`box only when the video stream is requested by a viewer. Each subsequent viewer on the node who
`requests the same channel shares the stream; the operator thereby conserves bandwidth. In a traditional
`broadcast network (terrestrial TV, CATV, satellite) using broadcast video technology, all the content
`constantly flows downstream to each customer and the customer switches (tunes) to a different channel
`using a set-top box. A switched IP network works differently. Content remains in the network, and only the
`content the customer selects is sent to the customer(cid:146)s home. That frees up bandwidth and the customer(cid:146)s
`choice is not limited by the bandwidth of the network to the home. The conservation of bandwidth and the
`capability of sending only selected content to customers who request it enable IPTV operators to provide
`customers with a large number of video channels and reallocate unused bandwidth to other services.
`
`One of the many protocols which enable channel change in the IPTV services is IP Group
`Membership Protocol (IGMP). When IPTV users change the channel on their set-top box, the box does not
`tune to a channel as would happen with a cable system. The IPTV set-top box is simply an IP receiver. The
`set-top box switches channels by using the IGMP version 2 to join a new multicast group. When the local
`switch office receives this request, it checks to make sure that the user is authorised to view the requested
`channel then directs the routers in the local office to add that particular user to the channel(cid:146)s distribution
`list. In this way, only signals that are currently being watched are actually being sent from the local office
`to the DSLAM and onto the user.
`
`VoD services can be streamed or downloaded to subscribers. VoD servers pull pre-compressed video
`streams and transmit them as IP packets when requested by customers. Local offices generally deploy local
`VoD servers to generate a unicast stream from the local VoD servers to a particular home. This stream is
`typically controlled by the Real Time Streaming Protocol (RTSP), which enables users to play, pause, and
`stop the programme they are watching.
`
`IPTV operators need to provide multiple video streams (coming from a live TV multicast stream,
`VoD/Network PVR unicast stream, Picture in Picture video stream) and voice and broadband Internet
`access services to compete with cable TV operators. To do this, they need to upgrade their existing ADSL-
`enabled copper lines by using more advanced transmission technologies, such as ADSL2+, VDSL15,
`VDSL2,16 while using the same copper lines, or/and by replacing part or the whole of the copper lines with
`optical fibre. A second requirement is to adopt a video codec with increased compression capability. For
`example, AT&T(cid:146)s IPTV service, U-Verse TV, uses MPEG-4 (H.264) encoding rather than MPEG-2
`encoding.
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`DSTI/ICCP/CISP(2006)5/FINAL
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`II. MARKET TRENDS
`
`IPTV markets: competitive outlook
`
`Fixed-line telecommunication operators have been faced with declining revenues because of voice
`competition, the substitution of fixed for mobile services, and the rapid deployment of VoIP services.
`These developments have resulted in a lowering of average revenue per user. The relatively rapid decline
`in the number of subscriber lines faced by some incumbent operators has also been of concern to them
`since
`the cost involved
`in regaining customers can be high. These developments have
`led
`telecommunication operators to focus on strategy on multiple play offers which are viewed as providing a
`more effective way in reducing customer churn by locking-in customers. The provision of video services is
`viewed as a basic element of multiple play services.
`
`In addition, competitive pressure from traditional television broadcasters has given fixed-line
`telecommunication providers significant incentive to upgrade their own networks and enter the video
`market. Many cable companies are also migrating to IP-based digital networks. In Europe at the end of
`2005, 64 million households (one-third of all European TV households) subscribed to TV services via
`cable and 7.1 million households in Europe obtained digital TV via cable, 9 million Internet customers and
`7.5 million telephony customers have chosen cable.17 In the US at the end of 2005, cable subscribers
`numbered 65.4 million of whom 28.5 million were digital cable customers and 25.4 million household
`subscribers were using cable modem-based broadband Internet access service and 5.6 million were digital
`phone (VoIP) customers.18 Satellite broadcasters such as DirectTV and Sky have also deployed personal
`video recorders (PVRs) which allow real-time transmission to be transformed to a near version of VoD by
`allowing real-time content to be recorded, stopped, and rewound. In October 2005, the UK-based BSkyB
`bought a fixed-line operator, Easynet, in order to offer its customers interactive and targeted services
`including Video-on-Demand (VoD) services.
`
`On top of the competitive pressures from existing pay-TV service providers, more and more free-to-
`air digital terrestrial TV channels will be available. A market research firm, Datamonitor, estimates that by
`2010, 95% of households in Europe will have made the switchover to digital TV. One of the possible
`influences that these free-to-air services have on the evolution of the IPTV market can be seen in BT(cid:146)s (cid:147)BT
`Vision,(cid:148) a VoD service combined with dozens of digital terrestrial channels (Freeview) transmitted over-
`the-air to a DTT tuner-installed set-top-box. The set-top-box which can receive over-the-air DTT signals
`can save the corresponding bandwidth in an IPTV fixed-line network thus, allow IPTV services providers
`to deliver digital terrestrial channels without additional network investment.
`
`Given the level of competition in the video market, IPTV may not provide the revenues many fixed-
`line telecommunications operators hope to attain by providing this service. Some analysts have suggested
`that the offer of IPTV could eventually result in operating losses.19 Market data shows, however, that
`despite strong competition and the fact that telecommunications operators may not attain the revenues
`necessary to remain competitive in the long-term in a multiple-play market, in the near-term,
`telecommunications operators are likely to become competitive new entrants in the market for video
`programming distribution with their IPTV services. The rate of IPTV uptake will vary and, according to
`some market research firms, the number of IPTV subscribers would reach 29.5 million worldwide in
`2010.20 iSuppli predicted in August 2006 that global IPTV subscribers would grow to slightly more than
`63 million in 2010 (compound annual growth rate of 92.1%)21, while the Multimedia Research Group
`
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`DSTI/ICCP/CISP(2006)5/FINAL
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`forecast in October 2006 that global IPTV subscribers would grow from 4.3 million in 2005 to 36.8 million
`in 200922 and to 50.5 million in 2010.23 In Western Europe, Gartner (April 2006) forecast that the IPTV
`subscriber market would reach 3.3 million subscribers in 2006 and 16.7 million in 2010.24
`
`IPTV markets: At an early stage
`
`fixed-line
`leading
`revenue streams and competitive pressures are
`for new
`The need
`telecommunication operators to add video services to their service offerings over DSL lines. However, in
`order to provide competitive IPTV service offerings, they first need to upgrade their DSL networks or
`build new networks to support the distribution of multichannel video services. This may be one of the
`reasons why IPTV markets are at an early stage except in a few European countries such as France, Italy
`and Spain where IPTV services have entered into the mass market. As an example, DT(cid:146)s T-Home in
`Germany started commercial launch in October 2006, AT&T(cid:146)s U-Verse TV started commercial launch in
`June 2006, Verizon(cid:146)s FiOS began launch in August 2005, and KPN(cid:146)s Mine TV in May 2006. Upgrading
`requires investment in new equipment for IPTV services, such as video head-ends, video servers and the
`development of set-top boxes. In addition, a robust integrated system needs to be put in place to integrate
`new and existing facilities into a large size subscriber base. Because of the investment requirements, the
`deployment of IPTV services by alternative and relatively small sized telecommunication operators has
`often taken place on a regional basis. The larger sized telecommunication operators, and in particular
`incumbents, already had a national reach for DSL, but