1. Topic: Internet Media Services –IPTV
What Is IPTV?
IPTV refers to a group of related technologies delivering television programming
using a broadband connection over the Internet. These are emerging technologies, as their
software and hardware are still being developed. IPTV promises to leverage the flexibility and
scalability of IP technology to transform the television experience by providing access to more
content of a superior quality that can be more personalized and interactive than traditional
The terms IPTV, Internet television and TV over the Internet are often used interchangeably.
They should not be, for they reflect separate end-user experiences and have different technology
requirements. Our analysis does not consider video streaming over the Internet, or TV viewed on
a PC. This analysis focuses on broadcast and pay-TV services transmitted directly to a TV set
(through a STB) using the fixed telco access network (Such as ADSL).
 Accepted industry term (Internet Protocol TV)
 Voice over IP (VoIP) is to telephony as IPTV is to pay-TV
 Uses IP broadband network infrastructure to deliver pay-TV services
directly to TVs
 PCs a potential secondary target, but not a requirement
 Fully operator managed pay-TV service
 Not a device model but a service one (monthly subscription, pay per view…)
 What IPTV is not
 TV over high-speed Internet
 Most countries restrict live TV over Internet
 Unique regulations per country
 Not best-effort streaming media
 Not “Trickle” VOD on PC or Set-Top Box (STB)
 Technology blurs the lines, but businesses are completely different
2. How does IPTV work?
IPTV uses a switched digital video architecture rather than the channel-based architecture of
broadcast TV. The difference is that while the channel-based architecture delivers hundreds of
channels of programming to the customer, a switched digital video architecture transmits only the
channels or the content that the customer demands.
The advantages of such architecture include the ability to carry a diverse range of
programming and the creation of more bandwidth as the number of channels transmitted
significantly decreases. While this architecture is very similar to the VoD concept, unlike VoD, it
supports multicast sessions (two-way communications). Multicast capabilities facilitate
interactivity of the network.
IPTV will leverage the “intelligence” of IP networks, unify video with voice and data
applications, and enable a personalized and interactive TV experience.
High Level IPTV Network Architecture
Metro VHE: Video Head End
VSO: Video Serving Office
VSO CO: Central Office
RG: Residential Gateway
CO Network RG
CO Metro CO
The IPTV Technology Value Chain
1. Head End
The head-end receives and formats content from content sources, including analog and
digital satellites and antennas, and distributes it over the operator’s private IP network. The head-
end includes video servers, encoding servers, service management and billing servers, and
middleware to assimilate all components. When the signal is received at the head-end, encoder
servers ensure that all content including broadcast video is digitized, compressed, packetized and
converted into the format used by the operator.
3. The transport network delivers the video streams from the head-end to the DSLAM or cable
hub nearest to the subscriber in the access network. The network should be capable of multicast
and unicast traffic. Multicasting involves service to multiple DSLAMs and subscribers with a
single video stream from the head-end. This approach lowers costs and minimizes bandwidth
The access network provides a managed connection to the subscriber’s STB. The DSLAM
is the last element in the access network, managing the delivery of the content. The closer it is to
the subscriber, the better the throughput is.
There are a number of ways to increase the access bandwidth:
‧ Operators could change the access architecture by shortening the length of the local loop and
bringing the DSLAM closer to the customer or by deploying fiber to the home.
‧ Operators can also migrate the access equipment to more bandwidth-efficient technologies. DSL
infrastructure could be upgraded to ADSL 2+ or VDSL. Or operators could choose to deploy
passive optical network (PON) equipment using fiber.
4. The Set-Top Box
The STB connects the subscriber’s TV with the access network and de-codes the signal
format so that content can be viewed on the TV. It could support a range of video codecs,
including MPEG-2, MPEG-4 and Microsoft Windows Media-9 (VC-9).
Operators can choose to deploy STBs that can de-code all of the formats and bypass
the uncertainty around the video codec formats. The STB is likely to incorporate more
functionality as the technology advances. It already serves as a DSL modem for some IPTV
4. IPTV Technology Value Chain
Examples: Examples: Examples: Examples:
Alcatel Alcatel Alcatel Amino
ANT Ericsson Ericsson Ericsson
BigBand Lucent Juniper i3Micro
Networks Marconi Lucent Microsoft
Entone Tech Siemens Marconi Motorola
Harmonic Motorola Siemens
Microsoft Redback Networks
Some of the considerations and challenges are as follows:
‧ Bandwidth prioritization needs to be established for a satisfactory customer experience.
‧ Operator video offers should match the levels of QoS to which the customer is accustomed
with other video services.
‧ IPTV is not broadcast TV; some features might not make business sense to carry over.
‧ Content-rich services and bandwidth-intensive applications will result in increased demand
for backhaul capacity.
‧ STB strategy will determine the long-term functionality of the IPTV service
‧ IPTV network must transmit the content in a secure environment.
‧ IPTV’s increased functionality should not result in hard-to-use end-user
We believe it will take some time for wireline video services to fully realize IP capabilities.
We identify three phases in the development of the IPTV offer:
5. 1. Operators will enter the market with a “me too” pay-TV offer at first.
2. The VoD offer will improve, with more content choice, attractive pricing and new equipment in
3. After upgrading the access network and expanding service coverage, operators will scale their
IP offerings and begin introducing more interactive services..
Business Model of IPTV
The transformation to next-generation business models will be challenging.
‧ The telco plan is to ride broadband and ultimately provide converged services.
‧ The introduction of video services calls for a fundamental business transformation for telcos as
they become media and entertainment companies.
‧ As a media company, an operator will work closely with companies that it formerly has not,
including content providers, consumer electronics providers and advertisers.
‧ Operators will be able to tap into the massive advertising opportunity with video services and
diversify revenue streams.
6. IPTV business model and makes the following salient points:
‧ For now, at least, telcos are satisfied being mere content distributors:
The pure content distribution model has been the favored approach in the initial phase of
market development. The key risk factor is the cost of the content; for telcos, the economics are
often unattractive. Ultimately, telcos will be better served emphasizing revenue-sharing deals;
The another option for telcos is content creation, arguably the most extreme scenario of telecoms/
‧ Size matters; telco size will be a key determinant of content acquisition
The advantages afforded by size for content sourcing are undeniable, a good omen for
telco incumbents. While their IPTV offerings are still at early stages of development, the larger
telcos have the advantage of bringing to the table existing networks of millions of subscribers.
some carriers have subscriber bases larger than the entire pay-TV market. In a context where the
larger content providers are unwilling to talk to distributors that cannot offer minimum
guarantees, telcos’ size is often enough to open doors. This is not negligible. Content distribution
mergers are often driven by the need to slash programming costs; a key driver of Comcast’s
acquisition of AT&T in 2002 was the realization of programming cost savings around US$250m-
$450m over a three-year period.
Telcos have something else content providers lust after: their mobile user base.
Perhaps even more than IPTV — for which there are alternatives, after all — content providers
are fixated by the opportunity to distribute their content to millions of mobile customers. In some
cases, telcos will be able to leverage their broadband and mobile assets to offer multi-platform
access to their user base in exchange for advantageous content acquisition terms.
The Price of IPTV:
7. ‧ Price competitiveness and service bundling have been key elements of the IPTV value
proposition. As new players in the pay-TV marketplace, telcos have to give subscribers a
reason to switch providers or to get a broadband subscription. Assuming they do not have
unique, exclusive content, pricing emerges as a key area of differentiation. All the players
analyzed for the purposes of this study offered price points for basic packages at levels lower
than or equal to prices proposed by cable players. The discounts are not substantial. But
combined with a wide array of channels, they generally make the IPTV offering price-
‧ The most powerful pricing propositions, however, have been those built around service
bundles. Basic content being relatively equal, subscribers will switch if price points are
‧ Content a la carte is good for IPTV market share; its economic viability is doubtful: Offering
content on an “a la carte” basis can help accelerate IPTV adoption, but leads to lower ARPS and
is unpopular with content providers. Few other IPTV players have embraced the model, owing to
a number of vital shortcomings. Successful IPTV Is About a Focus on Broadband — Not TV
Successful IPTV is more about selling broadband than about selling television.
The WW IPTV major service providers
Area Vendors Services Star Time Subscribers
Japan Softbank BBTV 2003 ≒100 thousand
Hong Kong PCCW Now Broadband 2003 440 thousand
Taiwan CHT Big TV 2004 55 thousand
Singapore SingTel iTV 2001(Test) <50 thousand
Italy Fastweb Fastewb TV 2002 560 thousand
UK Video HomeChoice 1999 17 thousand
France France Maligne TV 2003 <20 thousand
FreeDSL Free IPTV 2003 <20 thousand
Spain Telefonica Telefonica TV 2002 71 thousand
Canada SaskTel Max Front Row 2002 70 thousand
IPTV Market categorization
We can categorize IPTV markets along the following lines:
‧ The IPTV sweet-spot markets: These are markets that are experiencing strong broadband
growth, but have pay-TV penetration levels that are relatively modest by developed economy
standards, at around 50% or less. In essence, IPTV helps expand the pay-TV addressable market.
8. Most of the IPTV deployments to date have taken place in these markets, and the most successful
IPTV case studies come from here as well. We estimate that the sweet-spot markets will account
for about 80%-90% of total IPTV subscriber base as of YE2005.
‧ The high-risk IPTV markets: High-risk IPTV markets are characterized by a mature pay-TV
marketplace, with strong pay-TV penetration and a number of strong, established players. The
attraction lies in the fact that the market is open to pay-TV services and ready to pay for them.
The risk lies in the degree of competition to be faced by IPTV. Examples of such markets include
the US, Taiwan and Belgium.
‧ The IPTV wildcards: We have identified a third category of markets that we consider
wildcards of sorts, markets with fairly low pay-TV and broadband penetration levels. Most
emerging markets fall in this category, including Brazil, Mexico, China, Saudi Arabia, South
Africa and Russia. In most of these markets, the traditional broadband positioning model has met
IPTV wildcard markets are exceptions to that argument: IPTV can be primarily about TV,
with Internet access conveniently bundled in.
Case Study: Chun Hwa Telecom
Chunghwa Telecom (CHT) launched MOD service in March 2004 to its own ADSL
subscribers in northern Taiwan and introduced the service nationwide in August 2005 under the
brand name iTV. CHT views IPTV as an additional distribution channel for its content and looks
to further stimulate data usage. CHT runs an Internet portal, HiChannel, by acting as a content
aggregator to increase data revenues.
iTV MOD service is currently exclusive to CHT’s ADSL subscribers, which account for 80% of
the total ADSL subscriptions in Taiwan.
The operator is planning to extend this service to the ADSL subscribers of other ISPs in due
course, after it sees a critical mass in its own market.
iTV Mod is currently delivered on CHT’s ADSL network. The operator plans to extend the
offering to ADSL subscribers of other ISPs. Depending on the access rates of subscribers’ ADSL
packages, viewers receive MPEG-1 or MPEG-2 streams at 1.5 or 3 Mbits respectively. Moving
forward, CHT plans to upgrade its network to the VDSL technology, which will enable 50 Mbps
of downstream speed with a high degree of QoS to manage bandwidth use. Alcatel and ZyXEL
are the suppliers of CHT’s VDSL systems and CPEs.
Competition: CHT Is the Dominant Market Player
Operators need to receive a license to offer an IPTV service. The IPTV service is classified
as a cable-TV service according to the regulatory framework. However, unlike the cable-TV
market, where system operators are restricted from freely expanding into other districts, IPTV is
defined as a nationwide business. CHT controls 80% of Taiwan’s broadband market, a presence
that essentially guarantees its domination of the IPTV space.
9. Major Conglomerates and Their Affiliates in the
and Cable-TV Markets in Taiwan
MOD’s current TV content is not very differentiated than the cable-TV or the other pay-TV
option in Taiwan. The major difference is that MOD focuses on socially popular content, whereas
the pay-TV service offered by China Network Systems, one of the two leading cable-TV MSOs,
provides five adult channels, along with their education, information and entertainment contents.
CHT’s basic package offers more than 20 channels, including the five domestic terrestrial
channels, Beautiful Life Television (a Buddhism channel), Tsu-Chi Channel (a Buddhism and
charity foundation program), Taiwanese Aboriginals Channel, ABC from Australia and TV5 from
‧ Karaoke-on-demand: MOD provides a selection of more than 1,000 songs to enable subscribers
to enjoy karaoke at home. A service is planned to allow subscribers to upload their homemade
MTV to local channels.
‧ E-learning: English learning (from kids to adults) and on-the-job training are big things in the
Taiwanese society. According to a survey issued by Taiwan Network Information Center in July
2005, VoIP and distant learning are the two growth drivers in the broadband service market in
Taiwan, with roughly 35% of users expressing an interest in VoIP services and 32% expressing an
interest in subscribing to distant-learning content.
‧ Home Banking.
‧ Home Shopping
10. Subscriber, Revenue and Profitability Performance
By the end of July 2005, CHT has registered a total of 55,000 subscribers to its MOD
services. The net addition in July 2005 was 7,000 subscribers. The company hopes to
see this number increase to 200,000 by the end of 2005.
 Incumbent Hong Kong telecommunications provider
 Leading provider of local telephony, narrowband, broadband, business and IT
 Cascade network engineering services
 PCCW employs approximately 12,000 staff
“NowBroadband”TV launched in September 2003
 World’s first and largest commercial IPTV deployment
 Over 500,000 subscribers at end 2005
 HDTV and VoD recently launched
 Now planning new interactive services
 Subscribers to Netvigator broadband service receive TV package at no incremental cost
with 12 month commitment
 More than 85 channels
 15 free channels
 70 individually purchasable or selectable as mini-packages
 60% of subscribers pay for extra channels
 A La Carte channels as competitive entry strategy, migrating to “mini packs” retaining
 Consumers pay only for what they want
Key Success factors for PCCW-
 Start with large broadband customer based enabled by bandwidth everywhere and low
cost STB decoder
 Provide excellent customer relationship management with proactive outbound call centre
 Adopt A La Carte channel as competitive entry strategy, migrating to “mini packs”
 Offer wide choice of content including exclusives
 Protect content providers rights – zero piracy with revenue
 Exceed cable service level including better picture quality and easy to use customer
 Develop strong “in-house” capabilities for network/systems development and installation