The Broadband Potential In Eastern Europe 011208


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Overview of the potential of broadband access and IPTV services in Eastern European countries with a focus on Hungary, Poland and Romania

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The Broadband Potential In Eastern Europe 011208

  1. 1. The broadband potential in Eastern Europe Michael Philpott [email_address] 4 th December 2008
  2. 2. Agenda <ul><li>General market demographics </li></ul><ul><li>Country by country overview </li></ul><ul><ul><li>Hungary </li></ul></ul><ul><ul><li>Poland </li></ul></ul><ul><ul><li>Romania </li></ul></ul><ul><li>The potential for IPTV </li></ul><ul><li>The potential for broadband </li></ul>
  3. 3. Level 3 General market demographics © Copyright Ovum 2007
  4. 4. Financial In general the spread of wealth is relatively even. However, average salary is low compared to Western European countries
  5. 5. ICT General ICT levels are good. Fixed broadband is in danger of early saturation though.
  6. 6. Level 3 The Hungarian market © Copyright Ovum 2007
  7. 7. The Hungarian broadband market Hungary still has old incumbent boundaries. Magyar is the dominant incumbent, and has DSL and cable interests
  8. 8. Magyar Magyar’s fixed broadband is already starting to plateaux
  9. 9. Magyar’s strategy may be misplaced <ul><li>Investing in FTTX, 100Mbps to 30% of homes by 2013 </li></ul><ul><li>Upgrade cable to Docsis3.0, ~ 400k homes by end of 2009 </li></ul><ul><li>Current broadband offerings have stalled </li></ul><ul><ul><li>4000 (3000 on cable) Ft for 2Mbps DSL, 11,400 Ft for up to 25Mbps </li></ul></ul><ul><ul><li>4000 Ft is ~$20 per month = roughly 4 times more than UK and France compared to GNI per capita </li></ul></ul><ul><li>TV service via Satellite, cable and IPTV </li></ul><ul><li>Triple play starts at 6,480 Ft (~$31) </li></ul>
  10. 10. Main competition: <ul><li>UPC is Magyar’s biggest broadband competitor </li></ul><ul><li>It has gained 15% household penetration in its footprint, but its footprint is limited to 2 million homes (56% of households) </li></ul><ul><li>4000 Ft (~$20) for a 2Mbps service, equivalent to Magyar, and offers 20Mbps for 9000 Ft ($45) </li></ul><ul><li>Triple play starts at 6,480 Ft (~$31) </li></ul><ul><li>RGU = 1.4 </li></ul>
  11. 11. The Hungarian TV market <ul><li>Pay TV is popular in Hungary, but analogue TV still dominates the Hungarian TV market. </li></ul><ul><li>DTH is the biggest digital TV platform, with big satellite players such as DigiTV (~500k subscribers) and cable TV operators also offering services such as UPC. </li></ul><ul><li>UPC has 173K DTH subscribers versus, 48k digital cable, and 640 analogue cable. </li></ul><ul><li>DTT service is scheduled to launch December 2008 & will initially be available to around 60% of the population (6 million viewers) and will eventually reach 96%. </li></ul><ul><li>Analogue switch off planned for 2011 </li></ul><ul><li>Magyar offers IPTV, cable TV and DTH </li></ul>
  12. 12. Level 3 The Polish market © Copyright Ovum 2007
  13. 13. The Polish broadband market Cable Cable TPSA is the incumbent operator and dominates the Polish broadband market The cable market provides reasonable competition, but is fragmented. Netia is the only large ISP to be really growing market share
  14. 14. Overall market conditions Fixed market in sharp decline PLN (million) Source: UKE Source: TPSA financial reports TPSA’s fixed line revenues Change in fixed line revenues
  15. 15. The competition: <ul><li>TPSA’s biggest telco competitor </li></ul><ul><li>Largest competitor in fixed voice with ~10% (Q4 2007) of fixed voice market after the Tele2 acquisition </li></ul><ul><li>Only 8% broadband market share, but the only player in the top 8 to be actually growing – 4 percentage points in 12 months </li></ul><ul><li>Pilot of IPTV with telewizja n for the joint development of 3play (TV + Internet + phone) and 2play (TV + Internet) </li></ul><ul><ul><li>Pilot Q4 2008 in the cities of Warsaw and Wrocław </li></ul></ul><ul><ul><li>Commercial launch is to include the full package of telewizja n’s programs, including HD channels, as well as new services and functionalities offered by IPTV. </li></ul></ul><ul><ul><li>Netia and telewizja n started their cooperation in May 2008, offering joint 3play service packages through selected sales channels with TV service based on satellite technology. </li></ul></ul>
  16. 16. The competition: <ul><li>Good range of services </li></ul><ul><li>HD TV & content from major studios </li></ul><ul><li>UPC offers up to 20Mbps broadband </li></ul><ul><li>VoIP and PSTN, but relatively slow growth (~130k customer each) </li></ul><ul><li>Heading towards 2 RGUs per customer (UPC 1.4, MM 1.6) </li></ul><ul><li>Footprints limited: 2M and 1M respectively </li></ul><ul><li>But slowly increasing via acquisition and some new build. Multimedia also branching out into DSL and IPTV </li></ul>
  17. 17. Competitive offerings TP is highly focused on the provision of content But is being attacked on broadband access 70 zl ($21) (30 zl ($9) for the first 2 months) 135 zl ($41) 150 zl ($45) 30 zl ($9) 48 zl ($14) 80 zl ($24) 79 zl ($24) (54 zl ($16) under current promotion) 512k to 6M 59 zl ($18) 1M to 16M 69 zl ($20) 2M to 20M
  18. 18. The Polish TV market <ul><li>Analogue terrestrial TV still dominates. </li></ul><ul><li>Cable TV has approximately 40% market share, but much of that is still analogue. </li></ul><ul><li>Satellite is smaller than cable TV, with approximately 3.5 million subscriber, but is growing quite quickly </li></ul><ul><li>TPSA and Netia are taking advantage of Satellite’s growth and country coverage, as well as moving into IPTV services. </li></ul><ul><ul><li>TPSA has formed agreements with Canal+ Cyrowy to offer DTH services where IPTV is not available </li></ul></ul><ul><ul><li>Netia is partnering with ‘n’. </li></ul></ul>
  19. 19. Level 3 The Romanian market © Copyright Ovum 2007
  20. 20. Overview <ul><li>Fixed line penetration is low – 4.26 million lines, ~50% of households </li></ul><ul><li>Fixed broadband household penetration is therefore ~25%, but 50% of homes with a fixed line </li></ul><ul><li>According to the regulator, 3.45 million people have Internet access via mobile technology (16% of the population), only 11% via fixed Internet at home. </li></ul>“ Neighbourhood networks”
  21. 21. Romtelecom 50% reduction in monthly subscription fees Increase lowest speed to 1M Introduces 20M More aggressive pricing is starting to pay off 78 ($100) 20 Mbps 49 ($63) 8 Mbps 25 ($32) 6 Mbps 15 ($19) 2 Mbps Tariff (EURO) Speed
  22. 22. The cable competition <ul><li>2 million homes passed (22%), growing slowly – 8300 homes over the past 12 months </li></ul><ul><li>Loosing customers as they switch to digital </li></ul><ul><li>New focus around triple play </li></ul><ul><li>Broadband being hit by RomTel’s aggressive pricing </li></ul><ul><li>Cheapest broadband now 25 lei ($7.5) </li></ul><ul><li>Cheapest Triple play (Digital) now = 60 lei ($18) </li></ul>
  23. 23. Neighbourhood example: <ul><li>Neighbouhood networks have taken advantage of the incumbent’s traditionally high broadband charges </li></ul><ul><li>Local metropolitan networks offer cheap triple play service with up to 100Mbps </li></ul><ul><li>Example: Airbite’s network covers a number of main cities such as Bucharest. </li></ul><ul><li>Triple play service currently being offered at 19.50 RON ($6) with a 1Mbps service. For every extra 1Mbps, pay just 10 RON ($3) </li></ul><ul><li>Get basic TV package for free if taking a broadband service of 3Mbps or more </li></ul>
  24. 24. The Romanian TV market <ul><li>Pay-TV services are very popular in Romania, with ~ 70% household penetration. </li></ul><ul><li>Cable TV is the most popular platform, but is in decline. As customers switch over to digital TV they are often switching to Satellite TV, which is rapidly growing. </li></ul><ul><li>Romtelecom launched in November 2006 its own DTH service as Dolce </li></ul><ul><li>Romtelecom is currently the 2 nd largest satellite operator in the country. </li></ul>
  25. 25. Level 3 The potential for IPTV © Copyright Ovum 2007
  26. 26. Pay-TV is gaining strength Need to attack, not defend Difficult to find niche Good market for IPTV Must provide value Lack of good free TV Good free TV Weak pay-TV Competition Strong pay-TV Competition
  27. 27. There is an opportunity, but Broadcast TV VoD HDTV Multi screen Int. Apps UGC UGC sharing Int. Long tail Target Ads Int. home The beginning Differentiation Building value PVR / Catch -up But can it do it at the right price point? IPTV will really have to differentiate
  28. 28. There is a fibre push Hulu Apple TV But at what cost? Verizon Fios BT Vision
  29. 29. Given price points, utilising other platforms should be a good strategy Broad-band Broad-band Broad-band Simple service bundling to create value Add interactivity to provide new features Add DTT option to reduce costs further
  30. 30. Two issues with this strategy Broad-band Broad-band Partnerships can break down A VoD only service can come under new competition
  31. 31. Is there a need for IPTV? <ul><li>Fixed line business is coming under increasing pressure </li></ul><ul><li>Fixed telephony is in steep decline – but mainly due to FMS </li></ul><ul><li>Broadband growth is slowing prematurely </li></ul><ul><li>Service providers need to stimulate the broadband market, which will stabilise the fixed market </li></ul><ul><li>Triple play could help – if it is cheap! </li></ul><ul><li>Triple play is unlikely to be a big revenue earner in the short term </li></ul>
  32. 32. Level 3 The potential for broadband © Copyright Ovum 2007
  33. 33. Broadband access is a sticky service Source Ovum sample size 8,000 consumers
  34. 34. Broadband is in danger of stalling <ul><li>Prices are just too high to appeal to lower segments of the population </li></ul><ul><li>By the end of 2010 Easter European countries should be in the early 20% penetration range </li></ul><ul><li>If the current trend was to continue, Poland will struggle to get much over 12% </li></ul><ul><li>However, broadband needs to continue to grow to: </li></ul><ul><ul><li>Slow down fixed line decline </li></ul></ul><ul><ul><li>Counteract a declining fixed voice revenue </li></ul></ul><ul><li>Triple play will appeal to some segments, but basic, good value, broadband access deals are still important and stimulate the market more </li></ul><ul><li>Consumers don’t seem to mind 2 or even 3 years contracts if the deal is good enough </li></ul>Includes TV
  35. 35. A tough pill to swallow <ul><li>Reducing pricing will impact significantly on broadband profit </li></ul><ul><li>Average price for broadband in Western Europe is $25. On this typical margins are between 40% and 60%. </li></ul><ul><li>Hungary and Romania are already offering prices of less than $20 </li></ul><ul><li>At $10, margins will be very thin </li></ul><ul><li>But where will growth come from without such action? </li></ul>
  36. 36. “The challenge is to keep the customer” <ul><li>Big focus on entertainment due to the ARPU opportunity </li></ul><ul><li>If it is about ‘stickiness’, there are other alternatives </li></ul><ul><li>Search for applications that gain stickiness and value </li></ul>Who do you see as a reliable source of technical support? Would you value technical support? 25.73% 25.42% 24.93% 11.24% 7.09% 5.59% High-street retailer Network telco provider Independent specialist Multimedia services (e.g. pay-TV operators) Third-party telco provider None of these Don't know 17.6% No 20.2% Yes 62.3%
  37. 37. Using OTT to your advantage Consumer Home One bill QoS Guaranteed Customer service Maintenance & support ISP acquired content Sport content Film content Music content Gaming Gambling • • • • • • • • • •
  38. 38. Level 3 Concluding thoughts © Copyright Ovum 2007
  39. 39. Concluding thoughts <ul><li>Operators must risk profits in order to stimulate greater broadband demand </li></ul><ul><li>Fixed-mobile substitution will have a bigger impact than it does in the west, but broadband can be used to dampen the effect </li></ul><ul><li>Broadband is a sticky service, so consumers will not mind signing long term contracts for a good deal on their broadband </li></ul><ul><li>Pay-TV is popular in many Eastern European countries. </li></ul><ul><li>It will be hard for IPTV to directly compete without significant investment </li></ul><ul><li>Bundling with satellite or in the future DTT, is a good way to bring additional value and new revenue streams in the future </li></ul>
  40. 40. Level 3 Thank you © Copyright Ovum 2007