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  1. 1. Executive Summary .......................................................................................................... 1 I: OVERVIEW...................................................................................................................3 IPTV Defined................................................................................................................. 3 Telco IPTV .................................................................................................................... 4 Telco IPTV Markets....................................................................................................... 4 IPTV Services & Business Models................................................................................ 5 Challenges & Opportunities in IPTV.............................................................................. 6 II: IPTV Systems and Service Offerings........................................................................... 7 IPTV System Components............................................................................................ 7 III: IPTV Markets & Deployments .................................................................................... 10 Market Overview ......................................................................................................... 10 Deployments ............................................................................................................... 11 IV: IPTV Vendor Anatomy .............................................................................................. 14 Set-top Boxes (STBs) ................................................................................................. 14 Encoders ..................................................................................................................... 15 Middleware.................................................................................................................. 15 VOD/PVR .................................................................................................................... 16 Conditional Access Systems (CAS) ............................................................................ 16 V: IPTV Profit Models..................................................................................................... 18 Scenario 1: Master Digital Headend ........................................................................... 18 Scenario 2: Local Headend......................................................................................... 19 Scenario 3: Internet Headend ..................................................................................... 20 VI: Market Forecasts ...................................................................................................... 22 Market Overview ......................................................................................................... 22 VII: Conclusions ............................................................................................................... 24 1
  2. 2. Executive Summary This report weighs both the potentials and challenges of IPTV through a comprehensive analysis of IPTV service components and vendors; launched and pending deployments; IPTV business economics; and regional market forecasts. The analysis is based on a range of data points obtained through vendor and service provider interviews, public financial documents, newspaper and trade magazine accounts, and proprietary DTC databases. Our report includes systems that have launched as of the first half of 2006. The vendor landscape today is awash with providers at all levels of the value chain, with varying levels of interoperability. Key challenges facing the industry include implementing interoperable, scalable technologies which can reliably serve major system deployments; differentiating services in a competitive market place; and achieving profitable business models. The ability to add an entire class of services and revenue streams to already deployed broadband networks can be an effective defense against new competitors in core telco markets, as well as a powerful tool in gaining customers and increasing average revenue per user (ARPU). Additionally, the flexible nature of an IP network allows different operators to implement services based on their specific needs in terms of cost and market demands. This has led to a wave of deployments, large and small, by incumbent telcos and broadband ISPs worldwide. Indeed, literally hundreds of telco based IPTV deployments have taken place through the first half of 2006, several serving subscriber bases in the hundreds of thousands. More large scale deployments such as these are expected over the next several years, promising to boost both subscribers and revenues dramatically. DTC estimates that telco delivered IPTV subscribers will grow from 3.7 million in 2005 to more than 35 million in 2010, estimates which many find conservative. Subscriber revenues will grow from about $900 million in 2005, to more than $11 billion in 2010. Implementing IPTV services is not without challenge, however. Operators are still struggling with finding successful business models for their specific markets, amid a confusing range of options and equipment vendors with varying degrees of upfront and ongoing costs. Regulatory challenges are also common, as previously distinct service categories and regulatory frameworks conflict and blur, complicating and slowing expensive service rollouts. 2
  3. 3. I: OVERVIEW Key Data: • Comprehensive List of Global IPTV Deployments detailing region, system name, system launch data, encoder, set-top box vendors, middleware & application software vendors, DRM. • Top ten IPTV systems including subscribers, vendors and services. • 10-year forecasts for Telecom-based IPTV including total subscribers by region, total revenues by region, total STB units shipped. • Sample IPTV service five-year business model With several commercial deployments of telco-based IPTV services now successfully underway, it has become clear that Internet Protocol Television (IPTV) is a viable new platform for multichannel TV services, with vast potentials to be realized over the next decade. As the first platform to deploy IPTV on a commercial scale, telco-based deployments offer an important glimpse of larger trends for the pay TV industry as a whole, both in terms of the type of TV content available and the ways in which it is distributed and consumed. IPTV Defined On a very basic level, IPTV refers simply to a standardized network architecture which connects to the TV based on Internet Protocol (IP), packet-based network delivery. IPTV can be employed via a range of technologies such as closed pay TV networks – including DSL, fiber, power line and satellite – as well as various combinations of multiple technologies, such as hybrid DTH/DSL or DTT/DSL. An IPTV system can also be employed using a customers existing PC-based broadband connection. Within the context of pay TV, IPTV necessitates a few fundamental differences in network design and content delivery that promise to shape future pay TV delivery in distinct way: • IPTV is a two-way connection, which can be employed within a closed, dedicated network (like a cable system or telco local loop) or using the public Internet backbone. Though it can mimic the existing “one-to-many” broadcast model employed in today’s pay TV networks; IPTV is inherently a routed, two-way networking architecture (see graphic). This marks a fundamental change to one way pay TV networks, impacting all aspects of the value chain from content to conditional access and set-top boxes. • IPTV based Pay TV is one service among many for Broadband Service Providers. Because the IP architecture supports multiple services, IPTV is one of a package of communications packages changing marketing approaches and service structures. It also means that the once distinct categories of cable, 3
  4. 4. satellite, and telco service will become increasingly less meaningful as integrated broadband service providers offer multiple types of access and content. • IPTV separates content from access. Access to content and the content package itself have been one in the same for pay TV to date. While service providers can sell their own packages of traditional pay TV content, they can also offer access to third party content via the Internet. This is a double edged sword however, since service providers will gain access to more content for their subscribers, thus making their service more attractive, but will also give over some degree of control in that content delivery (both subject matter and revenue generation). Telco IPTV The first service providers to have implemented IPTV in successful commercial deployments are telcos. There are a variety of reasons this is so and they illustrate many of the advantages of the IP based architecture overall: • DSL broadband growth; Telcos worldwide have invested heavily in IP DSL networks, and have seen enormous growth in broadband Internet subscriptions. IPTV provides an additional source of revenue that can be generated using the same basic network components and infrastructure as broadband Internet. • Market Competition. Telcos have seen new competition for their core voice services, necessitating the expansion of their offerings into new areas. • Flexible deployment options. Since IP is an open standard, it has given rise to a variety of implementations – based on common network building blocks – in different markets. This has kept the prices for the basic network components very low, while still allowing for either high-end feature rich services – prohibitively expensive for some, a minimum bar for others – or more basic packages, cheaper and easier to deploy. Telco IPTV Markets DTC estimates that telco IPTV subscribers will grow from 3.7 million in 2005 to more than 36 million in 2010, estimates which many find conservative. Subscriber revenues will grow from about $900 million in 2005, to more than $11 billion in 2010. Though we expect IPTV to emerge as a significant and important new pay TV platform over the next decade, we expect its success to be regionally concentrated, based on market specific factors such as geography, existing pay TV/broadband landscape, and consumer habits. For example: 4
  5. 5. • Asia-Pacific (AP)—This region has the largest potential for subscribers. Both China and India represent large population centers just beginning analog-to- digital transitions, and do not have well developed digital pay TV providers. Telcos will be able to compete for new digital subscribers, rather than sway existing digital subscribers away from other services. • Europe/Middle East (EMEA)—EMEA is another hotspot for IPTV. Though western Europe has rather well developed digital pay TV markets in most cases, they are predominately one way digital satellite. This has put both state owned telcos and alternative broadband providers in a strong position to offer robust triple or quadruple play packages to their existing DSL customers. In the less well developed markets, such as eastern Europe or the Middle East, more basic triple play services are being deployed. • North America (NA)—Though North America is one of the largest pay TV markets, we expect telco IPTV to be relatively limited. Though we expect it to retain its appeal to regional telcos, the bulk of the market will remain satellite and cable based. A more likely scenario is the combination of DTH/broadband services which make extend to TV through hybrid STBs. • Latin America (LA)—A poor overall wireline infrastructure makes LA a less likely candidate for IPTV, though not entirely. Brazil enjoys a fairly large base of DSL broadband subscribers, and recently announced Latin America’s first IPTV trial, a hybrid DTH-IPTV service. IPTV Services & Business Models Commercial deployments of IPTV reveal some broad trends about future pay TV services and business models. Among the trends: • Content: What you want, where you want it, when you want it. This core concept is one that has been slowly manifesting, as far back as the video tape, and more recently PVR and VOD. IPTV, due to its two-way networks and cross platform IP standards, is uniquely suited to capitalize on this idea. It can offer both highly interactive traditional pay TV service (VOD, PVR), as well as broader access to “over the top” content delivered via the Internet, meaning a far greater array of consumer choices. • Micro-niche content, along side traditional pay TV packages While some speculate that Internet-distributed content might pose a threat to established pay TV content providers, it is more likely that access to a wider catalog of out-of- network Internet IPTV content could serve as a supplement to bigger ticket, broadcast pay services, increasing its appeal rather than diminishing it. This will fuel more specialized niche content offerings, as content providers distributing via the Internet achieve critical mass with smaller subscriber bases, across geographically diverse systems. 5
  6. 6. • More pricing/service variations. Since system operators can economically customize and develop for their own services with IPTV, already a wider range of pricing and service variations are emerging. Many large systems are experimenting with new types of offerings, such as full a la carte per-broadcast- channel subscriptions, free broadcast channels combined with pay VOD libraries or hybrid services combining digital terrestrial or satellite broadcasts, along with IPTV based on-demand content. Challenges & Opportunities with IPTV The changes that IPTV brings to the pay TV industry overall will be both evolutionary and revolutionary, creating opportunity and demanding change from both new and incumbent players. The players include: • Vendors. The ability to adapt IPTV to specific market demands will serve to increase the appeal of pay TV overall, while expanding the number of vendors who can focus on specific types of services/markets. This means new opportunities for both established players in pay TV, as well as new entrants with new innovations to the platform. • Content Providers. While content will still likely follow the 80/20 rule (80% of usage is from 20% of the content), a greater diversity of content will naturally decrease average viewership, in much the same way that cable TV’s expanded channel line up impacted the prior era’s large broadcast audiences. This will force existing content providers to adjust their business models, perhaps incorporating a range of niche programming on demand, along side of broadcast channels with wider appeal. It will also open the historically closed network of TV to new content producers and even new content forms. Service Providers. IPTV offers some compelling competitive advantages and mechanisms for increasing the ARPU of broadband service providers, both in terms of platform integrations (DTT or DTH/telco IPTV hybrids) and new services. In order to be profitable, however, service providers must be able to balance the cost of their service implementation with competitive market demands, ARPU, and total subscriber expectations. 6
  7. 7. II: IPTV Systems and Service Offerings IPTV System Components There is a high degree of variability in how an IPTV system can be deployed based on a carriers specific network and the type of services being offered. Despite this wide range of possible implementations, there are a few common building blocks which can be found across the board. The diagram below offers a visual representation of the main aspects of an IPTV system, and the content flow within it. • Common building blocks of an IPTV system (graphic) There are four main parts to any system, consisting of: 1) Central Office head-end, which receives and prepares content for distribution within the system 2) Core Network, which manages the distribution of that content to various nodes within the system 3) Access Network, made up of nodes which receive content from the core network and distribute content streams to the end user 4) Customer Premises Equipment (CPE) to receive, decode and display the content. Each of these main parts is made up of several basic elements: Shared Headend vs. Master Headend While using these same building blocks, operators may also choose to implement their offerings with varying degrees of partnership with head-end content/equipment suppliers. Content aggregators can assemble packages of content, already encoded for local system delivery, and then distribute them to local network head-ends, thus reducing the upfront head-end costs to a system operator in terms of encoding and receiving equipment. Several operators have entered the market recently to provide this type of service for smaller telcos, less able to absorb large upfront deployment costs but eager to increase ARPU from upgraded DSL networks. Typically, these aggregators offer packages of channels which the operator then markets and distributes through their own network. Some aggregators actually co-locate equipment within the central office and nodes, fully deploying the service all the way from the initial content to the set-top. 7
  8. 8. Types of IPTV Content There is also a range of content services which can be implemented over an IPTV system, giving a wide degree of variability in the specific packages being offered by different system operators in different regions and markets. • Traditional Cable/Broadcast Channels Using the basic cable model, IPTV operators can offer a selection of linear broadcast channels, sold on an a la carte or bundled tier basis. These might include redistributed digital terrestrial channels, traditional cable network channels (MTV, Discovery Networks, ESPN, etc.), or premium channels such as HBO or Showtime. These channels are distributed via multicast, i.e. broadcast to the entire network simultaneously, much like a cable or satellite network. • Video On Demand Libraries of movies or other video/TV content can be offered to subscribers for viewing on demand. Content servers, located independent of system middleware, are placed either at Core or Access Network points, where subscribers can browse and select from the content library via a distinct network stream. • Other Content Applications A variety of other content applications can also be deployed which can provide additional features. Examples include network PVR (personal video recorder) functions, allowing users to pause or record live broadcast content; KOD (karaoke on demand); various games; and a variety of personalization features, such as saved channel lists for various household members. These applications can be deployed via middleware packages or distinct software packages. • “Over the Top” Content One of the newest types of content enabled by IPTV is so called “over the top” content. This is content is typically original content by small or niche producers which is delivered via the Internet to a user’s STB. In today’s market, this type of content is delivered via specialized content/hardware providers, who sell their own STBs which plug into the user’s existing broadband connection. This is not a technological limitation, however, and such content could easily be offered by IPTV network operators as a differentiating value-add in competitive markets. IPTV Service Offerings • The Triple Play Worldwide, IPTV is predominately marketed as part of a “triple play” package, along with voice and broadband Internet service, offered by broadband service providers seeking to reduce subscriber churn in core businesses and increase ARPU. In some cases, this is a “quadruple play” also including mobile. The structure of services, pricing models, and content types, however, can vary greatly among regional markets, reflecting the area’s existing telecom and pay content landscape. • Subscription Tiers 8
  9. 9. Bundled channel tiers, sold as basic and premium monthly subscriptions, are the traditional model for multichannel pay TV. Subscribers choose from several basic packages, with price increases for larger blocks of channels. Beyond the basic subscription, they can add premium and niche content tiers, such as movie channels, ethnic channels or sports channels. The subscription model clearly dominates in the mature markets of North America and Europe, though far less so in the Asia Pacific region. • A la carte Subscriptions In this model, customers choose channels individually, rather than tiers, paying a low cost monthly subscription for each channel. While unheard of in early multichannel pay models, a la carte pricing is becoming increasingly common, particularly in the Asia-Pacific IPTV deployments, most notably the largest commercial deployment to date, PCCW in Hong Kong. • Pay-Per-View/Use (PPV/U) This is the pricing model for most VOD content (though some VOD is sold as a subscription tier), as well as KOD and games. PPV content has traditionally been viewed as a revenue stream on top of basic subscription. There are a growing number of deployments utilizing this as a standalone content revenue stream however, offering a PPV VOD library along with a voice/data triple play, with or without a free bundle of broadcast channels. • Service/Equipment Fees Several other small revenue streams are common and can increase ARPU. The most common is a monthly lease fee for an operator owned STB. Others include monthly service fees for PVR or network supported personalization features. 9
  10. 10. III: IPTV Markets & Deployments Market Overview While based on the same foundations the market for IPTV services is actually a multifaceted collection of diverse sub-markets, varying by geographic region, service operator, and local market specifics. In some of the largest early deployments taking place in Asia, such as PCCW or City Telecom in Hong Kong, the approach has been to focus on a low cost service implementation using minimally featured set-top boxes and middleware offering a la carte content bundled with voice/data services. This low cost approach allows the service to be competitive despite a fairly low ARPU of around $15. Conversely, in well developed pay TV markets, new services from broadband ISPs like FastWeb in Italy or Free Telecom in France, offer more traditional subscription tiers. Items like VOD, feature-laden set-top boxes and middleware, and bundled voice/data packages help convert existing broadband subs into triply play subs. Enhanced features enable new pay TV market entrants to offer viable competition to incumbent operators, and achieve a greater ARPU. In yet another example, small, independent rural telcos in the North American market, serving anywhere from 1,000 to 25,000 total subscribers, have used IPTV services to fend off cable competition for their core voice customers, while also attracting new triple play subscribers in underserved cable markets. Many turn to content/technology aggregation services as low upfront cost turnkey solutions to achieve these ends, though generating a fairly low margin revenue stream. Because IPTV can find a place in any of the above markets, DTC expects total worldwide IPTV subscribers will grow from just over 3.7 million in 2005, to more than 6 million by the end of 2006. Worlwide IPTV Subscribers 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2005 2006 Worlwide IPTV Subscribers 3.77 6.05 10
  11. 11. The largest concentration of subscribers comes from the Asia Pacific region, with Hong Kong’s PCCW garnering the largest number of subscribers. Other major deployments in this region are City Telecom in Hong Kong, Chunghwa Telecom in Taiwan, Softbank/YahooBB in Japan, as well as new launches in mainland China, from China Netcom and China Telecom. Estimated 2006 IPTV Subscribers North America 8% AP 48% EMEA 44% The EMEA region has the second largest concentration of activity, with major commercial deployments in France (France Telecom, Neuf Cegetel, Free Telecom), Italy (FastWeb, Telecom Italia) Spain (Telefonica, Jazztel) and Germany (Telecom Italia, Deutsche Telecom). The bulk of North American subscribers are from nearly 200 small rural independent telcos in the U.S., as well as a handful of tier one telcos in Canada - all early adopters of IPTV. This ratio may change soon however, as tier one U.S. telcos like Verizon and AT&T enter the market in earnest. Deployments Our analysis focuses on 25 of the largest Tier 1/Tier 2 deployments that have launched commercially as of June 2006 (see table). We estimate that these systems will make up approximately 66% of the total estimated subscribers for 2006. While the overall IPTV subscriber base grew just over 60% between 2005 and 2006, these top tier deployments grew more than 100%. 11
  12. 12. TABLE-- Top 25 IPTV Systems Deployed Subscribers (Based on total subs and market size, in thousands) Country Operator Launch Date 2005 2006 Top IPTV Systems Total IPTV Subscribers Top Systems % Total This growth estimate may actually prove to be conservative, since we’ve included only systems that have launched as of the first half of 2006. Several significant services in major markets are in trial phases and hope to launch commercially by the end of the year (see table), including both Korea Telecom and Hanaro in Korea and AT&T in the U.S. to name just a few. Should a best case scenario emerge with all of these systems launching by year end, it could increase the total by as many as 500,000 subscribers. 12
  13. 13. TABLE-- Tier 1 Pending Launches Region Country Operator As in the IPTV subscriber base over all, Asia Pacific and EMEA are the most successful regional markets for large scale IPTV deployments. Indeed 50% of the top 25 deployments are in Asia, while 45% are in Europe (see table below). North America, made up predominately of systems with less than 10,000 subscribers, along with a handful of 20,000-30,000 systems and a single U.S. tier one deployment (Verizon), accounts for just 5% of the top 25 systems, compared to 8% on a worldwide basis (See charts). Top 25 IPTV Deployed Systems: 2006 Regional Breakout NA 5% AP 50% EMEA 45% HD is becoming more prevalent as existing deployments begin to introduce channels and new operators offer it initially. Currently about 44% of the top 25 systems offer HD. 13
  14. 14. IV: IPTV Vendor Anatomy Since IPTV is still in its very early stages, just barely passed the 5 million subscriber mark, the market for IPTV equipment is still very crowded. While a number of vendors have had success targeting specific portions of the IPTV market, such as Motorola’s domination of the rural U.S. telcos, there have been some significant acquisitions in the last year (see table) suggesting that a phase of consolidation has begun. Recent IPTV Deals Buyer Seller Date Description Set-top Boxes (STBs) The STB category is perhaps the most crowded of all, with most vendors supplying only one or two systems. Yuxing has the leading market share by virtue of the fact it is the sole supplier to Hong Kong’s PCCW, and also a subsidiary of the operator… TABLE-- Top Tier System Deployments 2006 STB Market Share (top tier only) Systems 2006 Shipments % total 14
  15. 15. Total Encoders As a tier one vendor already for both the cable and DTH pay TV markets, Harmonic has seen the widest deployment in the top 25 systems… …Tandberg is also in a strong position, serving two of the largest IPTV subscribers systems, PCCW and City Telecom, both in Hong Kong… TABLE-- Top Tier System Deployments 2006 Encoder Market Share Total Deployments % of systems deployed Middleware The market for middleware is highly fragmented, with a full 20% of systems employing a customized proprietary middleware. Microsoft is poised to gain in both systems and subscribers, however… 15
  16. 16. TABLE-- Top Tier System Deployments 2006 Middleware Market Share 2006 Subscribers % Total Subscribers Total Systems % Systems VOD/PVR TABLE-- Top Tier System Deployments 2006 VOD Market Share Systems % Conditional Access Systems (CAS) IPTV differs from other pay TV platforms in that it is (and always has been) inherently two-way. Cable systems have only recently become two way, and DTH satellite systems are predominately one way, even today. IPTV’s two way architecture has enabled a new class of software based CAS, which can be monitored and upgraded from the head-end with out expensive deployments of card-based hardware solutions needed in one-way systems. Because of this, the vast majority of IPTV is software based and vendors expect it will soon be all software based. TABLE-- Top Tier System Deployments 2006 CAS Market Share Total % Total % Subscribers Subscribers Systems Systems 16
  17. 17. 17
  18. 18. V: IPTV Profit Models General Economic Benchmarks Based on our interviews with a wide variety of vendors, we’ve developed three five year scenarios of IPTV implementations to help illustrate the realm of possibilities and variables. The first scenario assumes a tier one, high-end multi-featured service, reaching 5 million subscribers in year 5. The second considers a 10,000 subscriber system, employing a more economical cost model through fewer features, standard digital video quality and less content. The final scenario, somewhat more theoretical than the prior two, examines an Internet based IPTV service model, using targeted niche content and low-cost STBs, along with existing customer broadband connections, to offer original content. Scenario 1: Master Digital Headend Service Type: • Tier one service growing to 5 million subscribers over five years, launching into a highly competitive existing multichannel marketplace. • Broadly featured tiered subscription service, offering premium channels, extensive VOD and a la carte content library and PVR. Service encompasses 200 channels including SD and HD from a full service digital head-end with top of the line encoders, middleware & conditional access. Deployment Costs: Revenues: Operating Costs: Conclusions: • High upfront and subscriber acquisition costs require big resources for launch, and strong ARPU to reach break even in five year period. • By year five, service reaches an annual operating margin of 27% and a 9% return on the cumulative deployment investment. 18
  19. 19. Scenario 1: Master Head End; 5 mil subs in 5 years Deployment Costs: % total Upfront Master Digital Headend Costs Upfront Equipment Costs per sub New Sub Acquisition Costs Total 5 year New Sub Acquisition Costs Acquisition Cost/Sub Scenario 2: Local Headend Service Type: • Small regional service growing to 10,000 subscribers over five years, launching into a mildly competitive existing multichannel marketplace. • Basic standard digital subscription service, offering non-HD premium channels, limited VOD and basic EPG. Service encompasses 100 SD channels, the majority of which are received already encoded from a content aggregator, and a minority encoded at the local head end, then distributed via the providers middleware system and access network. Deployment Costs: Revenues: Operating Costs: Conclusions: • Lower upfront and subscriber acquisition costs from content aggregation service and more modest service package reduce barriers to entry for small operators with fewer resources to spare. • Basic features and limited content library reduce competitive value and ARPU, yielding higher churn rates and a thinner operating margin. 19
  20. 20. • By year five, service reaches an annual operating margin of 20% and a 6% return on the cumulative deployment investment. Scenario 2: Local Headend; 10K subs in 5 years total homes Total New Sub Acquisition Costs Total 5 year New Sub Acquisition Costs Acquisition Cost/Sub Scenario 3: Internet Headend Service Type: • Internet distributed content service growing to 10,000 subscribers over five years, launching into a mildly competitive existing multichannel marketplace. • Subscription based package of standard digital original niche channels service, with additional a la carte premium channels and VOD library. Content is distributed via Internet distribution partner’s server network for a revenue percentage. Branded service and STBs are sold and marketed by content provider. Deployment Costs: Revenues: Operating Costs: Conclusions: • Low barriers to entry and lack of geographic/regional service territory limitations make this an attractive option for niche markets based on narrow communities of interest. 20
  21. 21. • Ability to offer focused and extensive content library to targeted market both broadcast and on demand for highly competitive prices drives ARPU. • By year five, service reaches an annual operating margin of 34% and a 31% return on the cumulative deployment investment. Scenario 3: Internet Headend/10,000 subs in 5 years total homes with video service New Sub Acquisition Costs Acquisition Cost/Sub Model Summary • One size fits all approach doesn’t apply to IPTV. Many types can meet a variety of market conditions. • Operator must consider several factors, including market competition, deployment resources and ARPU, when choosing an IPTV architecture to achieve the right mix for profitability. IPTV Return On Investment Comparison 40% 35% 30% 25% 20% 15% 10% 5% 0% Master Headend Shared Headend Internet Headend 5 year ROI 9% 6% 31% Year 5 Operating Margin 27% 20% 34% 5 year ROI Year 5 Operating Margin 21
  22. 22. VI: Market Forecasts Market Overview The now widespread deployment of DSL/Fiber broadband access has created a significant installed base of users which could be converted to triple play video subscribers. Indeed, four markets now have more than 10 million broadband subscribers each (China, U.S., Japan, Germany), while another four have more than 5 million (France, UK, South Korea, Italy). DSL penetration rates are still low however, between 10%-20% of Internet users in most cases, despite their rapid growth. This suggests more growth is yet to come as dial-up users gradually upgrade to broadband. IPTV services offer a way for broadband service providers to distinguish their brands, and continue to gain these subscribers in the face of other broadband competitors. TABLE-- Top DSL Markets By Country Total Internet Users (millions) DSL Subscribers DSL Penetration 22
  23. 23. Set-top Shipments 2005 2006 2007 2008 2009 2010 New Sub Units % total Replacement/Multl-set Units %total Total Units Shipped Subscriber Data 2005 2006 2007 2008 2009 2010 New Telco IPTV Subs Total Telco IPTV Subscribers Churn Avg. Subs Avg. Rev/Sub/Mo. Monthly Revenue Annual Revenue Regional Data 2005 2006 2007 2008 2009 2010 New NA Subs North America IPTV Subs NA % total IPTV Subs Churn Avg. Subs Avg. Rev/Sub/Mo. NA Monthly Revenue Annual Revenue NA % total revenue New EMEA Subs Europe/Middle East/Africa Subs EMEA % total IPTV Subs Churn Avg. Subs Avg. Rev/Sub/Mo. Monthly Revenue EMEA Annual Revenue EMEA % total revenue New AP Subs Asia Pacific Subs AP % total IPTV Subs Churn 23
  24. 24. Avg. Subs Avg. Rev/Sub/Mo. Monthly Revenue AP Annual Revenue AP % total revenue New LA Subs Latin America/Other Subs LA % total IPTV Subs Churn Avg. Subs Avg. Rev/Sub/Mo. Monthly Revenue LA Annual Revenue AP % total revenue VII: Conclusions 24
  25. 25. Appendices Appendix 1: IPTV Network Components & Equipment Vendors Appendix 2: Top 25 IPTV Deployments & Vendors Appendix 3: Major IPTV Deployments Pending Launch 25

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