MUMBAI: The market for 'digital home' services (TV, broadband internet and telephony) in Europe is set to take off in 2006, according to a study by Booz Allen Hamilton tiled, The Future Role of Cable in Shaping the Digital Home in Europe.
By 2010, digital TV (DTV) will be available in 60 per cent of European households enabling consumers to access new services, including interactive television. Thus, DTV will replace broadband internet as the principal driver of growth of Europe's digital economy.
As a consequence, cumulative investments in the industry of around 100 billion euros are anticipated, along with the creation of 100,000 new jobs, mostly with infrastructure providers (telecom, cable). Local content providers will also profit from this investment: Approximately 35 billion euros will be invested in new programme development alone. However, these economic benefits will only fully materialize, if genuine competition between infrastructures is ensured.
With the development of DTV, the competition for the convergence market (including internet, telephony and TV) will continue to intensify. The long-term winners will be the players, who are first able to offer the consumer the so-called "triple play", access to all three services from a single source, on favourable terms and conditions. Both cable network operators and telecommunications providers have the technical capabilities to deliver these services. Cable TV providers have long offered internet services and have recently entered the (digital) telephony market. Now an increasing number of telecommunications providers are forcing their way into the TV market. With that, the competition is set to steeply increase, although the balance of power remains uneven.
Size is becoming a key factor for competition - High investments will play a key role in the impending competition for the Digital Home, for developing or expanding the network, for creating new digital content, as well as for sales and marketing. Market players with good access to funding and a large subscriber base to leverage decisive competitive advantages. For them, the investment can be significantly lower on a "per customer" basis. Size and financial strength are therefore becoming ever more important success factors.
Comparing both industries reveals that national telecommunication incumbents are in a privileged starting position. They dominate the infrastructure industry in their respective countries by a factor of 1:7 or more in terms of revenue. In addition, European telecommunications incumbents have a customer base of around 151 million. Cable network operators lag well behind with around 51 million subscribers. Nevertheless, in many markets cable operators will be the only credible contenders to challenge the telecommunication incumbents. To compete effectively in the convergence market, it will be necessary for cable network operators to quickly achieve critical mass.
Booz Allen Hamilton VP Thomas Künstner says, "The pressure to consolidate in the European cable TV industry is further increasing. Moreover, we can also expect to see mergers which cut across the traditional boundaries of the industry, as the example of Virgin Mobile and the leading British cable TV provider ntl/Telewest shows."
The future market development is fundamentally driven by three factors, the regulative environment, the structure of the competitive landscape, and consumer behaviour
The regulatory bodies in particular will prove to be key catalysts, or barriers, to the market development. If a balanced competition cannot unfold and the market develops unfavourably, the cumulative investments may fall by over 40% to around 59 billion, and the creation of around 90,000 of the potential 100,000 new jobs could be significantly delayed or even lost.
Regulators should focus on four key areas for action
1) In the past, policy makers and regulators focussed strongly on broadband internet, in order to capture the positive effects of digitalisation. In future, the regulators should adopt a more balanced attitude fostering both broadband and digital TV development.
2) A balanced market structure and genuine competition are of great importance. This requires taking the convergence of TV, broadband and telephony markets systematically into account for regulatory decisions.
3) Striking the right balance between short-term consumer interests such as low prices, and long-term effects such as investment, growth and employment is becoming increasingly challenging, but also instrumental for regulators, who want to enhance the Digital Home market development. Again, this requires taking a comprehensive forward looking position, taking into account all three services (TV, broadband, telephony), the different distribution infrastructures (cable, DSL, satellite, terrestrial), and the value-added chains (the relationship between content and distribution) for regulatory decisions.
4) The analysis of broadband and triple play penetration in Europe shows: Countries with effective infrastructure competition in place tend to show higher broadband and triple play penetration at lower cost to the consumer. Infrastructure-based competition leads to higher investments, accelerated technical innovation and the creation of more jobs. Therefore, the focus of regulators should shift more strongly towards infrastructure competition.
