While 11 Western European incumbent telcos have launched IPTV services, Forrester Research¿s (Nasdaq: FORR) 17-country* IPTV revenue model reveals low consumer interest and only moderate revenue potential. After a slow ramp-up, Forrester predicts one in four European xDSL/fiber broadband subscribers will have IPTV within 10 years. However, this average masks a big gap between the UK, where we only expect 13% penetration, and France, where Forrester expects 33% IPTV penetration in year 10.
Lars Godell, principal analyst at Forrester Research, commented: ¿Europeans are generally unwilling to pay much for TV content ¿ and a discount scheme is needed to entice them to buy triple play. In a mature TV market, this means incumbents will need to price IPTV below competing cable and satellite TV services. Adjusting for incumbents’ 33% IPTV revenue share, we expect the average incumbent to get only ¿11.24 in net annual IPTV revenues (gross margin) per broadband user in year 10.¿
Forrester has been tracking European consumers’ adoption of and interest in broadband triple play since 2005. Adoption is growing, but interest remains stable. To tap into the nascent consumer demand and to have a hope of being a powerful player in the future digital home, vendors claim that incumbent telcos must launch IPTV and triple-play services. But not all Western European incumbents seem to agree. The European IPTV landscape looks very diverse ¿ and immature.
More Than Half Of Europe’s Incumbent Telcos Have Launched IPTV
Deutsche Telekom (DT), France Télécom (FT), Telecom Italia, and Telefó nica are among the 11 incumbents in Western Europe to have launched IPTV. A further two incumbents ¿ BT and Portugal Telecom¿ are likely to launch within the next six months. The final five incumbents ¿ eircom, OTE, P&T, Telenor, and TeliaSonera (Finland) ¿ either have no concrete IPTV launch plans or are only in trial stage.
According to Forrester, incumbents don’t have many IPTV subscribers yet. Only three of the 11 incumbents with live IPTV services have published any subscriber numbers ¿ a sign, perhaps, of a very immature market and many start-up problems with the new IPTV services. And these subscriber numbers are still very low. At the end of June 2006, Belgacom, FT, and Telefó nica had only achieved 1.7%, 1.2%, and 1.8% IPTV household penetration, respectively. Telefó nica has been the most successful in tapping into its retail broadband subscriber base, with 8.3% IPTV penetration among broadband customers.
Forrester also reports that incumbents have published modest IPTV subscriber targets. Only seven incumbents have dared go public with any IPTV subscriber targets, which is another sign of both early days, a competitive and mature TV market, and genuine uncertainty about how the new IPTV technology will take off. The telco with the most ambitious public target is probably KPN, which wants to capture 10% of Dutch TV households “within several years.” Starting from basically no customers now, DT wants to get to 1 million IPTV subscribers ¿ 2.5% of German households ¿ by the end of 2007.
According to Lars Godell, incumbents should proceed carefully with their IPTV plans: ¿Telcos should first look at the full P&L impact of their IPTV strategies and take a deep breath before proceeding down an IPTV path that will generate a cumulative ¿3,742 in losses per average broadband subscriber over a 10-year period ¿ assuming telcos pursue the capex-intensive, vendor-recommended deep fiber/VDSL route to deliver IPTV. Telcos should view IPTV only as a defensive, not a profit-generating, activity.¿
The report mentioned in this release, “Making Broadband Triple Play Profitable: IPTV Revenues”, is available to Forrester WholeView2TM clients.