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December 3 2007
PCCW gives IPTV sporting chance; IPTV operators looking to emulate PCCW’s success may need to think twice about their service bundling and VoD strategies
Ken Wieland
Telecommunications International
(c) 2007, Telecommunications Magazine
PCCW CTO Paul Berriman is a popular man. He is a key part of the senior management team that has presided over arguably the world’s most successful IPTV operation to date, and carriers from other countries are curious to know the secret of its success.
"We’re getting lots of interest," Berriman says. "Only recently we’ve had people from a major Asian telecom operator having a look round to see what we’re up to."
But it’s been a long and sometimes bumpy road for PCCW—the Hong Kong-based telecom and ICT service provider—toward achieving status as a flagship IPTV and, more recently, quadruple-play operation.
It was back in 1998 when Cable & Wireless HKT (acquired by PCCW in 2000) launched its VoD-only service over an ATM architecture. It wasn’t successful. Lack of attractive content, immature technology, and the high price of set-top boxes (STBs)—up to US$500—contributed to the downfall of the service, which was closed in September 2002.
When Berriman joined PCCW in July 2002, he helped shape a new pay-TV strategy that had channel purchasing—rather than VoD—at its core. Customers of now TV (the brand name for PCCW’s IPTV service launched in September 2003), can select individual channels on an ?la carte basis, as well as choose from a variety of channel packages or "value packs" as PCCW calls them. These packs help customers manage the selection of the 150-plus channels available.
"Cross-selling and up-selling, with call center agents ringing up customers to offer different services [based on what customers have already selected], is working very well for us," Berriman says.
The economics of the pay-TV business model have also changed drastically since the late 1990s. PCCW, for example, is able to offer the STBs free in return for a one-year subscription commitment, which obviously helps take-up. At the end of last August, now TV had more than 850,000 subscribers (758,000 at the end of 2006).
ARPU is also climbing steadily. Average monthly ARPU for now TV paying subscribers was HK$166 (US$21) for the first six months of 2007, a 19 percent increase compared to the previous six months. A key driver for the higher ARPU is the Mega Sports Pack, launched last March, which retailed initially at HK$178 (US$23) per month but increased to HK$218 (US$28) per month in August. The reason for the price rise is the addition of exclusive live broadcasts of the Barclays Premier League (BPL) football matches.
For an undisclosed fee, PCCW captured the BPL rights (for three seasons) from main pay-TV rival i-Cable in an open auction. With long-term and exclusive distribution rights also for STAR, ESPN, HBO, Disney and the UEFA Champions League, PCCW looks well placed to increase its pay-TV market share in Hong Kong, estimated to be 37 percent by Media Partners Asia as of the end of 2006. (i-Cable had 830,000 subscribers at the end of June 2007.)
With so many content deals in place, Berriman sees the scope for channel expansion diminishing. "The amount of choices for new content is getting thinner and thinner," he says.
Not going for a bundle
PCCW, although it offers broadband, fixed-line voice and mobile services, is not interested in offering a quadruple package under the one-bill umbrella. "If we offered everything together then our customers would immediately expect a discount," Berriman says. "It’s not our strategy."
To make services sticky—and avoid discounts—PCCW offers value-added services over different platforms. For example, customers of the more expensive PCCW 3G tariff plans can enjoy "free" access to sports programs on now TV, WiFi access and moov (PCCW’s music library). now TV customers receive discounts on individual channels by buying in volume (i.e., opting for PCCW’s value packs).
"In quadruple play, the most important word is ‘play?" Berriman says. "Wherever possible and practical, we want to make the content, applications and transactions available on each device across all platforms. We’re after a common look and feel."
It has not been PCCW’s policy to swamp the market with different services. Instead, it has preferred to drip-feed additional services into the market as value-adds to provide some immunity from price erosion.
"When we launched broadband in 1999, we purposefully throttled back the ADSL modem to provide 1.5Mbps then released the throttle to offer 3Mbps the next year in return for a one-year commitment for the broadband service. The next year we offered 6Mbps," Berriman says. "Other services we’ve added include parental control and security protection, along with the free-of-charge STB. The result is we have around 60 percent broadband market share and twice the ARPU of any of our broadband competitors, and this doesn’t include content. This is pure broadband revenue."
Service innovation
Where PCCW is comparatively weak in Hong Kong is mobile. It owns Sunday, which is the smallest of the island’s five mobile players (and re-branded as PCCW mobile in March 2007). As of June 2007, PCCW mobile had approximately an 11 percent market share.
Berriman is confident an aggressive plan to provide a range of services and applications, including 7.2Mbps downlink speeds in all Hong Kong urban areas next year, will help provide the sought-after boost. Berriman is particularly confident in the high-definition channel option (HD on Mobile), based on H.264 video streaming.
PCCW still has to make some hard technological choices to deliver mobile TV, which Berriman believes will become more popular on the back of more attractive content and increasingly sophisticated technology. "With 3G, we can handle six simultaneous video users within one cell [accessing multiple unicast channels], and with Huawei’s pre-MBMS [multimedia broadcast multicast service] we can handle 250 users within a cell, but with access to only two to three channels. That’s why we need to look at supplemental technologies."
Berriman says PCCW is trialling both the Nokia-backed DVB-H standard and Qualcomm’s MediaFlo as candidates for an overlay mobile TV broadcasting delivery system, but lack of clarity on spectrum availability in Hong Kong (and how soon a wide range of handsets will be available on each platform) means a decision on that is not going to happen anytime soon.
In the short term, PCCW is focusing on 3G/WiFi interoperability to provide extra capacity. It has expanded the number of WiFi hotspots from 300 to 3,000 over the last year and put a link between the home location register of the 3G network and the access authentication of the WiFi network. This means a SIM card can be used to authenticate WiFi access. The Netvigator Everywhere service was launched last August (Netvigator is PCCW’s broadband service brand).
Another recent PCCW innovation is its eye multimedia device, which is a half-way house between a telephone and a PC, capable of delivering multimedia services such as music streaming, now TV programming, e-ticketing, as well as fixed-line voice. "A big opportunity here is advertising," Berriman says. "The screen on the eye device provides attractive real estate."
Earlier this year, PCCW launched its Advertising & Interactive Services unit, designed to look at ways of developing new revenue opportunities around advertising. For Berriman, PCCW’s Yellow Pages asset is key to making this a success. "Merchants who advertise in print are now looking to advertise on other devices," he says. "I never understand why telcos would even consider selling off their Yellow Pages."
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