IPTV not prime time across Asia yet

Despite the buzz surrounding IPTV across the region, the technology is expected to take hold in selected markets where the conditions make it an attractive proposition.

According to IDC, IPTV subscribers in the Asia-Pacific region, excluding Japan, is expected to increase at a compound annual growth rate of 89 percent, from 1.2 million in 2005 to nearly 30 million by 2010. This growth, however, will not be uniform across all markets.

Claudio Checchia, research manager for consumer research at IDC Asia-Pacific, told ZDNet Asia in a phone interview that he doesn't see widespread adoption of IPTV across the Asia-Pacific region. For now, much of the IPTV activity will largely happen in China, Hong Kong and Taiwan, he said.

China, in particular, holds immense potential as it has the largest broadband subscriber base in the Asia-Pacific region. Residential subscribers constitute about 70 percent of China's 47.8 million broadband subscribers, according to latest figures from market research company Frost & Sullivan.

China together with Hong Kong, which is said to be one of the most sophisticated IPTV markets in the world, are expected to account for nearly 60 percent of the region's IPTV revenues by the end of 2013.

Checchia attributed China's strong market potential to its huge population and the upcoming Beijing Olympics in 2008.

The Chinese government is riding on the global sporting event to promote broadband penetration and applications including IPTV, he said. The government's target is for each family in Beijing and nearby regions to have broadband access before 2008.

Meanwhile, IPTV is already off to a promising start in China. Just last week, China Telecom awarded a contract to U.S. IPTV equipment maker UTStarcom to deploy a new commercial IPTV network in the Shanxi province.

The new service will support some 30,000 subscribers, and cover major metropolitan areas of Xian, the capital city of Shanxi. The service is expected to offer up to 80 channels of live, broadcast television, 24-hour time-shifting capability, about 10,000 hours of video-on-demand (VOD) content and valued-added services including karaoke and gaming.

Over in Hong Kong, Checchia said, PCCW has already been highly successful with its IPTV services, thanks to unique market conditions in the Chinese territory. He added that PCCW might soon become the only pay TV operator in Hong Kong, "because the cable operators are struggling, and are losing a lot of content rights to PCCW."

According to PCCW, the number of subscribers for its 'now TV' IPTV service was 700,000 as at December 2006, representing over 30 percent of homes in Hong Kong. The service was launched in August 2003.

IPTV service providers that are looking to emulate PCCW's success in other parts of Asia, Checchia said, will have to address some issues not experienced in Hong Kong. For example, the low take-up of high-speed broadband services above 10Mbps, which is necessary for IPTV services to function optimally.

"Although many broadband service providers are looking up to PCCW, the reality is that Hong Kong is a special case, because it's a very open market with high-speed broadband penetration," Checchia said.

"There is nothing worse than watching TV and looking at frozen images, or having to reboot the set-top box," he added, referring to the issues caused by viewing IPTV programs with insufficient broadband bandwidth, especially when the same connection is shared with family members.

The success of IPTV hinges on several factors including broadband penetration, as well as the regulatory and competitive landscape of a country.

Checchia noted that in many Southeast Asian countries such as the Philippines and Indonesia, the low take-up of broadband services--let alone high-speed broadband--is not conducive for achieving significant IPTV adoption.

"Likewise in India, operators have been talking about IPTV for the longest time, but the reality is that India is a difficult market," Checchia said.

He explained that Indian operators first need to offer decent broadband speeds before they can achieve critical mass for IPTV services. According to Canada-based telecom market research company Maravedis, penetration of broadband services, which were only launched in India in 2005, remains low.

Apart from infrastructure issues, Checchia said, IPTV upstarts face challenges in markets where existing pay TV operators have established strongholds.

He noted that in Malaysia, for example, it would be tough for IPTV service providers to unseat dominant local satellite TV player Astro. The chances of subscribers switching from satellite to IPTV services are slim, especially since broadband users are mainly concentrated in the capital city of Kuala Lumpur and its surrounding areas, he added.

"Consumers don't really care what they are subscribing to, whether its cable or satellite services, as long as they get the content they want," Checchia said. "You might consider switching if you get better discounts, but otherwise you need to be very dissatisfied with your current provider to consider switching."

But offering an 'ala carte' menu of IPTV channels like what PCCW has done in Hong Kong, may just work for IPTV service providers facing entrenched cable TV rivals, Checchia noted. Instead of offering channel bundles like most cable TV operators, PCCW lets customers, who are charged on a per-channel basis, pick and choose their programs.

"PCCW took a gamble because their ala carte model was never heard of in the pay TV world. You always needed to buy a tier of channels," he said.

However, in the ala carte approach, operators have to continuously entice subscribers to sign up for more channels, so they can keep ARPU (average revenue per user) numbers up. This may also mean offering value added services such as online gambling, which is what PCCW has done, Checchia said.

Gary Southwell, general manager for IPTV at Juniper Networks, said PCCW's approach works because it does not compel people to subscribe to more expensive bundles. Juniper Networks is PCCW's IPTV equipment vendor.

"The cost to the consumer starts low, but increases over time as consumers subscribe to more channels if they are satisfied with the service," Southwell said. "If you have happy customers, and you add more services, it's very hard for them to pull away."

Even if the broadband infrastructure is in place, IPTV players may have trouble securing rights to popular content such as the English Premier League. Neil Montefiore, chief executive of Singapore mobile operator M1, noted recently that bidding wars for exclusive content often lead to higher prices for consumers.

But Checchia noted that IPTV players could always look for alternative content, such as the Spanish and Italian football leagues, to differentiate themselves from the pack. Offering video-on-demand and niche programs to specific audiences such as expatriate communities might also be feasible to some IPTV service providers.

Regulatory issues can also impact IPTV adoption in the region, Checchia added. For example, until recently, broadcasters in South Korea have been opposed to IPTV services. In September 2006, IPTV trials were finally announced after extended discussions between South Korea's Ministry of Information and Communication and the Korean Broadcasting Commission.

But Juniper Networks' Southwell remains optimistic. "There's a lot of unbundling [of telecoms networks] going on in various countries in Asia," he said. "A lot of incumbents have been forced to open up their [infrastructure] so that new challengers can have a low-cost means to get to more subscribers."