The Road to Quad-play Service Provision

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By Juan Pablo Conti

Juan Pablo Conti, the former editor of UK magazines The IEE Communications Engineer and Cable & Satellite Communications International (CSCI), is an independent technology journalist based in Buenos Aires, Argentina.

Being able to use a particular access network to transport a type of communication signal other than that originally intended by the network is far from a new thing. Already back in 1927, the man who had invented an electromechanical television two years earlier, John Logie Baird, used a telephone line to transmit the world's first long-distance TV signal the 438 miles between London and Glasgow.

But it wasn't until the early 1990s that two groups of service providers—cable operators on one side, telcos on the other—effectively introduced the concept of communications and entertainment bundling. The advent of the Internet and the phenomenal level of demand it generated from residential and business users prompted both cable and phone companies to find a way of adding two-way digital data communications to the multi-channel TV and telephony services they were respectively offering.

When the cable world realized that it was in the unique technical position to offer not two, but three kinds of services by adding telephony to the mix, the term 'triple-play' was coined to illustrate this new form of convergence at the network level. Triple-play service providers quickly sprouted around the world and—for a few years—cable operators were the only guests allowed into the party.

Recently, though, a few telcos have begun experimenting and making inroads into the television space, driven by growing speeds in broadband DSL technology and improving video compression algorithms. IPTV still makes up a negligible portion of the overall television subscription market whenever these services have been launched. In the UK, for example, data from Jupiter Research shows that less than 100,000 of the nation's 22 million digital television subscribers have chosen IPTV to get their video content.

But these numbers are unlikely to remain negligible for too long. Another analyst firm, the Multimedia Research Group, estimates that IPTV subscriptions will jump from just over 4 million globally in 2005 to 36.8 million in 2009 with the most substantial growth occurring in the Asian and European markets.

Like a Virgin Media
With both cable operators and telcos able to compete on triple-play services, it was only a matter of time until they decided to up one level and go for the latest in super-bundling: Quad-play service provision. Selling multi-channel TV, fixed telephony, broadband and cellular subscriptions under one brand, billing system and contact center is something that offers a number of potential benefits to both operators and subscribers. “The first one is obviously being able to boost economies of scale,” says Chris Khouri, associate analyst of vertical market technology with research firm Datamonitor. “If you have a larger organization, you can leverage your assets and move into new distribution areas.”

“A second one is the ability to provide cross-platform advertising and content. This is an interesting development that we are increasingly going to see. You'll have, say, organizations such as Virgin Media in the UK [what used to be the combined operations of NTL and Telewest, now rebranded as Virgin Media following the acquisition of MVNO Virgin Mobile] being able to show advertisements over their mobile wireless operations for something that's going to happen on their cable service the following day. And video content originally intended for the television—say football matches—can be delivered to mobile handsets on a real-time basis. Or your television can display an incoming telephone call and caller ID—for you to decide whether or not to answer.”

“And the third one is increasing brand awareness—when you look at something like Virgin Media, who are trying to boost the brand name, ultimately they are trying to promote what is called 'path dependency,' which really makes it more attractive for consumers to join their quad-play service because, when they join, there's a lot more benefits. They'll get that one itemized bill; it's really a lot easier for them to manage all their communication and entertainment systems.”

“The other thing about path dependency is that it makes it more difficult to switch to alternative providers, just because you have three or four things there that you need and services integrated across platforms that would be lost if you went to another provider,” Khouri notes.

But what is really the main attraction for users to sign up to a quad-play service? “I think it's ease of use. However, a lot of times you'll see that it's not really a decision that people go into, but something that rather evolves from the fact that you're already joined into a network.”

“For instance,” says Khouri, who is based in London, “I'm a Telewest subscriber and, all of a sudden, having this additional service might potentially lead me to switch my existing mobile operator to Virgin Mobile just because it's a lot easier.”

“I think that ease of use and creating a path dependency are the main reasons why a lot of the cable operators are moving into these new services,” he says.

Quad-play pioneers
While Virgin Media was the first operator in the UK to launch a quadruple-play service at the end of 2006, there are other European networks that are taking a similar approach.

In Germany, Kabel Deutschland has been reported to be pursuing an alliance with mobile phone operator E-plus to combine their fixed and wireless services.

Apart from the available options of either buying a cellular company (as NTL/Telewest did with Virgin Mobile) or partnering with them (as in the Kabel Deutschland and E-Plus case), an alternative route for cable operators is to buy wholesale cellular airtime from an established local operator and become an MVNO themselves.

This is exactly what Telenet has recently started doing in Belgium. The MSO, which has just completed the acquisition of UPC Belgium from Liberty Global, is offering its Telenet Mobile service to customers with no subscription fees.

“We see this as a clear step towards a genuine multiple-play offer,” said the operator's CEO Duco Sickinghe at the time of the launch in mid-2006. “From Telenet, customers can now fulfill all their Internet, television, fixed-line and mobile telephony.”

The US cable market will also see its big operators launch a quad-play service during 2007, with Advance/Newhouse, Comcast, Cox, and Time Warner all partnering with Sprint Nextel for the wireless link. Comcast, Cox and Time Warner have already launched mobile service in several markets.

But unlike the start of the triple-play age, cable operators are not enjoying exclusivity as the quad-play era unfolds. Interestingly, this time it is not only telcos (such as Telefónica in Spain or BT in the UK with its recently launched BT Vision IPTV service) who are also joining the party.

In the new converged world, there's nothing to stop providers of other types of communications from marketing their own four-play bundles. Cellular operators are one example of this. Orange (in France), and Telefónica O2 (in the Czech Republic) are already offering their own quad-play packages, with the video link coming courtesy of their DSL infrastructure.

Some ISPs (such as Free in France) and direct broadcast satellite operators (like Sky in the UK) are currently embarked in a strong marketing push for their triple-play bundles of television, broadband and fixed line. All it would take these companies to join the quad-play party would be to partner with an existing mobile operator—or become a virtual one themselves.

The risk of hurting ARPU
The one thing all quad-play offerings have in common is an initial heavy focus on cut-price deals designed to encourage customer take-up. They are all doing it: “Sign up for our TV and fixed telephony packages and get broadband for free”; “Take up one of our cellular contracts and get a 50% discount on broadband”.

The combinations are endless and some operators like Virgin Media are going to extraordinary lengths to allow maximum flexibility in terms of which of the four services customers can sign up to. “Choose one. Choose them all. It's up to you”, is one of the new marketing punch lines of the company as it tries to bring to the UK cable industry the marketing savvy and customer service reputation the brand is renowned for in the airline, music and other industries that include even space traveling.

Apart from flexibility, Virgin seems to have made a bold move by aiming for much-needed simplicity, too. All bundles have been designed so that customers can pick and mix any two services for £20, three for £30 or all four for £40. At the same time, each of the four categories are being offered in three different sizes: medium (M), large (L) and extra-large (XL), with larger sizes packing more functionality such as faster data throughputs in the broadband category, more premium channels in TV or unlimited calls in the phone line.

Unsurprisingly, industry observers predict this strong emphasis on price discounts to negatively impact ARPU. “You can expect price wars to break out,” warns Datamonitor's Khouri. “Certainly in markets like the UK, where these conglomerates moving towards quadruple-play services are all trying to gain an increasing market share from a limited population. And a price war situation will obviously decrease ARPU per se.”

A potential way out of spiraling downward ARPU is to concentrate on the provision of value-added services that only become possible by the coming together of these four access technologies. The general perception is that, as an increasing number of organizations manage to bundle quad-play services under one brand, competing on access price alone becomes a risky strategy.

Most of the initial ideas about what exact shape these value-added services will adopt are currently coming from the telco equipment vendor community. Companies like Nortel and Comverse—who envisage a future in which IMS-based services swing the door wide open for quad-play services running on next-generation networks—are proposing a series of personalized lifestyle services that include anything from controlling your set-top box remotely from your laptop or mobile to rejecting an incoming fixed-line phone call flashing on your TV screen with the help of your remote control—similar features have already previously been mentioned in a positive context. Sounds somewhat contradictory to me.

Just how much additional revenue these value-added services might generate really remains to be seen.

The other thing that ironically remains to be seen is how long the quad-play phenomenon itself will last before it potentially recedes back to triple-play. As one Finnish reader recently pointed out in an online technology forum, “Quad play sounds odd here in Finland as land phone lines are quickly dying out. At least no one I know who is of comparable age (~30) owns a land phone line,” he shrewdly observed.