Monday, October 25, 2010

Internet Telephony in the Philippines: the next Big Thing?

(Published in 2002)

LIBERALIZATION AND COMPETITIVENESS, like love and marriage, are supposed to go together like, well, a Filipino texter and his mobile phone.

The Philippines continues to learn the hard way that its expensive telecom services (an IDD call to the USA costs $0.40 versus $0.05 in Hong Kong) don’t go together with competitiveness and economic growth. Telecoms was the Philippine economy’s high growth sector in 2000 and 2001, accounting for over 10% of GDP.

Telecoms is again expected to fuel Philippine growth. The call center industry is booming, with estimated revenues of $173 million this year and $864 million by 2004. Mobile telephony growth is placed at some 30% this year from 11 million subscribers after rising 80% in 2001.

Analysts say further cuts in telecom costs will spur competitiveness, as will government moves to advance liberalization.

Looming on the horizon is the commercialization of Internet Telephony (IP voice transmissions over PSTNs or Public Switched Telephone Networks) within a year’s time. The Philippines is expected to jump on the Internet Telephony wagon as early as this year via government-led reforms to its restrictive telecom law.

Dr. Bill Torres, past president of the Philippine Internet Service Organization (PISO), said there are clear indications the government may issue a new interpretation of Republic Act 7925 (the Public Telecommunications Policy Act of 1995) allowing Internet Telephony to be offered in certain cases, including its provision by ISPs and other providers who do not hold Congressional franchises. PISO is the Philippines’ association of ISPs.

He said the interpretation would be made either by Philippine President Gloria Macapagal-Arroyo or by telecoms regulator, the National Telecommunications Commission (NTC).

NTC, however, has remained adamant in barring non-franchise holders from providing Internet Telephony. It also does not permit the use of telephones to receive phone calls made via Internet Telephony but allows PC-to-PC IP calls.

On the other hand, anyone with a private network can sidestep the law and legally provide an Internet Telephony service as long as the operator does not use the PSTN.

“I think that within a year, we will see the government come up with a policy that will allow IP Telephony,” Torres said.

“Optimists think this will happen in 2002; pessimists in 2003. I tend to be an optimist.”

RA 7925 authorizes the NTC to establish rates providing for the economic viability of the companies involved in the Service Area Scheme (SAS) and grants them a fair return on their investments.

“I have a feeling that if we can come up with an amendment to the law, maybe that’s an opportunity to relax the hold of telcos (on IP Telephony),” said Torres.

Torres does not believe Internet Telephony can be profitable as a stand-alone service, however. Profitability will demand that Internet Telephony be packaged with other services.

“Alone Internet Telephony will not make money . . . because of its cheapness,” he noted.

Torres also feels that the Department of Information and Communications Technology (DICT), to be established this year, will go to bat for deregulating IP Telephony in support of President Gloria Macapagal-Arroyo’s goal of making ICT a key driver of the Philippine economy.

Cheaper phone rates result from Internet Telephony, with businesses and consumers benefiting the most from the lower prices. Although an exact comparison is not possible, the cost of an international long distance call using Internet Telephony would probably be about a few pesos per minute compared to the P20.40 (US$0.40) per minute charged by both Philippine Long Distance Telephone Company (PLDT) and Globe Telecom.

India surprised Asia by opening Internet Telephony to ISPs starting April 1, joining Singapore in this league. Indian ISPs are now allowed to offer much cheaper but lower quality Internet Telephony service without having to pay any long distance toll fees to state-controlled telco, Videsh Sanchar Nigam Ltd.

Satyam Infoway, one of the leading ISPs, is charging users $0.16 per minute during peak time for an Internet Telephony call to the United States, 80 percent lower than the regular peak time phone tariff of $0.80 per minute and $0.04 cheaper than a similar PSTN call in the Philippines.

PLDT, the dominant telco in both the fixed line and cellular markets, owns “Netopia,” one of the largest Internet cafĂ© chains in the Philippines.

While a plus for consumers, Internet Telephony is not expected to be a killer app for the Philippine call center business because of its inferior voice quality.

“The quality of Internet Telephony is not good enough if your core business is providing good service,” said Domingo Guanio, general manager of SVI Technologies, which provides networking services to their call center.

“If it becomes very good, it can become a back-up to our regular leased lines.”

Guanio said that Internet Telephony was demonstrated to them and they weren’t impressed. “At this point it’s not good enough and quality isn’t negotiable in our business.”

PLDT is apparently making major moves towards introducing Internet Telephony as one of its mainstream telecom services.

PLDT has invested in frame relay infrastructure and is pioneering new services that will lay the groundwork for its eventual shift from circuit-switched network to packet-switched networks (the Internet), according to industry sources.

Philip Tan, network consultant of Cisco Systems Philippines, said PLDT is fully using a Cisco IP network but mainly to replace its existing and old PBX systems. The Cisco system allows PLDT freedom of choice as to its use, including Internet Telephony, said Tan.

He does believe there is a future for Internet Telephony and said it won’t make losers out of telcos “but they’ll have to re-engineer themselves. The technology is cheap but if you look at how the carriers are spending for infrastructure such as cables, that’s expensive.”

Edgardo Cabarrios, Director of NTC’s common carrier authorization department, said NTC was bound by law to restrict Internet Telephony to entities with Congressional franchises.

“Internet Telephony is not classified as a value added service,” said Cabarrios. “Therefore, any entity intending to provide Internet Telephony should have an authorization from the commission predicated on a valid Congressional franchise.”

By this definition, PLDT, “which is a duly authorized local, national and international voice service provider,” can provide Internet Telephony. “Other companies that have similar authorizations are Globe Telecom, BayanTel, Digitel, ETPI and Teletech and Philcom Corporation.”

“If an Internet Telephony service provider carries international traffic, then it is providing a service similar to that provided by an IGF. In order to level the playing field, those providing international Internet Telephony should also be required to install local exchange telephone lines,” Cabarrios explained.

NTC’s refusal to budge from its position has left it open to charges of being anti-consumer, anti-liberalization and pro-telco, allegations Cabarrios denies, saying that NTC “balances the interest of both the consumers and telecom service providers.”

Martin Enrile, telecoms analyst of ATR Kim Eng Securities, however, believes that IP Telephony is “a very clear threat to telcos.”

He feels that telcos will need to maximize their huge infrastructure investments, hence their continuing resistance to Internet Telephony and 3G.

“I guess there’s been lobbying by telcos to preserve their assets since there is an imperative to maximize use of these assets,” he said. He noted that PLDT’s move towards data and its low capex for fixed lines doesn’t seem to square with the company’s opposition to Internet Telephony being offered by ISPs.

PLDT and other telcos contend that Internet Telephony provides unfair competition because it allows its providers to bypass toll fees for international long distance calls. AT&T, one of America’s largest telcos, reported a loss of US$350 million in 2000 because of IP Telephony.

Research firm International Data Corporation (IDC) estimates that the Asia-Pacific IP Telephony market will grow from US$213 million in 2000 to almost US$7 billion by 2005.

Worldwide, IP Telephony is projected to account for 135 billion minutes by 2004 from 27 billion minutes in 1999.

The International Telecommunications Union (ITU), however, believes the main use of IP telephony may not be for outgoing traffic but from incoming international calls because of incoming net settlements.

It also foresees that legal restrictions on IP telephony will disappear as countries liberalize their telecommunication markets. ITU said any ban is almost always based on the premise that IP telephony is a voice service (and thus the exclusive right of incumbents) rather than a data service or application.

ITU says this premise is becoming harder to sustain with the integration of voice functions into other Internet-based applications such as e-mail.

Sunday, October 3, 2010

Clever marketing key to Internet TV growth

We can talk about IPTV tech specs all we want. We can also debate IPTV tech issues beloved by boffins (H.264, ADSL 2+, QoE, 1080p24 and whether 24mbps is sufficient bandwidth, among others), but in a region as diverse as Asia/Pacific (and anywhere else, for that matter), it’s the Quality of Experience (QoE) that will ultimately make or break Internet Protocol TV (IPTV).

Differentiating IPTV from digital cable and DTH will be the main marketing task, and could be the key factor in whether telcos have a mainstream moneymaker in IPTV, or just another cute, niche technology masquerading as a winner.

IPTV or Internet TV is one of two new silver bullets that should finally enable telcos to break cable and satellite’s hold on the lucrative, but very competitive, multichannel, pay-TV industry. The other is HDTV.

For telcos, however, IPTV is undeveloped territory, both in the infrastructure and marketing aspects. But as IPTV sits on the leading edge of IP advances, new infrastructure and applications give IPTV a leg up on cable. Cable remains (mostly) wedded to the old MPEG-2 codec — too slow for bandwidth intensive IPTV.

With world standards for IPTV more or less settled, attention is turning toward the tougher job of creatively marketing IPTV to subscribers with an abundance of multichannel pay-TV choices, and who mostly don’t give a hoot about IPTV.

Product differentiation is the challenge. Vastly improved QoE is the Holy Grail.

Toughest challenge
Clever marketing is seen as the toughest challenge telcos face in winning marketing share as they intensify their struggle versus cable and satellite offerings. Surprisingly, IPTV has made significant progress in the marketing fight. The DSL Forum last October said IPTV subscribers jumped a huge 179 percent to 8.22 million in June, up from 2.95 million year-on-year.

Europe accounted for most of this surge, with IPTV customers climbing to 4.98 million from 1.51 million for the same period. Some 660,000 broadband customers signed up for IPTV services in the Americas, giving the region a total of 1.07 million subscribers. Asia/Pacific added 1.19 million subscribers, giving the region 2.18 million subscribers. IPTV pioneers, such as Hong Kong’s PCCW and France Telecom, together account for around 1.5 million users. Both firms, however, have built fiber-to-the-home (FTTH) networks to support their IPTV offerings.

DSL Forum marketing director Laurie Gonzalez said they are excited about these figures.

“Even a year ago, people were asking whether IPTV would be a compelling application. Today, more than eight million customers are using it in every region of the world. It’s gone far beyond testing to a real rollout.”

DSL has a 66 percent share of broadband access customers, around 200 million in number. Fiber has an 11 percent share, while cable acquired approximately 22 percent.

Hong Kong leads Asian IPTV
The June numbers for Asia/Pacific are an improvement over the second quarter when it was reported the region’s IPTV penetration was “insignificant,” except for Hong Kong. IPTV success has been the greatest in Hong Kong where IPTV has 608,000 subscribers, these coming from PCCW’s NOW broadband TV service. NOW is the largest IPTV deployment in the world and accounts for one third of the total global IPTV subscribers.

Despite a rapid 66 percent increase in NOW subscribers, PCCW reported revenue losses from its TV and content businesses. PCCW also stated NOW subscribers increased to 608,000, but the losses rose to $24 million. PCCW is attempting to generate more revenue from its content services by reselling them to customers of its mobile phone network. This marketing move makes good use of NOW’s premium content, such as 24-hour local news, CNNI and mobile ESPN.

Japan’s Softbank BBTV, with its 180,000 subscribers, is the next Asian success story. Softbank BBTV claims it is adding 18,000 new subscribers monthly.

IPTV made it to Singapore this July when dominant telco Singapore Telecommunications (SingTel) launched “mio TV”. Described by SingTel as the next generation of TV watching, mio TV provides a range of VoD titles, including movies from major Hollywood movie studios that include Sony Pictures Entertainment, Twentieth Century Fox and Disney. The service will also offer HD content obtained from partnerships with Mega Media and VOOM HD Networks. The mio TV platform has the potential to allow communications using video conferencing and instant messaging, displaying photos and playing music from PCs, all on the TV set.

“We believe the launch of mio TV will open up more channels for interactive content creation and media services, benefiting both consumers and industry with greater choice and content flexibility,” said Christopher Chia, CEO, Media Development Authority of Singapore.

SingTel said new BBC channels such as BBC Knowledge and BBC Lifestyle will make their global debut on mio TV. BBC Kids’ channel Beebies will also be launched. Singapore is among the world’s first to have a free-to-air HD channel carried on an IPTV platform.

South East Asia is Asia/Pacific’s current leader in IPTV adoption, with seven of 13 countries having rolled out some form of IPTV service, including NOW. Asia is expected to lead other regions with more than 40 percent of global IPTV subscribers by 2010. There were less than three million IPTV subscribers in the world in 2006, a third of which were accounted for by Hong Kong’s PCCW.

IPTV is set to grow 26 fold by 2010, with 63 million subscribers worldwide, according to researcher firm iSuppli. The company also said the number of IPTV subscribers worldwide should more than double every year from 2005 to 2009, when it could reach 69 million.

Apart from Hong Kong and Singapore, so far IPTV rollouts in Asia have been small in scale and uptake has been puny in most markets. The reality on the ground is that IPTV faces tough challenges from incumbents and their relatively cheap cable and satellite offerings. Incumbents remain the key driving force behind IPTV growth in Asia/Pacific

Cable remains entrenched in Taiwan and Korea as the main method of TV access. In other countries, free TV broadcasts are also dampening incumbents’ interest in IPTV. Incumbents, however, are looking to provide improved broadband network and service penetration to fend off triple play services from cable players.

The bright spots for IPTV remain Hong Kong, Taiwan and Japan. China will continue to face strict regulatory constraints, while India will remain bedeviled by poor infrastructure.

China, which is IPTV’s largest potential market in Asia, is still years away from solving thorny regulatory issues that will enable telcos to create realistic business models where IPTV can compete against the heavily entrenched cable industry. Cable is dirt cheap in China. To IPTV’s advantage are indications Chinese subscribers appear willing to pay for some of IPTV’s premium services, such as VoD and interactive gaming.

China’s communist leadership still tightly restricts content, whose breadth is the key advantage IPTV offers subscribers. One executive working in China said that if China doesn’t relax on content, “there is no business model, and there will be no demand for IPTV”.

While Chinese telcos, most of which are state-owned or controlled corporations, attempt to persuade the central government to grant more leeway on content, they’re focusing on increasing bandwidth and improving the reliability of their access networks. Overall, the status of China as a feasible market for IPTV remains in doubt. Key issues such as regulatory hurdles, content restrictions and the government’s apparent focus on implementing digital cable services will tend to put a brake on IPTV growth in the short term.

IPTV over satellite
According to Northern Sky Research (NSR), IPTV via satellite is a niche offering likely to account for a relatively small percentage share of the market potential that terrestrial-based platforms are likely to generate.

Revenue estimates for terrestrial-based services are forecast at some $7 billion for 2010 alone. On the other hand, satellite-based total revenues from 2005 to 2010 are expected to exceed $1.6 billion.

Nevertheless, said NSR, IPTV does provide a unique and growing opportunity for the satellite industry to target. The growing preference for IP that satellite service providers are incorporating in their offerings, and the compelling role of satellite services in the video markets worldwide, make IPTV via satellite services a compelling value proposition for select regions.

“Given the proven broadcast economics of satellites in delivering content cost-effectively to large geographic footprints, particularly in underserved areas, growth of IPTV via satellite services should increase at a steady rate,” said Jose del Rosario, NSR senior analyst.

Firms setting up infrastructure to enable IPTV via satellite services will, for the most part, generate initial demand. These services mainly require transponder lease contracts from satellite operators for the delivery of content to IPTV gateways.

Once the infrastructure is in place, the market is expected to move quickly to retail business models. This is due to the fact that revenue-sharing arrangements between satellite companies and the owners of content will lead to higher margins, as satellite players participate in revenue sharing from the subscribers’ monthly service fees.

“Since ‘content is king’ in the pay-TV business, content aggregation and distribution rights are, and will continue to be, more important from a revenue generation perspective compared to actual service provisioning of IPTV,” del Rosario said.

“The ‘battle for eyeballs’ in any pay-TV platform is where the bulk of revenues will be earned, and IPTV is no exception. The market entry strategy for IPTV via satellite players is to provide a compelling business proposition to the owners of content. Once this has been established, the revenue-sharing arrangements will ensure a healthy market for satellite players”.

Written and published in 2007