Content end-game

By limiting their role in the value chain to the mere provision of traditional connectivity, telecom operators are posing a significant risk to their business: differentiation has become more challenging, with technology being largely commoditised and accessible to all players in the market. To address this challenge, many operators are increasingly eyeing telecom-media convergence to drive their expansion strategies.

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By  Administrator Published  January 27, 2009

By limiting their role in the value chain to the mere provision of traditional connectivity, telecom operators are posing a significant risk to their business: differentiation has become more challenging, with technology being largely commoditised and accessible to all players in the market. To address this challenge, many operators are increasingly eyeing telecom-media convergence to drive their expansion strategies.

While there is no silver bullet for success, operators that are able to move quickly and capture the currently underexploited content market will create a sustainable competitive advantage in their markets and possibly beyond.

Broadband technologies in both fixed and mobile networks enable operators to broadcast or stream multimedia signals to their subscribers. This means that operators can become a new broadcast medium for content - including games, video, news, sports, weather, and music.

A number of telecom operators in European markets have realised the strategic necessity of actively operating in the media space: Telecom Italia Group, for example, established a media arm known as TI Media, which provides video, gaming, audio, and textual content. While this convergence trend has not become very evident yet in the GCC, a number of market and technology factors will drive its acceleration.

The GCC telecommunications landscape is quickly reaching saturation levels. Four out of the six GCC mobile telecom markets have crossed the 100 percent penetration mark, while the remaining two markets are rapidly approaching this threshold.

As a result, operators have focused on customer retention strategies rather than customer acquisition. Additionally, operators are facing the challenge of declining voice average revenue per user (ARPU) and must find ways to reverse this trend.

Providing content services is typically among the areas most commonly cited by telecom operators as enablers of differentiation and ARPU enhancement, and all operators in the region have initiated some serious efforts in this area.

Etisalat has recently started testing its triple play service in the UAE, offering a bundle of voice, internet, and television services. Similarly, Saudi Telecom has been reaping rewards from the success of Abwab, its text messaging service, despite the service's rudimentary interface.

The success of H3G Italy is a case in point for demonstrating the remarkable potential of content services. Despite being the fourth entrant into a saturated market, H3G has managed to gain a significant share of the Italian mobile market by offering differentiated content services.

Within a period of two years, H3G captured nine percent of the total mobile subscriber base and achieved a data ARPU level that is more than double the market average.

All GCC markets are now considered liberalised, with Qatar being the last to join its neighbours in auctioning a second telecom license.

The resulting intense competition, especially as most of the markets are now saturated, creates the need for operators to differentiate themselves from their competition.

Again, content could be one of the key opportunities for doing so.

The emergence of disruptive technologies such as internet protocol (IP) telephony will place increasing pressure on fixed and, eventually, on mobile operators. The threat from cannibalising their core business is prompting telecoms service providers to find alternative revenue sources, including content development and delivery services.

The commercial challenge voice over internet protocol (VoIP) poses to traditional telecom operators is enormous. In Western Europe, for example, the number of outgoing VoIP minutes has been growing at a compounded annual rate exceeding 50 percent and is expected to exceed 10 million minutes by the end of 2007.

This trend is present across all customer segments, including enterprise and residential users. In the GCC region, the threat, though not yet evident, is nevertheless imminent.

VoIP is expected to experience exponential growth as broadband penetration continues to increase globally.

Proliferation of new technologies

Because content requires so much bandwidth, the limited availability of enabling technologies has traditionally been the main obstacle for the mass usage of content services.

This is becoming less of an obstacle in relatively advanced markets, such as those of the GCC. Fixed and mobile broadband technologies are becoming increasingly accessible with the phenomenal growth levels witnessed in the adoption of 3G and DSL services in the region.

End-user device convergence

Mobile handsets are increasingly converging with other multimedia devices, such as digital cameras, music and video players, and personal digital assistants (PDAs).

Similarly, customer premises equipment (CPE) for fixed telephony is increasingly converging with personal computers and television set-top boxes.

A number of set-top box vendors are becoming increasingly active in this space, including Scientific-Atlanta, Amino, Motorola, Thomson, and Humax.

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