Genuity on IPTV

Here is a summary of an interesting research note (with our Bluestreak investment it’s very interesting to us at least) put out today by Genuity Capital Market’s top ranked tech analyst David Hodgson:

Last week, we attended the IPTV World Forum in London, England. We came away surprised by the pace at which IPTV is accelerating in Europe and Asia, driven by shorter copper loop lengths (vis-à-vis North America), the introduction of 2nd generation MPEG-4 encoders, deployment of DSL2+, low customer prices and decreasing STB costs.

· The number of IPTV service providers is doubling every 18 months and now stands at 576, but this includes trial offerings. The geographical split is Asia – 87, Europe – 133, North America – 309 and Rest of World – 47. IPTV in Europe and Asia are forecast to grow more rapidly than North America due to competitive dynamics and the role of HDTV in North America (increasingly the “crack cocaine” of TV viewing in North America). Europe is expected to comprise some 40% of telco TV subs and almost 50% of the industry revenue by 2010, according to MRG.

· Watching TV remains the killer application in the home (rather than “nice to have” on demand/interactive services), with, according to the Yankee Group, consumers spending $68 per month for digital video services compared to $47 for voice and $35 for data services. The average spend of Fastweb’s video clients, on an annualized basis during 2006, was €296 (US$389) more than the yearly Average Revenue Per User of those subscribing only to telecom services. 70% of Fastweb’s Internet subs are also TV subscribers.

· Video is THE key application in offering the triple play and keeping churn down. With certain exceptions, telcos are rolling this out more as a defensive than offensive measure. IPTV success story PCCW of Hong Kong indicated broadband churn fell by 50% after IPTV was introduced. ISPs in France are now including IPTV service in their bundles despite no increase in ARPU.

· Of the major vendors, Cisco and Motorola are best positioned for IPTV, followed by Alcatel-Lucent and Ericsson, due in large part to the latter’s recent spending spree on Tandberg TV and Redback. Nortel has the poorest positioning, owing to its narrow product portfolio.

MRM