Q&A: In-Stat’s Keith Nissen

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In a recent report, research company In-Stat predicted that the market to provide equipment for the telcos’ television offerings will grow to $700 million by 2012. Keith Nissen, a principal analyst at In-Stat, explained to HD Update why high-definition programming is playing a key role in the demand for new equipment for telco TV. An edited transcript follows:

Q: How do you see the equipment market for telco TV and what role is HD programming playing in their purchases?

A: I think that in most developed markets around the world, telco TV is viewed as essential to the survivability of the telco operator. All of these operators acknowledge that this is something they need to do and that ultimately the TV offering will converge into their more mainstream service. Right now it may be viewed as separate service but in the future will be part of everything they provide.

Clearly, high-definition is a growing trend and to be competitive they have to deploy and offer HD channels. Right now in Europe, many operators aren’t really offering HD. In fact, in many cases, the television they are offering is being given away for free as a means of keeping their existing customers.

But they are realizing that HD is essential to their survival and that in the long run -- as video becomes more converged with data and voice services that are their main market -- it will play an important role in getting a return on their big investments.

Q: The report notes strong take-up of MPEG-4 H.264 equipment. How do you see the move to MPEG-4 by the telcos?

A: First, more and more HD content is being delivered to the head end. So, if they don’t support H.264, they are going to have to convert the content from the source to MPEG-2 or whatever. They’re having to adopt H.264 because the source content is migrating that way.

The other thing is that even if you are not driven by supplying HD content right now, there is a case for moving to MPEG-4 so they can offer more standard def programming. So there are economic and technical reasons for why they’re deploying this. Anyone that is now putting in a video headend will use H.264. There are very, very few new headends that don’t use that encoding.

Q: Your report projects that the equipment market for telco TV will grow to about $700 million globally in 2012. How big is it today?

A: In 2008 we’re looking at a $475 million market. In terms of new technology markets, it is not a huge growth market. But it is a very steady growth market. The reason for that is that no matter who you are or what market you’re in, you have to look at it.

Q: What regions do you see as particularly strong for telco TV?

A: Europe is a very strong. There is a lot more potential for growth, simply because the number of operators there is quite a bit higher and because they don’t face the kind of cable build-out that you have in the U.S.

In the U.S., the market for telco TV is just a shifting around of revenue. Every household that has the economic means to purchase pay TV, pretty much has pay TV. There is very little new growth of subscribers. So telco TV is just a means for the telecom companies to take revenue from cable companies. It’s just a redistribution of revenue.

In Europe, outside the Benelux and a few other places where cable is very strong, there is much less penetration of pay TV. There is a lot more growth potential but also there are also some hindrances, which is why some operators are giving away their TV offering. Part of the problem is that people in Europe are not used to paying for TV.

At the same time, the cable operators in Europe are going gangbusters in terms of expanding their video network and expanding into the triple play. All the telcos realize that if they are going to fend off the cable companies, they’ll have to upgrade their networks.

In Latin America, nothing much is happening. There are a lot of regulatory barriers.

The same goes for selected countries in Asia. You can’t really look at Asia as a region. But I think you will be seeing headway in Korea and in China.

Q: You mentioned that as the operators upgrade their networks, they will be offering more converged services that will allow them to move content from one platform to another. Do you see much value in them offering HD content on multiple platforms?

A: Our research shows that HD provides great value when it is professional content and when it maximizes the user experience. There are no research findings that support the idea that people want to see HD content on their laptop or on their mobile phone.

A lot of people would like to see the TV become an interactive screen but I think it will be increasingly tied to the HD user experience rather than the TV competing with other screens.

No one wants to make a phone call off the TV and there is very little overlap between what people do on the PC and what people do on TV. They don’t want to watch TV shows on the PC if they can see it in HD on the TV.

But there is a lot of overlap between what you want to do on a PC and a mobile phone. People want to see You Tube videos on both devices. They want to do social networking wherever they are.

So I look at the TV becoming a screen that is optimized for the HD experience. It won’t be competing with these other screen, it will be complementing them. There is a role for all these devices and HD is clearly what is valued on the TV.

Q: As companies expand their HD offerings and broadband speeds, do you see them investing in pushing fiber closer to the home?

A: Definitely. I’ve spent a lot of time researching and writing about next generation networks and cap ex. What we are seeing is that cap ex is pretty much flat or slightly declining around the world.

But we are seeing shifts. Rather than putting money into mobile infrastructure, and the rollout of 3G networks, tier one and even smaller companies are putting a lot of money into fiber to the home or fiber to the node in the U.S.

The reason they’re doing that is because it is a low-risk kind of business decision. Everyone acknowledges that in the future you are going to need more bandwidth. In contrast, nobody is quite certain that the business model is for time shifting or personalized content. Are they going to be successful? Is anyone really going to pay more to get content on two or three screens? My research indicates that people don’t want to pay extra to receive same content that they are already are paying for to get one screen. In comparison, fiber to the home is the non-risk kind of investment.

Clearly, Verizon and AT&T are putting a lot of effort to that. They are rolling out their telco TV and a lot of types of services and products associated with their fiber deployment.

Internationally in Europe, we don’t see a lot of fiber deployment. In Asia, Japan and Korea have the most fiber and I think that they are taking advantage of that.

It like MPEG-4. Everyone is jumping on the bandwagon because they don’t have unlimited bandwidth and they need to maximize the content they can squeeze down this pipe, whether it is fiber or copper.

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