Satellite pay-TV operators throughout Europe are facing more competition in the digital TV space.

As well as competing against revitalized cable operators who are beginning to offer services such as video on demand, the competition from Internet Protocol (IP) TV also is increasing. While the cable threat has existed for years, the emergence of telcos into the television market could pose a much more serious threat. Like cable operators, the telcos have the ability to offer a triple play of services and with strong balance sheets they are likely to be aggressive in their pursuit of video customers.

Short-Term Help?

But how much of a threat will telcos offer to the satellite competition?

Bob Larribeau, a media analyst at MRG told Satellite News that the emergence of telcos could actually aid the satellite players. “My initial reaction is that IPTV will not be a huge threat to satellite, at least in the short run,” he said. “In fact, the marketing that the incumbents will put into IPTV will probably help the satellites by creating more interest in pay TV services. This may actually increase interest in satellite services.”

Paul Erickson, a media analyst at IMS Research added, “I see them being a fairly valid threat in those countries where there is advanced enough infrastructure to offer viable throughput for triple play — if it is going to take two years to build out an infrastructure that will support 5-megabits-per-second ADSL — then this is less of a threat for the incumbent satellite operator,” he said. “In those countries where you have strong xDSL penetration and faster flavors of DSL already implemented, then the opportunity is there for a healthy offering to be launched that will cause problems for pay-satellite operators. The problem for satellite operators is not necessarily programming. It is broadband. Unless they partner or acquire, it’s not something they can easily solve.”

Certainly, satellite pay-TV operators are not standing still in the face of this growing competition. BSkyB, one of the most progressive pay-TV operators in the world, has acquired Easynet, a telecoms company, and will launch IPTV services later in 2007 as it bids to supplement its direct-to-home (DTH) subscriber base of more than 8 million.

“The satellite provider without exclusive content or partnerships will be more vulnerable,” said Michelle Abraham, a media analyst at In-Stat. However, unlike the U.S. where DirecTV and Dish do very little of their own programming, more European satellite providers have developed their own channels.”

Other satellite pay-TV operators have gone down the partnership route and teamed up with telcos to offer IPTV services. A classic example is Canalsat and France Telecom. Canalsat is in the midst of merging with France’s other DTH platform, TPS, but will this trend continue or are these partnerships of convenience while telcos build their strategies here?

“There are two things working here,” Larribeau said. “The first is that IPTV service providers need content, and the satellite companies have already put together attractive packages. The second thing is that satellite antennas are not permitted in many cities in Europe. I have heard that there are satellite police in Paris that seek out illegal satellite antennas and confiscate them when they find them. I know this is an issue in France and Italy and I think it is an issue in other countries as well. The IPTV companies see the IPTV providers as a distribution arm that brings them into significant new markets.”

Erickson said, “I expect it to continue out of necessity, especially when time-to-market is critical. Most satellite operators are not a Sky, DirecTV, or Echostar, and cannot afford to independently acquire or build a broadband business. To acquire the broadband capability they need to stay competitive in an age of triple play, they will likely need to partner. For the telcos, similarly many are not financially able to build out an entire video delivery and content business and it is easier and faster to partner with satellite.”

State of the European Markets

In the United Kingdom, the IPTV market, somewhat surprisingly, is not as developed as some other markets in Europe. BT, the country’s main telco, plans to launch services later this year and has been busy doing deals with content partners ahead of commercial launch. The service. BT Vision, aims to offer all the terrestrial Freeview channels as well as enhanced video-on-demand services. The service will require no mandatory subscription, so in some ways is not directly competing against BSkyB, particularly in terms of its premium DTH offers. BT has adopted a somewhat conservative strategy in the TV market, as its offer is more akin to Freeview rather than looking for highly monthly subscription charges.

BSkyB also is active in the IPTV space, planning to to launch Voice over IP and IPTV services in 2007. The operator also revealed plans to launch broadband and push video on demand as it steps up its drive to become an integral part of the digital home.

Bulldog Communications, which has around 100,000 broadband subscribers, could also look to make a move in this area. The operator is led by CEO Emanuele Angelidis, formerly CEO of Italian telco Fastweb, said if the operator were to launch an IPTV service, it would do so in the next 12 months. “There is no specific area blocking our decision not to progress,” Angelidis recently told Satellite News sister publication Inside Digital TV. I can’t tell you when we are going to do it, but the window of opportunity is one year at the most.”

IPTV in France is ahead of most major markets in Europe. Three telcos — France Telecom, Neuf Cegetel and Free — are offering services. France Telecom saw strong growth for its MaligneTV, ending 2005 with 200,000 subscribers. In 2004, the company ended with just under 70,000 subscribers.

One of the most innovative operators, Free, ended 2005 with nearly 200,000 television subscribers. “The IPTV operator who stands out in terms of being aggressive and innovative in the European arena would arguably be Free, which has built their growth on the back of an affordable triple-play entry price point,” Erickson said. “The caveat is content offerings, however, and I think this is the next step for IPTV operators to take in regards to churning people away from their cable and satellite alternatives.”

Erickson also believes France Telecom will be more aggressive here as it pushes MaLigneTV more strongly. “FT has committed strongly to building its content offerings and conceivably the long term goal will be to own the content subscription revenue that gets paid out to Canal+ right now by MaLigneTV subscribers,” he said. “Canal+ and other aggregate content providers will only have the capability to secure subscriptions via IPTV when the telco does not have any content aspirations of their own and needs content to offer their video customers. Your strongest, most dangerous telcos will unerringly seek to own as much of the revenue equation as possible in the long term, including the content side.”

Spain remains one of the most interesting markets for IPTV. The main pay-TV operator is Digital+, which has around 2 million subscribers on satellite. However, the IPTV threat to the operator is increasing. Telefonica is rapidly rolling its Imagenio service across Spain. The operator already has around 250,000 IPTV subscribers, which puts it ahead of most telcos in Europe. Imagenio, which already offers 50 channels, costs around 12 euros ($14.90) more for Telefonica’s broadband customers. The operator also is hoping to make a number of enhancements to the service throughout the next 12 months, with a trial of high-definition TV and personal video recorders planned.

Imagenio is not the only IPTV threat for Digital+ owner Sogecable. Jazztel, another Spanish telco, has launched a service dubbed Jazztelia. Conchi Ferreras, head of content for Jazztel, believes the option will prove attractive to an audience who may not want to pay premium prices for satellite offers. “We think one of the reasons why the pay-TV market has not been successful yet is because of the price, she said. Pay-TV is very expensive in Spain and it is not attainable for many people. So we are trying to fill the gap and democratize pay television.

Jazztel and Telefonica will put pressure on Digital+, which added only 25,000 subscribers in its most recent quarter. Spain has a low rate of digital TV penetration, presenting an exciting market for IPTV to attack, and Sogecable has not yet indicated what kind, if any, IPTV strategy it may deploy.

In Germany, where satellite operator Premiere already is under pressure from losing the Bundesliga football rights to cable threat, the IPTV threat also is likely to grow stronger. Deutsche Telekom (DT) announced that it will partner with Microsoft to launch IPTV services, through DT’s VDSL network, which is being extended by T-Com. This network is expected to permit bandwidth of up to 50 megabits per second and is planned for launch by mid year in 10 major German cities.

There will also be other IPTV alternatives in Germany. Hansenet, a subsidiary of Telecom Italia (TI), plans to launch service this summer. The operator will offer a broadband pay-TV bouquet and video-on-demand offering under the Alice brand that TI is launching in Italy. The broadband operator originally operated in the Hamburg area but is extending its reach to other cities in Germany and being more of a vigorous competitor to DT.

In Italy, TI announced late last year that it was launching IPTV services called Alice Home TV, and the opportunity for IPTV could be particularly strong with virtually no cable competition in the country. Fastweb also offers IPTV services in Italy and has been one of the pioneers in terms of launching these services in Europe. Tiscali also could also look to enter this market very soon. However, Sky Italia has seen strong subscriber growth in Italy and it will be interesting to see whether it slows down as a result of TI entering the market. The other interesting thing is whether Sky Italia, a News Corp. company, will replicate BSkyB’s strategy and attack the IPTV market in such a way and potentially acquire telecoms infrastructure.

–Mark Holmes Contact, Michelle Abraham, In-Stat, e-mail, [email protected] Paul Erickson, IMS Research, e-mail, [email protected] Jesus Carrillo, Jazztel, e-mail, [email protected] Gladys Elia, Bulldog Communications, e-mail, [email protected] Bob Larribeau, MRG, email, [email protected]