[Satellite News 12-22-08] SES Americom will stop offering its IPTV service in North America by mid-2009. IP-Prime had been a key part of the operator’s strategy to tap into the growing IPTV market in the United States, however, with telcos, particularly smaller- and medium-sized operators, finding the TV market a tough place to build a business, SES decided IP-Prime was not meeting expectations.
    Robert Bednarek, CEO of SES Americom-New Skies, discussed why IP-Prime no longer has a place in the U.S. IPTV market and what this means for SES’s plans to tap into the IPTV market around the globe.

Bednarek: I think the right way to look at this from an SES perspective is that we continuously create products and services on behalf of our customers, so if you take a step back, what did SES Americom try to do here? We attempted to create a new product for our media customers, who are already big customers in terms of cable distribution. We endeavored to create a product which would capture a new market segment and potentially new emerging audiences accessible via small telcos. There was an interest on the programmers part, there was interest on the telcos’ part, and that is why we proceeded. We operated the system for a number of years and became intensely engaged in the technical and market development aspects associated with accessing this new audience. Unfortunately as we project forward, the total audience available may not be sufficient to sustain the costs involved in reaching them over the mid- to long-term, so we decided this may not be the best product for us to be offering to our programming customers. To me, that is a natural cycle of an innovative company. Some products do very well, others don’t develop as a result of changes in or better understandings of the market place.

Bednarek: It wasn’t so much about persuasion. Most telcos recognize the opportunity. For a service such as IP-Prime — and IPTV in general — the key issue is scale. To be successful and generate a return on investment — and justify future investment — you needed to scale quickly enough to begin generating revenues. There are different ways of achieving such scale. You could gain a very rapid take-up from the customers of many tier three or tier four operators, or you could provide services to larger tier two or tier one operators, which themselves had the critical mass required. For us, the tier three and tier four was simply a place where the take-up was much slower than expected or hoped for. If you look at the tier one operators such as AT&T or Verizon, or you look at the other large operators in Europe, all of them also experienced much slower start-up rates because of technical challenges and the strong counter-marketing by cable and DTH, at least in the United States. They are beginning to show scale now only after significant additional capital spending outlays

Bednarek: The point here is that the AT&T and Verizons are perfectly capable of provisioning themselves. IP-Prime was about presenting an MPEG-4 IP encapsulated neighbourhood of 300-plus programs to telcos so they would not have to heavily invest in the headend equipment and related operational activities to gather and format that many signals. That value proposition would be very important to small telcos, but for AT&T and Verizon, who are spending billions of dollars on deploying IPTV services, the headend represents a small investment. Essentially, the big guys can self-provision. It is the small-l to medium-sized telcos who could see the value of someone else doing it for them on a shared basis, but they are the very ones that have other constraints in terms of the rollout. 

Bednarek: Not yet. However, in the United States, the success of the small telephone operators in IPTV generally means taking market share away from established cable or DTH operators, which naturally requires investment. The more infrastructure you have to build means the more investment, so I think it is reasonable to assume there may be slowdowns in the investment necessary for introducing IPTV services. Also, the smaller you are, the less credit may be available to you.

Bednarek: I continue to believe that you will see the proliferation of IPTV. The digitalization of video and the encapsulation of video in IP, which permits transmission by any number of different routes, is certainly going to grow around the world in the next few years. There are a lot of advantages to IP coding of video in terms of compatibility, flexibility and storage. Our IP-Prime experience in no way indicates that there is a backing off of the penetration of IPTV in the world.
    In terms of SES’s strategy, one of our major roles in the world is to assist in video distribution. As video becomes more digitized and packetized in IP, you will continue to see SES participating in the transmission of IPTV. As with other forms of video, IPTV can be transmitted by satellites directly to homes, cable headends, telco headends, etc. Satellites will likely soon provide IPTV transmissions to wireless relay stations such a Wi-Fi or WiMax. My basic conjecture is wherever you see video today, you will see IPTV or IP encapsulated video in the coming years.
    I think with that as a background, you have to ask what are we no longer doing in the United States? Our plan is to discontinue IP-Prime, for a product which provided the transmission of IPTV linear programming to one fairly narrow market segment in the U.S., which was small telephone companies who were beginning to deploy IPTV in competition with cable and DTH.

Bednarek: It remains to be seen, but my initial answer is yes. Sticking with the telcos, if you look at tier one telcos like AT&T and Verizon, both are rapidly and effectively deploying IPTV as a consumer product. They are seeing strong interest. There are also tier two telcos which have large aggregations of video capable lines, but for a variety of market reasons have had less of a focus on video and seem to be concentrating more on basic broadband. Sooner or later, I anticipate they will want to present to their customers a video offering. Many tier three and tier four telcos have an interest in video but are challenged in mounting a video product offering to consumers, particularly when they are competing against strong cable and DTH offerings. The key dynamics here in the United States is that you have telcos trying to take away market share from other long-established video providers. AT&T and Verizon do that through a variety of ways, such as heavy marketing, huge capital expenditures, advanced video capabilities and features. The prospect of taking customers away from DTH and cable becomes more challenging the more constrained you are.

Bednarek: It is not a surprise that telcos are using satellite in two modes. They are using it to extend their basic video offering, where perhaps DSL penetration is not sufficient to offer video. Secondly, they are using it to optimize their networks by to overcoming bandwidth limitations. It makes sense to use terrestrial networks for the things most suited to terrestrial, for example, video on demand and other types of interactive services. And you use the satellite to carry the primary linear channels in both SD and HD. Satellite is totally sensible way to optimize telco networks, particularly if you want to make sure that you can offer just as many channels as your DTH competitor or your cable competitor.

Bednarek: I don’t think there is any read across here. IP-Prime’s focus was on connecting consumers in small telcos in the United States. You have to remember that the United States is a hyper-competitive market when it comes to video distribution for consumers. There is cable which is very strong in the United States. There are two very strong DTH providers, thus the telcos are the new entrants in an already heavily penetrated market. To be successful, you need to take market share away from one of those established providers. The situation is different in many parts of the world, and in some places telcos are actually the first providers of multi-channel digital video. Indeed, there may be other kinds of infrastructure that needs to be fed with IPTV as well.

Bednarek: I think potentially yes. The key value is the aggregation of the programming and its encoding into a highly usable format, namely IP. The presentation of that content to entities who can then take it and then send it on viewers, be it telcos, cable operators, even mobile operators has always been the strength of SES. One of the beauties of the IP format is once it is in that format there are lots of possible sub-distribution channels that are compatible.

Bednarek: Existing users will have an opportunity to transition to other video sources. There continue to be developments in the use of IPTV, both in and outside the telco sector in the United States. Tier two telcos are still considering what they are going to do in terms of video. There is a growing need for MPEG-4 programming by cable operators in the United States because of the bandwidth constraints they face. So, there are some possibilities for various distribution entities outside the small telco space who want to use already encoded and IP encapsulated MPEG4 programming. We will see what the developments will occur here. Obviously, the economic situation modulates the speed in which MPEG-4 upgrades are made in existing MPEG-2 networks.