TV on your phone

BUSINESS
Digital convergence

Jan 13th 2005
From The Economist print edition

Both fixed and mobile telecoms operators are getting into television

IN RECENT years the mobile phone has turned into an electronic jack-of-all-trades, the remote control for everyday life, a digital equivalent of the Swiss Army knife. A modern handset can function as a digital camera, music player, radio, games console and messaging device, as well as being a phone. On January 10th, trials began in South Korea of a new service that incorporates yet another device into the handset: television. TU Media, a joint venture between SK Telecom and Toshiba, a Japanese electronics firm, began beaming three of a planned 12 mobile-TV channels to special handsets, a service for which it plans to charge subscribers $11 a month. In Europe and America, meanwhile, Nokia, the world's leading handset-maker, is also testing mobile TV services: the most elaborate trial so far, with 500 users, will start soon in the English city of Oxford, in conjunction with O2, a European operator.

It is not just mobile operators that are suddenly interested in TV. Incumbent fixed-line operators such as Verizon, SBC and BellSouth in America, BT in Britain and Deutsche Telekom in Germany are getting into it, too, with delivery via high-speed DSL (digital) phone lines or new, purpose-built fibre-optic networks. Why?

For fixed-line operators, the need to offer TV is clear. Many of them face stiff competition from cable-TV firms, which can offer the “triple play” of TV, broadband internet and telephony over their networks. This week Comcast, America's biggest cable firm, announced an ambitious plan to offer phone service to all subscribers by the end of 2006. Bundling together TV, broadband and phone increases customer loyalty (since it is harder to switch) and lets cable operators achieve economies of scale in billing and marketing.

“The cable companies are entering the telephony market, so the telecoms providers have got to do something,” says Andrew Cole, of A.T. Kearney, a consultancy. In some countries, including France, Italy, Britain and Japan, incumbent operators also face competition from insurgent operators (Iliad, FastWeb, HomeChoice and Yahoo! BB) offering triple-play bundles over high-speed phone lines.

To compete, the incumbents need to get into TV too. “TV is no longer optional,” says Ford Cavallari, of Adventis, a consultancy. “If they don't do it, someone else is going to.” The fastest way into the TV business, he says, is to ally with a satellite-TV firm and resell its services—as SBC has done with EchoStar, for example. That is an interim measure until operators are able to deliver TV via DSL, or via a combination of DSL and new fibre-optic networks. Operators around the world are now upgrading their networks and laying new fibre with TV services in mind.

Mobile operators, in contrast, see TV as a “nice to have” rather than a “must have” service. Technical trials have shown that mobile TV is possible. Market research suggests that consumers might pay up to €12 ($16) per month for it, says Carolina Milanesi of Gartner, a consultancy. Unlike complex 3G data services, which are proving to be a hard sell, mobile TV could have mass appeal. “Everyone gets it if you say ‘mobile TV',” says Richard Sharp, at Nokia's multimedia division.

While a combination of satellite and ground-based transmission is being used in South Korea, Nokia is promoting a new terrestrial mobile-TV standard, called DVB-H. One possible business model, says Mr Sharp, is for mobile operators to share a national DVB-H network, carrying both common and operator-specific channels. Operators would thus share costs while retaining the ability to differentiate themselves through exclusive content deals. Yet a lack of suitable spectrum is one problem; another is gaining the appropriate rights from content providers. So far, mobile operators think that content means ringtones and screen logos, notes Ms Milanesi.

Fixed-line operators face a similar problem, since they too may lack relationships with content providers. The obvious pairings, says Mr Cole, are for fixed-line operators to pair off with satellite-TV firms in order to gain “media competence”; and for cable-TV operators to pair off with stand-alone mobile operators. “There is going to be a tremendous amount of turbulence, driven by the convergence of telecoms, television and media,” he says. As digital technology erodes the barriers between previously distinct industries, continuing convergence—both of services and of firms—now seems inevitable.

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