Editor’s Note: Welcome our Monday feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry. In the coming weeks look for columns from Strategy Analytics’ Chris Ambrosio, Current Analysis’ Peter Jarich, Ovum’s Roger Entner and M:Metrics’ Seamus McAteer. Click here to read past Analyst Angle columns.
There are many good reasons to go to Italy; the food, the wine and let’s not even get started on the women! Although testing mobile phone services doesn’t usually rank in the top 10 rationales for a trip to Milan, with Tre and TIM becoming the first operators worldwide to launch commercial DVB-H services, the time seemed right to see what all the fuss was about.
And so it was that at the end of October, my colleagues and I found ourselves on a flight to Milan Malpensa, with a brief to watch television! More importantly perhaps, as part of our Advanced Wireless Laboratory program, we were going to speak with real consumers to find out what they thought of mobile broadcast TV, roughly 5 months after Tre and TIM launched services. Did they like the phones that were being offered? How usable were the services? And would they subscribe at the prices being offered?
Unlike many other markets in Western Europe, where encumbered spectrum in the UHF or L-Band presents a barrier to rapid DVB-H launch, the scenario in Italy has been relatively straightforward. Italian broadcasters have been permitted to use their digital frequencies for broadcasting to mobile devices and two DVB-H networks have been rolled out as a result:
Having acquired Canale 7 from Italy’s Profit Group in November 2005, Hutchison now owns 272 MHz of spectrum in the UHF band and has rolled out its own DVB-H infrastructure at an estimated cost of ?220 million.
TIM (and soon Vodafone) are licensing capacity from Italy’s second DVB-H network owner Mediaset (which acquired UHF radio spectrum and DTT infrastructure from Europa TV in December 2005 for ?186.8 million). Mediaset is leasing 25 percent of the networks capacity to TIM for ?75 million over five years and is set to extend the same arrangement to Vodafone.
The fact that Tre and TIM have launched DVB-H on the back of completely different value chain propositions is another interesting facet of the Italian market. Clearly, Tre has taken on a lot more financial risk than its incumbent rivals, investing heavily in both the acquisition of Canale 7 and in rolling out DVB-H infrastructure on top of its existing DTT footprint.
In order to achieve a relatively rapid return on investment, and to capitalize on an impressive bouquet of content (which included live rights to the Football World Cup in June), Tre has opted to price broadcast TV at what can only be described as top dollar. As the chart below shows, various packages are available from ?3 for a day of access to ?29 for a month (although promotional pricing is currently in place).
On the other hand, in an effort that is no doubt designed to put pressure on Tre’s pricing and ROI schedule, TIM has gone cheap. Access to its DVB-H service (albeit with fewer channels available) costs only ?5 per month, 6 times less than Tre plans to charge from the end of November 06.
Now you don’t have to be retailing genius to suggest that, for a service as reliant on novelty value and transient viewing as mobile TV, a price point of ?29 per month sounds on the high side. Think what ?29 per month gets you in the broadband/ pay television world and make your own decision! No surprises therefore, that our end user survey work also bears this out with fewer than 4 percent of survey respondents in Italy stating that they would be willing to pay more than ?10 per month for access to mobile TV.
What did come as a surprise was the sight of Tre reporting strong growth in Tua TV subscribers. About 8 weeks after launch it announced that it had acquired 140,000 users (representing just over 2 percent of its 6.8 million customers as at June). How many employees does Tre have? I don’t know, but even taking this number at face value, its pricing seems much too high to achieve adoption (on plans that take monthly spend above ?10 per month) beyond a 5 – 6 percent early tech-centric niche.
So what about the services themselves?
Overall, the quality of TV offered over DVB-H in Milan was pretty impressive and demonstrably superior to the rather scratchy 3G based simulcast services to be found in most European markets currently. As we had expected, coverage issues do need to be addressed to improve the proposition. Weak signals and resulting pauses in transmissions were sometimes experienced either when trying to access mobile TV in-building, or while in built up areas close to tall buildings. Overall however, coverage in the city was satisfactory, although providing access in subways would greatly enhance the value proposition for commuters.
Time delays associated with service initiation and channel changing were also tolerable. Although we found a 23 – 66 second delay each time the TV function was activated, (primarily due to downloading the electronic service guide), and an approximate 5 second pause between switching channels, neither we (or our panel of users) found that this substantially detracted from the experience. We found that TIM’s TV service took almost half the time to initialize at 23 seconds, compared to between 43 – 66 seconds for Tre.
Despite what we felt was a fairly impressive technical performance given the time since launch, our 36 member focus group panellists were a harder audience to please! The majority felt that Mobile TV would be useful only when travelling and that low levels of monthly usage would not justify the costs. The 6 members of the panel that had subscribed to TuaTV services had done so on the basis of casual daily use rather than the more expensive weekly or monthly plans. On a more positive note, our group did agree that the broadcast services easily beat the 3G based ‘TIM download’ service on almost all satisfaction criteria tested.
Overall User Ratings: Mobile TV Applications, Italy
In summary, our test experiences have confirmed that DVB-H can provide a compelling usage experience compared with 3G, but that even early adopter consumers are still a long way from being convinced of the merits of the value proposition. This problem seems likely to be compounded in Italy by an age old challenge, namely weak operator promotions and sales techniques. Mystery shopping around Milan revealed the staff in operator-branded retail outlets to be poorly informed about mobile TV and largely unable to communicate the available offers.
While Tre seems to be off to a flying start, we believe that the ARPU numbers underlying its user metrics will be less satisfactory. We predict that slow take-up at current prices and the entry of Vodafone will help drive down prices in the coming year and are estimating ARPUs down to ?7 per month by 2011. This will certainly place pressure on Hutchison’s ROI schedule for its investment in DVB-H. As TIM’s CEO is supposed to have said recently, “There are reasons to be worried when a Chinese operator starts buying frequencies in our domestic market being ready to lose billions without any business model”! Time will tell.
Questions or comments about this column? Please e-mail Philip at [email protected] or RCR Wireless News at [email protected].
