Telecom operators believed they had found the next killer application after the IPTV debut in 2000. Since growing almost 85% from less than 3 million subscribers in 2006, to 5.5 million in 2007, adoption rates are slowing steadily. Experts predict a weak economic atmosphere through 2010. With this in mind, Frost & Sullivan
revised the previous year's growth forecast of a 3-year CAGR 29% downwards to less than 15%. A change in media consumption patterns should mark a turning point in the telecommunications and media industries.
Video seems to be the way of the future. To tap that end user's consumption of videos, broadcasters and other high definition content aggregators have operational needs to demand higher quality and secure network for delivering content to users. Telecom operators on the other hand can bridge the gap between users and broadcasters and other content aggregators by enabling a communication network with varying QoS at different price levels. This is an important change in order to compensate for the decline in bundled service margins.
Once operators and media providers are able to deliver and customize the video content to end users' expectations, the TV revenue potential could add between 15-22% of telecom operators' retail revenue in the top 5 Western European markets. In the UK alone, it is expected that TV revenues could grow at an 8% 5-year CAGR, which is a more robust rate than both the fixed and mobile communications sectors. However, the current lack of momentum is not sufficient to rejuvenate overall revenue growth in telecommunication services yet. Operators will need to continue to improve QoS, extend coverage and distribution, form more alliances and create more innovative services.
Two big players in the industry, BT Vision and Virgin Media focus on expanding their service portfolio to cover as much as the end user's entertainment, media and communication needs. BT Vision hopes to boost revenues through alliances, with products such as Microsoft's Xbox to capture the gaming community within the residential segment. Virgin Media took a different route, focusing more on the trend of service convergence such as its much hyped "QuadPlay" offering in UK. Virgin Media has also leveraged shifting end user habits of media consumption and the emergence of Over-the-Top (OTT) media players such as BBC's iPlayer. These are just two UK examples of telecom operators accelerating their service portfolio expansion to capture end users' media consumption habits.