Digital Telecom Convergence

Digital convergence brings together audio, video, data and voice communication services. With access of content and services using different terminals over different types of networks already possible, the borders between fixed-line and wireless mobile networks are
disappearing.

In the convergent world, consumers are in control of their
entertainment and media content; what they want, when they want it, and where they want it.

Telecom convergence is being driven by technology advances and supported by more mobile and media savvy consumers. The core drivers in telecom convergence are:

1. IP Convergence - providing a technical unbundling of facility network capacity from the services supplied over those facilities.
2. Advanced Network compression - allowing broadcast of streamed media over bigger pipes using a smaller traffic footprint.
3. Sophisticated Wireless Devices - many mobile phones and laptops can both view and stream video services
4. Content Availability - more content drives more network usage, which provides a healthier business case upon which Telcos can upgrade networks to meeting upcoming mobile media demand.
5. Business and Consumer Convergence - Telcos are finally waking up to the fact that a single customer can need both business and consumer services and they want to use the same device in both profiles.

Convergence Service Offerings

The first convergence service offering was the bundling of Voice Over Internet [VoIP] with broadband Internet. The uptake was rather dissappointing as users were opting instead for free VoIP services such as Skype.

For businesses that did take the jump, being able to use their own VPN for phone calls was a major cost saving. Uptake was largely driven by current need to update phone services - meaning the ROI was more evident.

Convergence is offering an expanding range of media options for telecommunications companies. With network access revenues declining at alarming rates, the bundling of access, content and services is the way of the future for Telcos across the globe.

Other typical convergence offerings to expect are:

• Convergence of home phone and mobile - using location based geofencing
• Convergence of Set-Top-Box and PC; as the PC is fast becoming the media control center
• Telephones and PC - are phones taking over more PC based services such as email and VoIP than PC's are taking off phones, such as call routing and message services.
• MP3 Players and CD-ROM/DVD - mp3 players such as iPod are favored for the portability of multiple media formats to plug and play into home stereos, car audio systems and pc's.

Benefits Of Convergence

The benefits of convergence are quite evident:

1. Replacement of falling network access revenues
2. Spreading of fixed costs over wider product and service portfolios
3. More competitive bundling of offers not so driven by price
4. Customer retention - a deepening of customer engagement

In highly competitive metropolitan markets as many as 20 percent of customers swap out their services each month. More services and bundling retention offers are helping to curb that trend. And it's not just the Telcos who are benefiting; bundling also offers cable companies the opportunity to develop new premium services.

This is driving strong partnerships between converging companies. A most notably five strong partnership is:

1. Comcast Corporation
2. Time Warner Cable
3. Cox Communications
4. Advance/Newhouse Communications
5. Sprint Nextel Corp

Set up as a joint venture; Sprint Nextel will invest US$100 million, and the four cable providers will contribute $25 million each. The agreement runs for 20 years and is mutually exclusive for three years. Once services are online, Sprint is expected to gain the most from the venture.

The challenges of such ventures are generally more back office:

• Billing integration between cable and telecom components
• Service support integration - how to provide a seamless cusotmer support service
• Service delivery - between cable company and wireless networks

Market Expectations

Television over IP subscribers totalled 700,000 in 2006, and are
expected to rise to 9 million by 2009. Market forecasts by EITO estimate that the IPTV market in Western Europe will develop over tenfold between 2004 and 2008, from €166 million to € 2 billion.

Video on Demand (VOD) revenues in the EMEA region are expected by 2009 to total about €2 billion covering 22 million households.

Digital platforms (Digital TV, Internet, Satellite, etc) are being increasingly used to launch VOD services, which are expected to be taken up rapidly. In the UK, it costs less than US$100 to add a new VOD home while in 2001 it cost nearly US$ 2000.

Download Report: Digital Convergence - A Whole New Way Of Life [pdf]

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