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Summary

At Broadband Forum Asia in mid-April, familiar topics were discussed. Topping the agenda was what operators should do to further monetize broadband and service bundles, including pay TV and IoT. There was evidence of operators looking to the future, with OTT TV replacing IPTV services in bundles, and evidence of progress in becoming full digital services providers. At the same time, the haunting specter of "the dumb pipe" seemed less haunting, but concern mounted about the "Uber effect." Gary McLaren, CTO of HKBN, did not shy away from uttering the D-word, stating that HKBN's dumb pipe strategy brought success, but Craig Price of PCCW Global warned attendees about the disruptive Uber effect on broadband markets and operators.

HKBN implementing Ovum's Digital Economy 2025 RCP strategy

Because the event was held in Hong Kong, the local operators' presence was strong and the contrast in their wireline strategies was evident. If there is a poster child for Ovum's 2025 outlook for RCP operators, it's HKBN. CEO William Yeung (and TVB's SK Cheong) delivered the first keynote. Ovum's 2025 vision is that the number of existing ISPs (integrated service providers) offering a full suite of services such as triple play, including in-house pay-TV services, will shrink by 2025, and the number of RCPs (retail connectivity providers) will rise. These operators will still offer bundles but will outsource or partner for services other than connectivity. As a result of eliminating the costs of producing in-house content, profit margins should rise. HKBN has been implementing this strategy for some time by offering gigabit FTTP and partnering for pay-TV (OTT) services with content provider TVB. Both companies said this partnership (each brings to the table what it specializes in) has had a positive impact on their businesses, such as increasing free cash flow to HKBN and reducing churn. (For more on HKBN, see Disrupter Case Study: Hong Kong Broadband Network.)

Converged fixed–mobile bundles will grow, quad play or not

But Ovum also believes that integrated operators will have an advantage and that both fixed-only and mobile-only operators will be vulnerable in the coming years. Consumers will want a converged connectivity bundle of both fixed and mobile broadband, whether within quad play or not. Not surprisingly, HKBN – a fixed-only operator until recently – said it is now offering a type of quad play via an MVNO. As a result of its investment, HKBN has taken a hit in its 1Q17 financials, with profit declines, though revenues grew. No one said the path to RCP heaven would be easy or short.

PCCW takes the ISP operator path, warns that operators need to change or become irrelevant

Craig Price of Hong Kong incumbent PCCW Global outlined a different strategy, explaining the digital projects that PCCW has been investing in – more of an ISP-operator strategy as defined by Ovum than an RCP approach. Price clarified that a mix of partnerships and in-house development may be optimal – choosing to have partners to build such capabilities in initial years but eventually leading to in-house development. He had a dire warning for the operator community: Become a digital telco, take advantage of IoT opportunities, or become irrelevant due to a fast-moving, dynamic environment disrupting telcos – in other words, the Uber effect.

Dumb pipes may be safer for some in the Uber era

The warning is timely. The Uber business model has disrupted the taxi and transportation industry, and now Uber itself may be disrupted by self-driving cars. No doubt disruption is ongoing among telcos in multiple countries, with fixed voice declines, approaching saturation in pay TV and fixed broadband, and competition from OTT providers. So who is more likely to survive the Uber effect in the future – an ISP with a full-service suite or an RCP focused on connectivity? Ovum notes that digital services take service providers beyond the realm of their traditional domestic footprints, opening up opportunities in international markets as well as threats from multiple international competitors. So it would stand to reason that in fact dumb pipes or an RCP strategy focused on connectivity may be more immune to the Uber effect. An operator may have four to five competitors for retail fixed broadband services in its traditional domestic footprint, but that number is unlikely to grow as quickly as it can in a digital OTT environment.

Appendix

Further reading

Disrupter Case Study: Hong Kong Broadband Network, TE0009-001549 (October 2016)

"Consumers who don't yet bundle in China and Australia value the bundle proposition quite differently," TE0009-001624 (April 2017)

Author

Kamalini Ganguly, Senior Analyst, Broadband and Multiplay

kamalini.ganguly@ovum.com

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