Market development of wired-TV - PTS-ER-2010:21
10/12/2010
This report deals with TV distribution over cable-TV, SMATV, fibre-LAN and xDSL. These forms of TV distribution are common in apartment buildings. The purpose of this report has been to follow up the conclusions made in the market decision adopted by PTS in 2005, and to identify the existence of any barriers to effective competition in the market.
Since 2005 IPTV over fibre-LAN and xDSL has grown, and today there is about 410 000 subscriptions in total. Especially IPTV over fibre-LAN has proportionally been growing rapidly in recent years. Since 2006, the platform has grown by about 500 percent.
The cable-TV operator Com Hem is by far the largest operator in the market and has, due to low production costs per household and low cost for acquiring content, therefore a major competitive advantage in the market. Because of Com Hem’s strong position in the retail market, the company has a considerable bargaining power in relation to the program companies, especially concerning analogue distribution.
The most common business model that is used among operators is that they provide landlords with a basic package of several TV channels that is distributed to all tenants who pay for it through their rent. To offer such a package of TV channels is usually a requirement from landlords when operators compete for a contract. Since such a business model is applied by Com Hem, this has an impact on other operators’ ability to compete for such contracts and to attract end-customers.
The consumer mobility and the growth of IPTV over fibre-LAN and xDSL would have been greater if the landlords had not required a basic package of several TV channels to the households, and if this business model would not have been applied to such an extent. As long as such contracts with cable-TV operators continue to exist in apartment buildings where parallel infrastructure is installed, this will constitute an obstacle for competing pay TV operators on the IPTV platforms to gain customers in such houses.
The broadband and TV markets are converging. The ability of offering TV, broadband and telephony services (triple play) is becoming an increasingly important competitive tool. The investments in the cable-TV networks which are necessary for offering broadband services, are made in purpose to meet the competition from the xDSL and fibre-LAN platforms. At the same time, there is a general expectation that TV services will drive the roll-out of broadband networks. This development also means that traditional TV operators must have the possibility of offering services, which earlier only could be offered by the broadband operators. On the other hand, the ongoing roll-out of fibre-LAN has, in addition to broadband services, also aimed at offering TV services. The convergence has resulted in an increase in competition between traditional TV and broadband operators and that more operators offer TV services in apartment buildings. The increased competition has in turn led to a better and larger selection of services in the market.
In summary IPTV, primarily over fibre-LAN but also over xDSL, has the potential to grow at the expense of cable-TV. The ongoing roll-out of fibre-LAN will also enable the competition against the cable-TV platform to increase. A higher degree of competition would lead to a diminished customer base for the cable-TV operators, and this in turn would have a positive effect on the program companies bargaining position – especially in relation to Com Hem. Therefore there is no need for ex-ante regulation on the wholesale market for broadcasting transmission services on cable-TV networks. The growth of IPTV and the competitive situation in the market has developed as predicted by PTS in 2005.
Another factor that could have a large effect on the market conditions is that Internet TV is being used to an increasing extent. In the long term, this change in consumption behavior constitutes a threat against the pay TV operators. This development will also have an impact on the business models that are used by the program companies and their demand for broadcasting transmission services.
Landlords have a key role since they through their actions will influence how the market continues to develop. As long as landlords continue to enter into collective contracts, including a basic package of several TV channels that are distributed to the tenants, it will remain difficult for competitors to attract end-customers in such buildings. If the landlords, as consequence of the households demand for triple play, choose to also include other services in the contract with operators, such as broadband and telephony, this will further increase the negative effects on competition