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Back to basics with video

2017-03-20 By Mi Xueping

    Key takeaways:

  • Telcos need to position video as a basic service to keep up with consumer trends.
  • Content and experience are crucially important.
  • LGUplus and Sichuan Telecom are getting it right.

Video has become a central strategy for operators, with content and experience equaling networks in importance. LG Uplus and Sichuan Telecom are two examples showing that positioning video as a basic service can provide strong growth opportunities for operators.

A confluence of conditions 

The evolution of the telecoms industry since the 1990s has followed an S-shaped curve, moving from landlines to feature phones, and then with the advent of 3G and Apple’s first iPhone in 2007, to smartphones. In around 2010, mobile communications entered a period of maturity as 3G gathered in momentum and uptake, and smartphones became more pervasive. At that time, data consumption began to rise and IPTV increased in popularity. In 2015, 4G came on the scene and data consumption quickly hit the mainstream, a position which it continues to consolidate today.

And today, video is without doubt the most powerful driver of traffic growth. One reason is that it’s constantly expanding into new areas. Initially popular as film and TV for entertainment and applications like Skype and FaceTime for communications, video is now gradually penetrating the commercial and enterprise domain, finding a footing in new areas such as e-learning and telemedicine.

Another reason is that new generations of technology and equipment have changed consumer behaviors. In the past, people mainly watched video passively as movies and TV shows on large screens in fixed venues – at home or in movie theaters. Today, most people own several different-sized screens. They not only watch video, they’re also producing their own, a fact that’s changing how consumers are defined. “There’s no such thing as a simple consumer anymore,” states John Quinn, Group CTO of Digicel Play. “At the same time as consuming content, people are also constantly creating content. So, we’ve all become ‘pro consumers.’ ” 

These factors are driving a boom in the video industry: Ovum predicts that video services will account for over 80 percent of traffic on telecom pipes by 2020.

From VAS to basic 

Surveys show that 70 percent of the top 100 operators around the world now offer video services, with half of the top 50 no longer positioning it as a VAS: “China Unicom already regards video as a basic service,” says Dong Dawu, China Unicom’s managing director of the operator’s TV VAS Operations Center. Dong not only believes that more users and a better experience will make video a source of service growth, but can in fact “serve as a catalyst for network transformation for operators.” 

LG Uplus: Outpacing the competition with video 

The South Korean telco LG Uplus is an example of how operators can use video to boost their market position. In the extremely competitive South Korean communications market, LG Uplus was stuck with the third largest market share for quite some time. According to LG Uplus’ former CEO Lee Sang-chul, “We needed a new breakthrough to change up the market. We realized that video was the answer.…. At the time, no one was providing a good video service. So, we decided to ‘do video well’. Five years later, we know that was the right decision.”

By bundling video and LTE services, LG Uplus shook up the South Korean telecom market, increasing its market share from 17 percent to 21 percent, and boosting ARPU from US$25 to US$36. “We didn’t do video because we already had LTE. We deployed LTE because we wanted to do video services,” says Lee. “So, when we rolled LTE out commercially, we also developed video services. We developed HDTV, built a large cloudified system for video services, and developed U+Box. We also brought video call services to market at the same time as rolling out LTE.” 

Lee is confident that video services will bring more users and higher ARPU, and thus better returns.  

Sichuan Telecom: Multiple paths

Sichuan Telecom took another path with its 012 strategy, setting different tariff packages for bundled broadband, IPTV, landline, and mobile offerings. At the same time, it positioned video as its top strategic priority, making it a basic service and using it as the basis for transforming its organizational structure. 

In June 2013, Sichuan Telecom’s IPTV subscribers hit the 1 million mark. Then, after implementing its 012 and video strategies, the carrier entered a period of rapid subscriber growth. By June 2015, its subscriber base had swelled to 6 million, increasing by 330,000 a month. By the first half of 2016, the figure had jumped to 9 million. Its video strategy massively expanded its share of mobile subscribers, increasing its market share by 7.3 percent in just three years.

Content and experience turn the key

The opportunities offered by video services are tempered by their complexity. In addition to network capabilities, operators must consider many other factors, especially content and experience.

Content: According to Digicel’s Quinn, “New content is being produced every day in different ways and forms – OTT content, user-generated content (UGC). It’s not easy to keep up…As operators, we have to make tough choices when it comes to content.” At the Ultra Broadband Forum in Frankfurt in September 2016, attendees voted on “which video service will contribute most to overall service growth.” The top choice was premium video, which includes SVoD, TVoD, and premium linear TV. Second was UGC. B2B video services like security and third-party video applications came in third, and fourth was video communications such as mobile calls, home video, and remote video.

Producing video content requires many different players plus complex upstream and downstream relationships. For example, are operators’ relationships with OTT providers competitive, collaborative, or both? Should they produce their own content or work with other players? There are no standard answers. The choice should be made based on the operator’s unique circumstances and market environment.

Experience: User experience is a key driver of growth. Research shows that users will switch off a video if there’s a two-second delay in loading. For every second that a video is loading or frozen, the viewer churn rate increases by 6 percent, and 35.2 percent will switch off if a video freezes. Channel switching time of more than 1 second can lead to user complaints, while less than 0.6 seconds will deliver an immersive viewing experience.

Alongside positioning video as a basic service, operators need a set of systematic cross-screen, cross-network, and cross-service evaluation criteria to measure video experience by monitoring parameters such as latency under a unified evaluation standard, so operators know what to improve. 

Equally, content and experience are crucial for developing video services; however, operators need to devise strategies that suit their unique circumstances. They can then reap the rewards that video promises.

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