Telecommunications, Media, and Technology Economics

Hot Topics in Mobile TV Economics

The allocation of mobile TV spectrum, associated license, and the commercial deployment of mobile TV are of the highest priority in many advanced communications markets around the globe, and the demand for such services is widely expected to be real. A large number of mobile TV precommercial trials and market research studies have already been conducted and are still being conducted worldwide. In the UK, for instance, these studies revealed that 58 percent of participants rated mobile TV as “appealing” to “very appealing.” Similarly, a study conducted in Sweden found that 87 percent of respondents had a positive impression of mobile TV services.

Last year’s Fifa World Cup in Germany served as a testing ground for a number of pilot projects for mobile TV, which brought to light a number of issues that could hinder the prompt and efficient roll out of mobile TV services. For instance, technically the DVB(H) standard can support up to 40 channels. However, field tests during the World Cup 2006 in four German cities were only able to provide 13 channels. This, however, is more than three times the number of channels (4) currently offered by the German mobile broadcasting provider Debitel.

In a number of countries, mobile TV services have already been commercially launched or a launch is imminent. As stated above, Debitel offers services in Germany. MediaFLO-based mobile broadcasting networks are live in US metropolitan areas from Las Vegas to Chicago and various US carriers, such as Verizon, Sprint, and Cingular (now AT&T) have announced MediaFLO-based mobile broadcasting services by the end of 2007 or early 2008.

Mobile broadcasting is an essential input to portfolio competition, which is the competition for a consumer’s entire communications needs. Terms, such as “triple play” and “quadruple play” characterize today’s competitive landscape as market players are increasingly offering voice, data, and video as product bundles. Specifically, access to mobile broadcasting networks will allow mobile carriers to become stronger competitors in the “data” aspect of triple play and enable them to offer video through mobile networks in direct competition with coaxial cable, satellite, and fiber optic-based service providers.

Mobile broadcasting is also a significant contributor to the industry’s convergence, in particular fixed-mobile convergence (FMC), which is the ability to make use of both fixed and mobile communications networks seamlessly. FMC is one of the latest trends in telecommunications in many parts of the world, and many countries report double-digit growth in mobile subscribers and mobile penetration rates as high as 100 percent or more. Conversely, the value of the traditional wireline business is deteriorating as consumers are dropping their fixed lines for mobile services and other newer technologies, such as Voice over Internet Protocol (VoIP).

Mobile TV and digital video services are being introduced by operators around the globe, albeit with various levels of success. Mobile broadcasting promises to dramatically alter the mobile content value chain and the relationships between mobile operators, content producers, advertisers, and handset manufacturers. Current estimates set the number of mobile TV providers at no more than 20-million subscribers worldwide. However, demand for mobile broadcasting is expected to reach over half a billion customers by 2011, and mobile broadcasting is expected to produce revenues of 11.4 billion Euros by 2009.

The commercial deployment of mobile TV is at a crossroads. On one hand, mobile broadcasting services are expected to be the next big market application in mobile communications. On the other hand, there is widespread uncertainty concerning standards, business models, spectrum access, and content regulation, casting doubts on who will invest heavily in such an environment.

Below is a list of some of the current topics in mobile TV. Please check out my blog for updates to some of these debates.

Demand Forecasting and the Mobile TV Business Case

Not much empirical evidence exists on the description of the business model for mobile TV. In situations like these, market research lends itself as a valuable tool. In order to measure the demand for mobile TV (and ultimately the business case for it), comprehensive market research must be conducted. Specifically, a survey must be designed and conducted to:

• Determine mobile TV demand over the next 5–7 years

• Estimate market demand for different types of mobile TV services

• Assess the characteristics of the typical mobile TV subscriber, including age, income, martial status, mobile usage habits, number of potential competing devices (cable TV, mobile phone), Internet usage, and so on

• Determine the main reasons for mobile TV demand (pass time, news and information, relaxation, entertainment, etc.)

• Estimate the percentage of mobile TV services consumption at home and outdoors

• Estimate mobile TV minutes of use (MOU)

• Estimate mobile TV subscribers’ average revenue per user (ARPU)

• Asses the expectations as to mobile TV’s quality of service (QoS) and the metrics hereto

• Determine the selection criteria when purchasing mobile TV (price, QoS, product bundles, coverage, content, etc.)

• Determine whether on demand or scheduled programming is preferred (which could have a direct impact on the demand of mobile TV services)

• Determine preferred mobile TV content (sports, news, movies, etc.)

The results of the survey will then assist in evaluating the market potential for mobile TV service and the necessary support infrastructure. The survey results will provide us with direct insight on the expected demand and revenue levels of mobile TV, its proper market positioning, expected service offerings, handset capabilities, and target market. However, in order to develop a proper business case for mobile TV, we must first derive the cost of the necessary mobile TV network. This will ultimately allow us to conduct a cost-benefit analysis. The expected retail revenue from mobile TV services and the required network and content costs will provide the basis for a net present value (NPV) model that will estimate the expected profits of a licensee.

Subscriber Characteristics

In deciding on a proper strategy, mobile TV providers must have a thorough understanding of the characteristics of their target market. Who subscribes to mobile TV service? What channels do they watch? Where do they watch? When do they watch? How long do they watch? There are many more subscriber characteristics all of which are probably best assessed through a market research study.

Industry Standards

Regarding standardization, standard-setting organizations (SSOs), regulators, governments, and industry groups worldwide are debating the costs, benefits, and process of harmonizing competing mobile broadcasting standards or the setting of a single such standard. EU Telecommunications Commissioner Viviane Reding recently summarized the need for a regulatory review of mobile broadcasting standards: "With an estimated worldwide market of 11.4 billion Euro by 2009, Mobile TV represents an opportunity for Europe to combine its strength in mobile communications with the richness and diversity of its audiovisual sector. However, I am disappointed about the lack of progress made so far. To fully reap the benefits of this market and to export a European model for Mobile TV as we did with GSM for mobile phones, industry and Member States must work closely together to devise a common approach, compare technologies, look at possible legal obstacles, make spectrum available throughout Europe and choose together the best way to ensure a quick and large take-up of Mobile TV by Europeans, preferably based on a single standard. It is now time to draft the new model of Mobile TV that it needs to be economically successful in Europe."

Regulation

Spectrum is a scarce resource. Hence, in many countries, there is either only one mobile TV license or only a few, potentially leaving other firms that would have entered out of the market. In order to avoid a situation where the licensee or the few licensees obtain market power (by having a mobile TV spectrum license), regulators need to carefully address market entry barrier issues and, if necessary, implement regulatory measures to avoid a monopoly situation.

Spectrum Allocation

Much like in the days of the 3G spectrum, there are a number of debates on whether mobile TV spectrum should be allocated using a beauty contest or an auction. Auctions typically allocate the spectrum to the highest bidder(s) and thus are criticized in only taking strong finances into account. Conversely, beauty contests can afford to consider other attributes when allocating the scarce spectrum. However, evaluating such non-financial attributes and selecting the appropriate licensee(s) might be more challenging than in the case of an auction.

Want to discuss any of these topics? 

Please let me know if you would like to discuss any of these or other topics that affect the economics of mobile TV. Most of these hot topics are related and a thorough understanding of the entire industry is crucial in correctly analyzing strategy questions or legal and regulatory claims.

Interested in another topic? 

Yes, there are many other issues that affect the economics of mobile TV, but I hope to have listed the most important above. Please feel free to drop me an email if you think I have missed a current hot topic or would like me to comment on another.