European Research Update

New Roles for Service Providers

by Tricia Parks | Jul. 1, 2012

At the end of 2011, about 583 million households worldwide had broadband service, representing 31.7% of all households and 88.3% of Internet households. Europe had over 155 million broadband households at the end of 2011, representing over 30% of broadband households worldwide. Germany is Western Europe’s largest broadband market with over 26 million homes subscribing to broadband services and a penetration rate of over 66%.

In the U.S., approximately 71% of all U.S. households will have broadband by the end of 2012.

As broadband penetration approaches saturation levels in developed countries, operators’ revenue and subscriber growth rates are adversely affected, and these service providers are anxious to compensate. Value-added services, spanning such categories as entertainment, technical support, home management, energy services, and healthcare, have become an important part of their strategies. Each one offers a unique value proposition, and service companies view these services as means to retain customers and build future revenue growth.

VIDEO

Video is often the cornerstone of operators' plans. They are following the trend of connected CE adoption and usage. For example, 40% of Italian and 31% of Spanish tablet owners watch movies on their tablets at least weekly. By extending video services to any screen in the house through multiscreen services such as TV Everywhere, operators hope to counter the threat of over-the-top (OTT) services while opening new monetization opportunities.

The availability of TV Everywhere services will increase to more than 110 million Western European and more than 25 million Eastern Europe pay-TV subscribers by 2016. The number of pay-TV operators offering multiscreen TV services in Western Europe will grow from approximately 29 at the end of 2011 to about 66 pay by the end of 2016.

MUSIC

While download services have dominated digital music services, subscription models are gaining momentum due to consumer adoption of mobile and connected CE with improved discovery and streaming options. Early successes in operator-provided music services have been in Europe, from Danish broadband provider TDC; France Telecom, under the Orange brand; and Telia. In the U.S., Verizon has partnered with Rhapsody to create its V CAST Music offering.

GAMING

Many providers have experience offering gaming services, with companies including AT&T, Verizon, Orange, and Telstra offering casual games as a core element of their offerings. There are many benefits to providers in offering gaming. The service has broad appeal, with an opportunity for bundling and as an enhancement to established business models. For example, TELUS offers a free Xbox 360 to fiber high-speed customers who sign a two-year service commitment, and the game console can be used as a set-top box for additional services.

THE CONNECTED HOME

Home systems, security, and management products services are converging into connected home systems, thanks to standards and open protocols, which are removing barriers to entry. In addition, proliferation of connected CE is creating new options for interfaces, reducing equipment costs. As a result, diverse players such as Verizon, Comcast, AT&T, and ADT Security are all pursuing their own IP-based connected home strategies.

Broadband providers in particular recognize a nearly unprecedented opportunity to establish a dominant role for IP connected home management bundles at home. Parks Associates' Technology Enthusiasts & Adopters of Energy Management, part of the research firm's Home Energy Management service, reports 65% of U.S. broadband households rate at least one security or energy value-added services as highly appealing.

Each service offers a different value proposition as well as unique challenges, so bundling is an important strategy to capture consumer interest. Offering energy monitoring and home security and monitoring services together addresses over 40% of the U.S. market. Adding options such as appliance management and remote access and control creates a service offering that appeals to 50% of the market.

These services also promise new monetization opportunities, especially as margins for video services get slimmer. Recession, diffusion, and OTT competition have all impacted pay-TV services in the U.S., which dropped to a CAGR of 1.9% in 2009-2012, with Parks Associates forecasting only a modest improvement of 2% CAGR in the near term. By contrast, the CAGR for connected home system bundles, including just home security systems and home control systems without including single product offerings with fee-based services, exceeds 25% from 2011-2015.

2012 ANNOUNCEMENTS

AT&T Digital Life, a new division of AT&T, announced its Digital Life monitoring and automation platform in February 2012 at the Mobile World Congress. This offering is available under license to international service providers outside the U.S. The offering debuted in the U.S. in May 2012, with announcements at multiple events, including CONNECTIONS™ at TIA 2012. According to AT&T, the platform will address multiple segments, including aging-in-place, energy management, and security, with a scalable design capable of growing based on consumer demand.

Lowe’s announced Iris, a monitoring and home automation system based on the AlertMe platform, in 2011, with launch scheduled for the third quarter of 2012. As with AT&T, Lowe’s Iris will integrate multiple product categories, such as locks, lighting controls, energy management devices, and IP network security cameras.

These two players have tremendous reach into the consumer market, and their entry will have ripple effects in multiple markets throughout the connected home market.

As a result, the U.S. market for residential energy management & home security technologies, deployed by utilities, service providers, or retailers, will exceed 60% of all households by 2022.

Parks Associates will host CONNECTIONS™ Europe, 13-14 November, in Amsterdam. The conference addresses new partnership opportunities for operators and utilities, the rising demand for services beyond entertainment, and growth and monetization strategies for OTT and multiscreen services. www.connectionseurope.com




Tricia Parks

Tricia Parks

Chairman, Founder, President, and CEO

Tricia Parks is the founder, chairman, President, and CEO of Parks Associates, a market analyst and research company dedicated to providing meaningful information and counsel to companies offering technology-based products aimed at improving people's lives. She presents worldwide on consumer trends, market requirements, and industry structure, with an eye to meshing visionary and progressive ideas to consumer needs and wants.

Parks Associates hosts CONNECTIONS™, an international conference and showcase for the digital home hosted in the U.S., and CONNECTIONS™ Europe, hosted in Europe and focusing on market opportunities for digital products and services in the many nations of Europe. Tricia Parks also developed the Relevancy Theory, a forecasting model for sales across a broad range of digital electronic products and services.

Tricia has served on a variety of industry boards including CEA's Home Networking and Information Technology division, the National Research Council's Committee for a Partnership to Assess Technology for Housing (PATH), the AMD Board of Global Consumer Advocacy, and CABA. Tricia Parks has a BA from Sweet Briar College and graduate studies from the University of Texas.

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