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Author: Dan Bieler
Over the last few days Deutsche Telekom and Kabel Deutschland have both entered a new phase in the development of triple-play offerings. Deutsche Telekom launched T-Home, with package prices between €60.84 and €90.84. Kabel Deutschland announced further details concerning its triple-play roll-out, which has a range of packages between €30 to €60.
Comment: This morning we visited several T-Punkte, Deutsche Telekom's retail outlets, to see whether the T-Home triple-play offering really has hit the shelves. Compared to our last visit in August (when T-Home was supposed to be launched) when we found no sales staff that was aware of any triple-play offering, the situation has changed dramatically. We found well-trained and competent sales staff, capable of taking us through the offering. There were even demonstration points.
The triple-play offering comprises service elements such as video-on-demand, flat-rate broadband access and telephony, about 60 free TV channels, additional pay-TV packages, time-shift and video-recording facilities. The T-Home set-up looks very interesting. Crucially, Deutsche Telekom has managed to secure a wide range of content offerings, including several major film studios. But in our view, the service relies on the value-added services, because it remains cheaper to buy broadband access, voice and TV services separately.
At this stage Deutsche Telekom has rolled out its VDSL-based T-Home offering in about ten urban areas, covering about three million households. The plan is to add another 40 cities to bring the coverage up to six million households - assuming demand exists for the triple-play offering. In total, Deutsche Telekom committed about €3bn in capex for the project - more than double the annual capex spend on its entire domestic fixed network. And of course there is the ongoing issue of Deutsche Telekom demanding a regulatory holiday for its VDSL network. We do not expect an imminent resolution to this regulatory discussion.
Deutsche Telekom's T-Home offering does not come too early. Kabel Deutschland committed to spend €500m to upgrade the return paths of its cable network to support triple-play offerings. The target is to be able to offer triple play to nearly 100% of its 10m subscribers by the end of 2007. The additional capex spending must be good news for equipment vendors such as Alcatel and Siemens - but only if demand for triple play ramps up.
But we remain cautious as far as the return on investment for triple play offerings is concerned. Given the 'bundled' nature of the triple play offerings, it is difficult to compare the new offerings with a traditional business case. However, we believe that the additional profits that can be generated from the additional capex spend per household necessary to enable triple play might be rather small.
Triple play has truly arrived in Germany, with several competitors in the ring. No doubt, pricing pressure will ensure better deals going forward. We feel that it will take time to attract subscribers to these offerings, not least because most households in the target areas already subscribe to the individual service offerings. Thus success depends to a great extent on how much value users place on the value-added service elements that triple play brings.
But ultimately, triple play still looks like a defensive play, whereby operators try to defend their turf against enticing offers 'from the other side'. Telcos defend 'their' telephony customers and cable operators 'their' TV customers. In the long run, users might take matters into their own hands by using the IP infrastructure in a more confident way. The rise of Skype, YouTube and MySpace might be only a prelude for things to come.
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