Increasingly service providers are pursuing a larger share of consumers’ wallets and are doing so by selling a bundle of services. Rather than selling their traditional services, voice or cable, providers are crossing over to sell a full set of services including voice, video, and data. This "triple play" of services is also becoming increasingly attractive to consumers who are interested in the convenience and cost savings that are available through such offerings.
According to In-Stat, total consumer spending on communication services, including local voice, long distance, cable TV, dial-up, and broadband was $114.8 billion in 2004. The largest revenue opportunity of this total wallet was voice services, with local and long distance combined accounting for more than 50 percent of revenues. Over time, service revenues are expected to deteriorate, falling to $106.7 billion in 2009. This decline in revenues is a factor of decreasing revenues for the voice services as well as dial-up, while both cable TV and broadband services are expected to continue to rise.
Based on a recent Consumer Telecom Survey, 35 percent of respondents were currently buying two or more services as a bundle from a single provider. The most common service bought in some type of bundle was local phone, followed by long distance and Internet. Only 32 percent of respondents purchased cable TV services as a part of a bundle. This suggests that cable providers have been less successful in selling bundles in general as compared to the telcos. However, only 5 percent of respondents purchase satellite as a bundle (satellite being the typical video offering in the telco triple play), which suggests that telcos have been less successful in selling the full triple play of services.
In its consumer telecom survey, In-Stat found that the incidence of purchasing services increased with income, as did the incidence of purchasing those services as a bundle. While 23 percent of those with incomes under $25,000 bought services as a bundle, in the higher income groups this rate more than doubled to 47 percent. The higher incidence among higher income respondents could be a factor of these constituents purchasing a wider array of services, thus increasing the likelihood that several of these services are purchased as a bundle. Lower income respondents may not subscribe to as wide of an array of communication services and thus may be less likely to purchase the fewer services together as a bundle from the same provider.
While consumer spending on core communication services is declining, there continues to be several areas of opportunity in the residential market. According to In-Stat, over the next several years, consumers will spend less on most core residential services, including local voice, long distance, and dial-up. The two opportunities for revenue growth appear to be broadband and cable TV, both of which will witness climbing revenues over the forecast period. In-Stat also found that adoption of services and revenue opportunity varied significantly by an individual’s household income. In general as household revenue increased, so did penetration levels and monthly ARPU for the various services, as did the potential to sell multiple services to that household. Differences in utilitarian services, such as local voice, were less significant compared to luxury services such as broadband.
The SOHO/consumer WLAN equipment market is becoming an increasingly difficult environment in which to compete. While shipment volumes have increased strongly since Apple first launched its AirPort line of 802.11b-compliant consumer WLAN gear in 2000, prices have eroded sharply over the past several years, and In-Stat believes that few vendors are making much money in this market segment at present. In 2004, the top three vendors by market share were Cisco’s Linksys consumer products division, with roughly a third of AP unit shipments (including wireless routers and wireless Residential Gateways), D-Link at about a fifth and Netgear at a little over 15%. The top three vendors represented two-thirds of AP unit shipments in the SOHO/consumer WLAN market. Other key vendors included Apple, Belkin, Buffalo Technology, and SMC.
We still expect shipment volumes to increase strongly over the forecast period, driven both by growing broadband adoption as well as increasing use of home networks. Importantly, WLAN equipment will increasingly be used to network consumer electronics devices as well as VoIP communications. Several SOHO/consumer WLAN equipment vendors have introduced audio and multimedia WLAN media adapters, including Linksys (e.g. Wireless-G Media Center Extender), D-Link (e.g. MediaLounge DSM-320 Wireless Media Player), Netgear (e.g. Wireless Digital Media Player), Apple (the AirPort Express includes audio connectors), Buffalo Technology (e.g. LinkTheater High Definition Wireless Media Player) and SMC (e.g. EZ-Stream Universal Wireless Multimedia Receiver). Likewise, we expect that dual-mode WLAN/cellular telephony will gain significant traction in the consumer market starting in 2007.
A key market shift is the transition from the 802.11g air standard to MIMO-based products. In 2004, 802.11b and 802.11g effectively switched places, in terms of percentage of total market shipments, with 802.11b falling from 63% of total SOHO/consumer AP shipments in 2003 to only 30% in 2004. Likewise, 802.11g shipments increased from 34% in 2003 to 69% in 2004. However, unlike with the enterprise WLAN market, we do not believe that 802.11a/g is gaining traction in the SOHO/consumer WLAN market, nor will it become the logical successor to 802.11g. Instead, consumers appear to be responding to the range extension benefits of MIMO-based “pre-802.11n” products. We expect that while 802.11a/g is seeing some renewed interest for its clean 5 GHz spectrum for multimedia, the market will essentially skip 802.11a/g in favor of MIMO/802.11n. When the 802.11n standard is finalized in 2006, it will not only include the range and speed enhancements seen in today’s MIMO products from the likes of Belkin, Linksys, Netgear, and D-Link, but will also utilize both the 2.4 GHz and 5 GHz spectrum, thus providing the same clean spectrum that is causing some renewed uptake of 802.11a/g. Key problems with the market adoption of 802.11a/g have been poor marketing/messaging by vendors, confusion about 802.11a/g benefits on the part of consumers, and the stubbornly high price premium for 802.11a/g equipment compared to 802.11g.
Alcatel's Triple Play Services Delivery Architecture
It was a big win for Alcatel when SBC chose the company to be the supplier of network infrastructure and service integrator for its Project Lightspeed. This choice puts Alcatel in a leading position to provide similar solutions for other ILECs planning to offer triple play (IP video, IP voice, and high-speed Internet) services on a broad scale to their residential customers. For such service providers, Alcatel has developed an end-to-end access architecture that provides the necessary bandwidth scaleablity and QoS to support triple play services to all households in a service provider’s serving area.
Alcatel’s access architecture incorporates access nodes (DSLAMs and FTTX equipment), aggregation networks (Ethernet switches and multiservice optical equipment), service edge routers (Alcatel’s 7750 SR), along with end-to-end service management. Alcatel also provides systems integration services including network design, video middleware, and set-top boxes.
The architecture introduces the 7750 SR as a “Broadband Services Router” at the service edge to separate the voice and video traffic, passing it to the voice network and video headends, while preserving the PPP connection for high-speed Internet traffic to the Broadband Remote Access Server (B-RAS). The solution uses Virtual Private LAN Service (VPLS) to provide cost-effective networking in the aggregation network from the access nodes to the Broadband Services Router for Ethernet traffic. The architecture also uses an efficient, distributed, approach for the multicasting of video to the household, implementing multicasting capabilities at the access nodes, the aggregation nodes, and at the Broadband Services Router.
This triple play architecture will be implemented by SBC, and Alcatel has also sold this access network architecture to TeliaSonera and another Tier 1 European incumbent service provider. Alcatel has put together the networking components and network design to offer a powerful overall access network architecture for ILECs that plan to offer triple play services on a large scale. In-Stat believes that they are very well-positioned to capture a large part of this emerging market opportunity.
