Technology is increasingly about mobility and choice, but there is a balance to be met

Guy BissonBy Guy Bisson, Research Director, Television at IHS Electronics & Media

Now there is a new word for people who break off from a social interaction to answer a mobile phone or browse social media: Phubber, meaning mobile snubber. Vodafone has built a £46bn a year business on the back of mobile telephony. With the rise of tablets, national Wi-Fi networks, Apps, 4G auctions and Cloud access, its services are at the cutting edge of the emerging media consumption trend. Why, then, is Vodafone bidding for a major cable operator in Germany where analogue TV still reigns and uptake of broadband and telephony among its customer base remains low? If the future is on-demand, on the go, what exactly does Vodafone see in this wired asset?

Much has been made of the cost savings Vodafone will make by using Kabel Deutschland’s fixed line infrastructure instead of leasing capacity from Deutsche Telekom, but do the touted savings of €200m a year justify on their own the €7.7bn deal, or is there something else to this transaction?

pie chart for guy bissons postOne thing is clear. Vodafone’s interest in cable is a vote of confidence in the cable business model. And more than that, it is a vote of confidence in the way that cable has positioned for the future of entertainment. A future at which television remains centre stage, but in which broadband (and increasingly mobile) take near equal billing.

Let’s take a step back. We all know people who seem to spend their lives glued to a mobile device. People who would rather walk into a lamp-post than lift their gaze from the mobile screen. But the average European spends nearly four hours of every day watching a much larger screen: the television. Video entertainment in the home is by far the biggest segment of consumer entertainment spend. IHS figures show that paid multichannel TV accounts for 64 per cent of Western Europe’s €52.5bn consumer-level spend on screen entertainment. Further, the average revenue generated by a TV customer in Europe has grown almost continually year-on-year, something that is astounding, indeed puzzling, to a pure-play telecoms company used to increasing commoditisation in fixed line.

Cable companies themselves have long been involved in the telecoms business, investing heavily in broadband technology to deliver some of the best cost-to-speed ratios in Europe and maintaining revenue and ARPU growth in the face of increasingly intense competition for television customers. The cable business and the telecoms business have long been bedfellows then , but it is where the two industries meet that the exciting opportunities exist. At this edge, lies the future. This edge is the Event Horizon of entertainment. Today, cable finds itself perfectly positioned and it is this future that Vodafone will be buying into.

Without cable infrastructure, Vodafone would struggle to participate fully in the entertainment landscape of tomorrow. While the device and mobile access are essential, and while 4G provides fast broadband on the move, delivering entertainment content is something that cable infrastructure is far better suited to. Cable, too, is well versed in the multi-product bundle, tying together a diverse range of entertainment and communications services that ten years ago could have seemed like slightly awkward juxtapositions but today form the axis for all entertainment in the home.

Cable operators like Liberty Global, Com Hem, and Virgin Media have shown the power of the bundle, not just for revenue and ARPU upside, but in using advanced set-top boxes to create a home entertainment hub; port entertainment to multiple devices on-demand; and begin to take the TV experience outside the home. While box-based products like Horizon and TiVo are now familiar to European cable users, these will increasingly become cloud-based, delivering entertainment to mobile devices both inside and outside the home. Suddenly the value of a next-generation mobile network combined with broadband cable infrastructure starts to look attractive and takes cable quad-play beyond the low-margin world of today’s MVNOs.

Vodafone is betting on more than the cost-savings access to a fixed line network will give it. Its bid for cable infrastructure represents a vote of confidence in the cable plan and the strategic direction that the major cable operators have been taking for more than a decade. That plan has encompassed network consolidation; investment in DOCSIS 3.0 for next generation broadband; delivery of digital TV as a core service; investment in multiscreen delivery; and now Wi Fi network roll-out for entertainment and data on the move. Make that combination and you have a proposition that is pretty hard to snub.

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