There has been a lot of talk in the last year about Sky TV’s dominance of the Pay TV market, with many people concerned about their businesses practices around exclusivity of content and pricing. Whether or not you agree on Sky being evil, they’re ultimately the main source of entertainment for many NZ homes, and many people can’t wait for the day they face some competition and have a choice of Pay TV providers.
What if I told you that Sky’s competition already existed? That’s right. With the purchase of TelstraClear, Vodafone is sitting in a prime spot, ready to engage in a war with Sky TV if they so desire.
TelstraClear was formed with the merger of Telstra New Zealand and Saturn Communications. Saturn Communications started it’s life as Kiwi Cable and deployed a cable TV network on the Kapiti Coast before expanding into Wellington, and later Christchurch. Expansion into Auckland was stopped by politics – in particular the NZ Herald who did an an amazing job ensuring that TelstraClear were not allowed to deploy their network in Auckland. This ensured that Aucklanders were subjected to the early 2000’s monopolistic practices of Telecom rather than being given freedom of choice when it came to fixed line phone and internet providers.
On the Kapiti Coast, Wellington and in Christchurch, Saturn Communications deployed what is known as a hybrid fibre co-axial network, or HFC for short. This network also has a traditional copper network for phone services that was rolled out alongside the HFC network. The network has a fibre to the node (FTTN) architecture consisting of both fibre optic and coaxial cables, with fibre carrying data to node (the roadside cabinet) where it’s converted to a radio frequency (RF) signal and then carried over the coaxial cable to your home. Each cabinet will typically cover several hundred homes.
Inside your home the co-axial cable is connected to your set top box (STB) which uses the Digital Video Broadcasting over Cable (DVB-C) standard. This is very similar to the DVB broadcasting standards used for terrestrial (DVB-T) and satellite (DVB-S) broadcasts used by Freeview and Sky. In it’s early days Saturn Communications sourced much of it’s content independently, but lacking a sport offering meant it made sense to partner with Sky, ultimately resulting in TelstraClear essentially just reselling Sky TV over it’s network.
Now that you’ve grasped the basics I’ll now explain why Vodafone’s acquisition of TelstraClear was a smart move. Not only did it give them a fixed line network and a nationwide fibre network, it also gave them New Zealand’s most advanced internet protocol (IP) playout system for TV. Every customer watching TV via their Vodafone STB is actually watching content that started it’s life in the Vodafone network as an IPTV stream, however rather than being IP all the way to your home, it’s converted to RF to be carried over the co-axial cable. Since the signal is digital all the way, no loss of quality occurs along the broadcast path. What is important however is that every channel they offer already exists in an IPTV format within their network, meaning it can easily be delivered over any IP delivery network anywhere within New Zealand.
Those of you with a T-Box will have spotted the Ethernet port on the back that is currently only used for electronic program guide (EPG) updates. This Ethernet port is also cable of being the source of all content, with IPTV content either live or on demand streamed directly to your T-box with no requirement for the HFC network.
It doesn’t take a smart network engineer to realise that broadcasting high definition content over the internet currently is an exceptionally inefficient use of bandwidth and that both terrestrial and satellite do a far better job of this. In the xDSL world where speeds are limited by your distance from an exchange or roadside cabinet and your internal home phone wiring, delivering IPTV content is something fraught with potential issues. Just on 84% of NZ premises have access to broadband speeds of 10Mbps or greater, with around 50% of those having access to VDSL2 which will deliver average speeds of around 35Mbps downstream and 10Mbps upstream. When you consider that a single 1080i Full HD broadcast TV channel broadcast over terrestrial or satellite uses up to 10Mbps, you can already see the issues that are faced. Those issues are solved by the current rollout in New Zealand of ultra fast broadband (UFB), with the construction of a fibre optic network to 75% of New Zealand homes and businesses already underway and due for completion by 2019. With fibre speed no longer becomes an issue, and a home could easily have several STB’s streaming 1080i HD content with no need to worry about it significantly impacting their internet experience.
As the UFB network rolls out Vodafone are in the prime position to take advantage of the IPTV revolution. While the T-box may have had a chequered past with numerous software issues, it’s now a relatively stable product. More importantly however, the IP based playout system that Vodafone now own gives them a massive head start over anybody else contemplating such a product. Building such a system isn’t cheap.
Now that I’ve given you a technical rundown of delivering IPTV, you’re probably going to ask where the content is. This is the question everybody is asking, but the answer is quite simple. It’s already there. Vodafone already have an existing resell agreement with Sky that allows them to rebroadcast Sky content, along with sourcing several additional channels not carried by Sky. What needs to be remembered is that much of this content is not exclusive to Sky, and anybody who wants to rebroadcast many of the channels carried by Sky is free to do so providing they’ve got the money to pay the content owner. There is realistically very little in the way of Vodafone deciding to go it alone and acquire rights to somewhere in the vicinity 80% of the content that Sky offer – with one notable exception – sport. This very much puts the ball in Sky’s court (literally). Sport is very expensive to produce and it’s not clear if Sky actually break even on revenue from their sports channels or whether they are cross subsidised. If Vodafone went it alone without a sports channel they’re only going to have limited success in the market, but the effect on Sky could be significant. Would Sky then do the smart thing and resell sport to Vodafone? Or would they simply hope that sport is a big enough selling point to ensure differentiation in the marketplace? My money is on the former. I’d also put money on Vodafone allowing their IPTV service to in effect be bundled by other internet providers, ultimately putting them head to head with Sky, and hopefully delivering us a future with a much greater choice of content, both live and on-demand.
UFB’s going to mean an exciting future in the NZ marketplace…
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Comment by kawaii, on 18-Jul-2013 01:00
Ideally what I'd love to see are two things:
1) Telecom to buy out Sky TV and offer bundles as well as 'cable television' down the UFB that is being rolled out nationally.
3) For 2 Degrees Mobile to become a full service telecommunications company and expand their existing network so that there are three full service telecommunication companies in NZ to spur on some real competition in the market.
Comment by kiwitrc, on 18-Jul-2013 09:39
I only know one person with Sky that subscribes for something other than sport (my mum). What makes this even more difficult for Sky is that my friends have sky for different sports, some for the NRL, others for the Rugby etc, losing even one of those would have big impact on profitability I would think.
Personally I hope Sky keep the sport as I have a holiday place and cant get internet (and wouldnt want to) to watch the odd game I want to see.
Comment by foamfollower, on 26-Jul-2013 15:21
Excellent explanation Steve. I subscribe to Sky, but would love to see a shakeup. It is going to be interesting to see how Sommet Sports go - I didn't realise how much sport Sky does not have rights to.