Convergence' is misleading word, conjuring the idea of a painless coming together. Nothing could be further from the truth in high-tech. What's unfolding now between telecom, media, software and electronics resembles not so much a convergence as a high-impact collision.
The collision, when it comes, it will take place around the TV set.
Now that the Americans have discovered IPTV, the pace of the contest is picking up. AT&T and Verizon, the two biggest US telcos, have launched service, with AT&T planning to spend $4.6 billion in the next two and a half years.
IPTV is the obvious growth prospect for broadband telcos. Today, five million watch IPTV worldwide, the vast majority in Asia and western Europe. Predictions vary, but the growth paths are impressively steep: up to 53 million by 2009, says Infonetics, 42 million by 2010, according to Pyramid. IDC sees compound growth of 89% from 2004-10 to 29 million for Asia ex-Japan.
Pyramid Asia-Pac senior analyst Marc Einstein says the sweet spot is where broadband is strong and pay TV is weak. That explains the takeup in Hong Kong, Singapore and Japan. It also means telcos will have it rough in the US, Taiwan and Germany.
The beauty of IPTV is it plays multiple roles for telcos. Its first is to cut churn and pump up ARPU in the face of declining voice revenue. The pioneer Asian broadband providers have gone through that and are moving onto the next stage, which is to catalyze other revenue streams.
First they must figure out where they fit in the value chain: in particular, how heavily involved will they be in content acquisition and creation‾
PCCW, for one, sees it as a path to the media business. Chairman Richard Li has spent $100 million on kitting out a new 24-hour business channel in addition to the 24-hour regular news channel already playing. Separately, he has bought a local business paper, the Hong Kong Economic Journal.
That's not a strategy everyone would endorse. There's a difference between making news and TV programs and in delivering them. It might pay off for PCCW, but it will certainly involve a lot of hits and misses.
Telcos need to play to their strengths: their customer base and their trusted customer relationships, their customer care and technical support, and their strong middleware capabilities - their ability to do third-party billing, for example.
Those are assets that challengers like Microsoft, Sony, Alcatel and Cisco don't have. However, vendors do have the networking, SI and software skills that telcos need. So it's a partnership game, but carriers must think carefully about the business before they forge new partnerships and new directions.
Pyramid's Einstein advises telcos to focus on broadband, not TV. They need to see TV as an application that generates broadband revenue and maintains customer loyalty. But - PCCW excepted - it's not a telco business. Instead, they should start from the user experience.
It's not about the technology. Judging from some of the presentations at Broadband World Forum Asia two weeks back, not everyone grasps this.