Sunday, December 30, 2012

How Soon Will Video Join Voice and Messaging as a Declining Service?

Sooner or later, every legacy service offered by cable TV or telco service providers will face competition from rival services or simply dwindling demand. Up to this point the material impact has been seen most clearly only in voice, where serious financial losses have been felt for more than a decade. But disruption now is being seen in the text messaging space as well.

Globally, telecom revenue is growing. But not in Western Europe, it appears. The mobile industry’s combined revenues from voice, messaging and data services in the EU5 economies (United Kingdom, France, Germany, Spain and Italy) will drop by nearly 20 billion Euros, or four percent a year, in the next five years, and by 30 billion Euros by 2020, according to STL Partners.

The obvious implication is that mobile service providers in the United Kingdom, France, Germany, Spain and Italy will have to create new revenue streams worth 30 billion Euros, just to stay where they are, by 2020.

Though the trend is not always quite so obvious in the U.S. and Canada telecom markets, erosion of fixed network voice lines is assuming alarming proportions in some markets, including the United Kingdom.  

Some 65 percent of 500 U.K. chief information officers surveyed by Vanson Bourne on behalf of Virgin Media Business believe fixed network telephones “will disappear from everyday use within five years,” Virgin Media Business says.

Separately, analysts at STL Partners estimate that, with 2009 representing an index point of 100, U.K. fixed network voice revenues will have shrunk by 50 percent by 2014. Keep in mind, that is an estimate that use of fixed network voice lines will be cut in half in just five years.

The latest report on U.S. fixed network voice connections by the Federal Communications Commission suggests that voice connections declined three percent between June 2010 and June 2011.

Sooner or later, video entertainment services will hit a wall as well, and the price-value relationship is the problem. Every January, it seems, providers of video entertainment raise their prices, typically outpacing the rate of inflation.

For the most part, that remains the case for 2013.

DirecTV plans to increase the prices of its programming packages by an average of 4.5 percent, starting Feb. 7, 2013, a move DirecTV attributed to  higher programming costs.

The company said the programming costs it pays to owners of television channels will increase about eight percent next year, the Wall Street Journal reports.

Dish Network will increase the price of its core TV bundles between seven percent and 20 percent in January 2013, with most packages rising $5 a  month.

AT&T U-verse prices also are going up in 2013.

In 2012, Comcast, DirecTV and AT&T  raised rates as well. If nothing changes, NPD expects the average subscription video bill to reach $123 by 2015 and $200 by 2020.

Bernstein Research analyst Craig Moffett points out that, over the last five years, programming costs at DirecTV have risen 32 percent, for example.

But perhaps more importantly, those increases are accelerating, with costs rising upwards of 10 percent year-over-year. "This is a train wreck in the making," says Moffett.

Some programmers point the finger at ESPN and the other sports networks. ESPN says its prices are justified by the high ratings the network gets. Some might say sports programming constitutes as much as half of all programming expenses.

But prices, in relationship to value, are becoming a bigger problem.

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