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Digital Home - Understanding the consumer in the new converged world

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					Industry Views




Convergence Monitor

The Digital Home

Understanding the consumer in the new converged world*
                             Contents

                             03   Executive summary


                             04   Global and regional trends


                             13   Conclusions


                             17   Recommendations


                             18   Methodology


                             19   Contacts
                                  Related PwC publications




   PricewaterhouseCoopers
Executive summary                                                                                                        01
More and more                             years to come. Such a focus means
                                          knowing your customers, offering them
communications and                        the best experience as customers,
media companies are                       making sure your organisation truly
                                          listens to customers while having the
pushing forward with their                agility to react quickly to their changing
triple- and quadruple-play                expectations. Those companies able to
strategies. Enabled by                    harness this approach almost certainly
                                          will be the winners in a competitive and
the growth in broadband                   increasingly complex marketplace.
and Internet Protocol (IP)                For this survey about the digital home,
technologies, new players                 our first global Convergence Monitor
                                          survey, PricewaterhouseCoopers
are intensifying competition              surveyed 8,000 of our employees in
and the fight for revenues                17 countries.
as the market moves                       As we talk about consumers throughout
toward lower prices.                      the report, we stress that we are
                                          referring to our survey population as
For consumers, the possibilities          opposed to the general population of
are endless—an unprecedented              consumers at large.
explosion of choices and new services
where they can call the shots. Often      Our survey reveals savvy, security-
they can access content anywhere,         conscious consumers whose familiarity
anytime, on any device. They can          with and usage of converged services
entertain themselves and others and       and technologies are well established
communicate with each other and           and set to grow quickly.
with content and service providers in     They are users of voice over IP (VoIP)
whole new ways. They can customize        who turn to their mobile phone instead
anything, from their music playlists to   of their traditional fixed voice line at
their television line-ups. They can use   home. In the new converged world,
Weblogs, create their own content,        these consumers are using the Internet
and share that content on a growing       as a place not only to surf or shop, but
number of social networks. All this       also to meet people, interact, and build            Customer focus
points to a consumer who, increasingly,   their social networks. Consumers are
has the power to influence others, the    willing to pay a premium for certain                may very well
organisation, and the marketplace.        content, based on quality of experience
                                          and specific lifestyle interests as well
                                                                                              be the key
For the organisations that provide the
content and distribution services, the    as customer service enhancements.
                                          At the same time, they are looking for
                                                                                              differentiator in
growing complexity of their businesses
is driven by new revenue opportunities,   price-competitive, bundled offerings                the months and
                                          for increasingly commoditised services
cost pressures, and a need to be much
more transparent while developing         such as voice communications.                       years to come.
offerings to meet consumer demand.        The survey provides more details
Capturing the potential within the        concerning such trends and
complexity requires a new marketing       developments, informs readers about
approach and a new mind-set, both         existing and emerging consumer
reflecting the new expectations of        preferences, and prompts us to ask
consumers.                                ourselves the questions: What does
Customer focus may very well be the       the behaviour of this consumer tell me
key differentiator in the months and      about my current strategy? Am I part of
                                          the conversation with the consumer?



                                                                                       Convergence Monitor: The Digital Home   3
0              Global and regional trends

Broadband penetration: Deep and growing




                                                                                                84%
According to PwC’s Global                         The penetration of high bandwidth
Entertainment and Media Outlook:                  connections is specifically relevant in a
2006–2010 (The Outlook), the number               ‘triple-play’ context (with TV distribution
of broadband households, globally, in             requiring speeds of at least 8Mbps and
006 stood at 33 million and is set to           above). From an operator perspective
almost double by 010.                            this reflects the fundamental change
Our Convergence Monitor survey found              in communications infrastructure,
a high global penetration of broadband,           moving to all-IP scenarios. From a
with some 84% of respondents having               consumer perspective, the survey              Respondents who
a high-speed connection at home                   leads us to expect that the growing           have a high-speed
(see Figure 1). Penetration varies to an          interest in downloading digitized music,
extent across regions, with the United            movies, and other bandwidth-hungry
                                                                                                connection at home
States, at 90%, showing the highest               applications, such as gaming, will
rate. Broadband adoption is still rising          further increase demand for higher
across the board and is most popular              bandwidth beyond entry market speeds.
with the 16-to-34 age group. Bandwidth
of the broadband connection is rapidly
developing as operators upgrade and
switch to next generation platforms,
thus enabling the user access to high
bandwidth content and applications.




Figure 1: Broadband penetration rates

  %
100



80



60



40



20



    0
        Asia Pacific    EMEA      Latin America     US        Grand Total

               Current broadband usage     Planning to use broadband


4       PricewaterhouseCoopers
                                                                                                    0
                     Consumers’ preferences: Changing

Mobile phone         Consumers are looking to alternative
                     and convenient means of voice
                                                                 This indicates that these consumers
                                                                 are “cutting the cord” and relying
usage is heavily     communication through combinations
                     of fixed line, VoIP (either those that
                                                                 completely upon their wireless devices
                                                                 at home.
saturated with       are free, such as Skype, or those           In addition our survey reveals that
                     being offered by the Internet service
all regions in the   providers), and mobile.
                                                                 one-third of all respondents globally
                                                                 have used VoIP at least once. Usage is
survey having        Mobile phone usage is heavily
                     saturated, with all regions in the survey
                                                                 more prevalent among the younger age
                                                                 groups, with -to-34-year-olds being
penetration rates    having penetration rates of more            the heaviest users (see Figure ).
                     than 96%. Thirty-seven percent of
over 96%.            respondents do not have a fixed line,
                     and of these 97% have a mobile line
                     but only 1% are using VoIP. We also
                     found that younger age groups are less
Consumers            likely to have an additional fixed line
are looking to       for voice (half of all respondents in the
                     16-4 age category do not have a fixed
alternative and      line).

convenient
means of voice
communication.



                     Figure : Current usage of VoIP

                     By age

                          %
                     35
                     30
                     25
                     20
                     15
                     10
                      5
                      0
                              16-24      25-34         35-44     45-64




                                                                   Convergence Monitor: The Digital Home   
0              Global and regional trends

The convenience of multiplay




                                                                                                4%
In recent months, the market has seen               service accessed, the type of delivery
an abundance of multiplay bundles                   device (TV, personal digital assistant,
launched with ranging services.                     or mobile phone), the charging
We found that 4% of respondents                    mechanism, revenue-share partners
take their TV, Internet, mobile, and fixed          and amounts, licenses/royalties due,
voice services from only one or two                 and billing on behalf of advertising and
suppliers.                                          other relationships. Operators also will
                                                    have to address the tension that always
Among the notable regional disparities,             exists between providing convenience,       Respondents who
% of Latin Americans take their
services from one or two suppliers
                                                    by combining billings, and the “sticker     take their TV, Internet,
                                                    shock” that consumers experience upon
as compared to 48% across EMEA.                     seeing the total price they’re paying for
                                                                                                mobile and fixed voice
Also, it appears that the youngest                  their communication services.               services from only one
demographic group in the survey                                                                 or two suppliers
responds more favourably than other                 Our survey supports the notion
groups, with 49% of 16- to 4-year-                 that customers are looking for the
olds having one or two providers.                   convenience of a single bill for multiple
                                                    services when they buy from a multi-
The one-bill approach                               play supplier: globally, 67% support        Customers are
                                                    one bill for telephony, Internet, and
A trigger for migrating to an integrated
(multiplay) offering is the convenience
                                                    TV (see Figure 3). The survey also          looking for the
                                                    indicates that customers are willing
of receiving a single bill for all multiplay
                                                    to pay US$.0 to $4 more for the           convenience of
services.
In recent years, operators and media
                                                    convenience of a single bill, triple-play
                                                    service package.
                                                                                                a single bill for
companies have introduced a multitude
of billing and payment plans to their
                                                                                                multiple services.
customers—pay-per-minute, bundles,
subscriptions, pre-pay, per download,
per megabyte.
While convergence offers the chance
of simplicity through one bill to the
end user, operators will have to be
able to track the game played, the
video viewed, the specific on-demand

Figure 3: Preference for a single bill

    %
80


60


40


20


 0
        Asia Pacific   EMEA     Latin America    US      Grand Total

                              Strongly agree or agree

6       PricewaterhouseCoopers
                                                                                                                                 0
Security and complexity: Remaining a concern

Consumers are apprehensive about                Figure 4: Importance of trust in service provider reliability
such issues as reliability, security, and
                                                  %
complexity.
                                                100
Topping the list of factors that influence
choice of service providers is “trust           80
in the service provider’s ability to
provide a reliable service,” with 87% of        60
respondents either in strong agreement
or agreement. (See Figure 4.)                   40

Security of personal data is clearly
                                                20
an issue for consumers. When asked
whether they were “concerned about                0
the security of personal information on               Asia Pacific EMEA Latin America      US      Grand Total
the Internet” (e.g., being lost, stolen or                            Strongly agree or agree
hacked), 80% agreed with this statement
(see Figure ).
Apprehension about this issue may
                                                Figure : Concern about security of personal information on the Internet
limit the extent to which consumers use
the full range of Internet capabilities—          %
although, looking at broadband                  100
penetration, it does not stop them from
                                                 80
going online. However, the security issue
may be a differentiator for providers
                                                 60
offering services such as e-commerce.
At the same time, some 34% of consumers          40
worry about the complexity of the Internet
and some devices, hardware and software,         20
i.e., PC set-up and modem hook up to
the Internet (see Figure 6). An integrated        0
                                                      Asia Pacific EMEA   Latin America   US        Grand Total
service offering is bound to add to the
perceived complexity of the service. So                               Strongly agree or agree
there is an opportunity for service providers
to offer quick and easy installation.
                                                Figure 6: I find the Internet and some devices, hardware and software
Our Convergence Monitor found
                                                to be too complex
older groups, not surprisingly, more
                                                  %
concerned about complexity than
are those under 3. This theme was              100
consistent with that of consumer focus
groups PwC conducted recently in                 80
the US, which found older adults to
                                                 60
be more overwhelmed by the choices
and challenges of technology than are
                                                 40
younger consumers (who are much
more inclined to state available time and
                                                 20
money as barriers to higher technology
adoption).                                        0
                                                      Asia Pacific EMEA   Latin America   US        Grand Total

                                                                      Strongly agree or agree

                                                                                                Convergence Monitor: The Digital Home   7
0           Global and regional trends

    What it’s all about: Excellent customer service




                                                                                         3%
    The myriad of product offerings in the     ‘Out-of-hours’ support
    converging digital world are fighting
                                               Having customer service available in
    for their share of the consumer’s mind
                                               the evenings and over the weekend is
    and wallet. New technologies are
                                               of great importance to respondents,
    providing new ways of accessing and
                                               with 8% in agreement or strong
    buying content and opening up new
                                               agreement, and reflects to an extent
    markets; but in the fight for market
                                               consumers’ higher expectations of
    share, many providers are forced
                                               their service providers in relation to
    to market their services before they
                                               customer service. This percentage was
    are either technically or operationally
                                               broadly consistent across all regions,      Respondents who
    mature. Many complexities exist in
    the converging world, and getting
                                               with perhaps less importance placed         cited billing quality
    customer service right will become an
                                               on it by the EMEA countries.                as a key factor when
    even more critical success factor for      Billing quality                             choosing a new
    the winning providers as consumers
                                               Globally, our Convergence Monitor           service provider
    are presented with more options and
    less time.                                 indicates that consumers are generally
                                               happy with the clarity and accuracy of
    The key for providers, therefore, is       their billing (73%). However, 3% of
    to make their products simple and          respondents cited quality of billing as
    seamless for customers to use and to       a key factor in their choice of a new
    offer a range of efficient and effective   service provider.
    options for help when things go wrong.
    The Convergence Monitor survey
    reveals a substantial gap between the
    levels of customer service experienced
    and the importance that consumers
    place on service quality. Almost half
    the respondents indicated that they                                                  Figure 7: Approximate monthly amount
                                                                                         that respondents would be willing to pay
    are unhappy with the level of customer
                                                                                         for enhanced customer service within a
    service they currently receive. More
                                                                                         triple-play package
    interesting, nearly half the respondents
    indicated they were willing to pay                                                    Country              Local Currency     USD
    an additional $6 to $9 per month for                                                  Australia                       11.1   9.04
    higher than standard levels of customer
                                                                                          Brazil                          16.64   7.87
    service, including service around the
    clock, quicker response times to fix                                                  India                         94.00    6.66
    infrastructure or hardware problems                                                   Italy                            6.49   8.8
    and help with software problems and                                                   Korea                       ,19.00    .16
    extended warranty schemes (see                                                        Netherlands                      6.0   8.60
    Figure 7). This result is consistent
                                                                                          Spain                            6.69   8.8
    with that of consumer focus groups
    PwC conducted recently in the US, in                                                  Sweden                          .68   7.9
    which the majority of respondents were                                                Switzerland                      9.74   8.01
    willing to pay more for such things                                                   UK                               4.68   9.18
    as a shorter time window for cable                                                    US                               6.1   6.1
    installation than the standard four-hour
    or all-day window.                                                                   See page 18 for currency conversions




8     PricewaterhouseCoopers
                                                                                                            0
                       New ways of watching TV

                       Video on demand (VoD) and digital                Our Convergence Monitor survey
                       video recorders (DVR) are affecting the          reveals DVR to be the most frequently
                       way people expect to access content.             used of the two technologies on a
                       No longer dependent on location,                 global basis, with 3% adoption,
DVR is the more        device, or the times programs are set
                       to air, consumers enjoy visual content
                                                                        as compared to 14% for VoD. The
                                                                        differences between the age groups
frequently used of     when and where they want it (they are
                       defining their own viewing experience).
                                                                        in adopting these technologies is not
                                                                        pronounced, with younger generations
the two technologies   Demand for services such as VoD will             slightly to moderately more likely to
                       increase as the mass market migrates             adopt these television-centric devices
on a global basis,     to a digital platform due to availability        than are their older counterparts.
                       and functionality of service. We
with 3% adoption,     predict that global consumer/end-user
                                                                        Even though new content such as
                                                                        mobisodes may generate incremental
as compared to VoD     spending in the television distribution
                       market (including VoD and Internet
                                                                        revenue, our survey shows IPTV and
                                                                        mobile TV, not surprisingly, to have very
with 14%.              Protocol television, or IPTV) is expected
                       to reach $193 billion within the next four
                                                                        low current penetration. This can be
                                                                        attributed mainly to a combination of
                       years, according to The Outlook.                 availability and consumer understanding
                                                                        (see Figure 8).




                       Figure 8: Global adoption rates of IPTV and mobile TV
                            Asia
                        %
                       5


                       4


                       3


                       2


                       1


                       0
                            Asia Pacific    Latin America        EMEA             US          Grand Total

                                           Current use of IPTV          Current use of Mobile TV




                                                                           Convergence Monitor: The Digital Home   9
0         Global and regional trends

What content are consumers accessing?

The Internet has revolutionized the        Asia Pacific and Latin America:
way consumers shop, manage their           Capitals of social networking?
personal finances, and arrange leisure
                                           With such recent big-money deals            Hong Kong had the highest number of
activities, among other things. The
                                           as Google’s $1.6 billion acquisition        respondents, 1.9%, who use social
Internet has become a fully accepted
                                           of YouTube, user-generated content          networks on a daily basis.
retail channel. Consumers pay for
                                           and social networking Web sites have
services that have personal impact,                                                    In addition to social networking, users
                                           leapt from teenagers’ bedrooms to the
such as online dating and personal Web                                                 in Asia Pacific and Latin American
                                           financial pages of the global press.
site creation/publishing, although few                                                 countries are more likely to create their
pay for more widely available services     Our Convergence Monitor survey found        own blog than are their EMEA and US
such as instant messaging or shopping      that China has the largest number of        counterparts. Thirty-seven percent
comparison engines.                        social networking users, with more than     of Asia Pacific respondents have
                                           8% of respondents having engaged in        “blogged” at least once, as compared
The Outlook anticipates that, globally,
                                           social networking at least once.            to the global average of 1% (see
Internet access will be the fastest
growing consumer segment of the            China also has the largest number           Figure 9).
entertainment and media industry—at        of “power” users (those using the
an 11.9% compound annual growth            service daily or weekly), with 1.8% of
rate (CAGR)—and will be worth              respondents going online daily to their
$14 billion within the next four years.   social networks and another 7.3%
                                           going online weekly.
                                           More than 80% of Brazilians have used
                                           social networks at least once. Brazilian
                                           men between 16 and 4 are the largest
                                           power-user demographic in the survey,
                                           with 1% using the service daily or
                                           weekly.




                                           Figure 9: Blogging and social networking by frequency and region

                                           Blogging                                     Networking

                                             %                                            %
                                           100                                         100


                                            80                                          80


                                            60                                          60


                                            40                                          40


                                            20                                          20


                                             0                                            0
                                                  Asia    Latin EMEA   US    Grand             Asia    Latin EMEA   US    Grand
                                                 Pacific America             Total            Pacific America             Total




10 PricewaterhouseCoopers
                                                                                                      0
                       Music and movies: Money to be had

                       Our survey challenges, to some extent,         The Outlook estimates that the global
                       the belief that although people want           market will grow at a rapid 9.%
                       music and other media downloads, they          CAGR to $6. billion by 010.
                       are unwilling to pay for them.                 The likely growth in demand for music
                       The results of the Convergence Monitor         downloads is also indicated by the
                       survey indicate that if the offering and       present and future penetration rates
                       the pricing are right, customers are           for mobile digital music players.
                       willing to pay for legal downloads.            According to our Convergence Monitor
                       As the integration of digital technologies     respondents, MP3 players such as
                       and video players in the home or car           the iPod show very high penetration
                       stereo/entertainment system develops so        rates globally. Three-quarters are
                       too will the need for higher-quality music.    respondents are currently using
                                                                      portable digital music players. Device
                       Music demand on the rise                       adoption is roughly the same across the




30%
                                                                      three major regions.
                       Seventy-four percent of all respondents
                       have downloaded music, and 30% are             Further stimulating such development
                       “high volume” users who download               will be the integration of music and
                       tracks on a daily or weekly basis.             video players and mobile phone
                       The success of Apple iTunes—more               devices (e.g., the Apple iPhone), as
                       than two billion downloads since the           well as larger memory capacity in those
                       launch of the service—further confirms         devices.
                       that legal downloads are very much
                       in demand, as does the launch of a
Respondents who        number of iTunes competitors such
download music         as Napster and Microsoft’s Zune.

tracks on a daily or
weekly basis
                       Figure 10: Approximate amount that respondents
                       would be willing to pay for an MP3 music download

                                                MP3 Download
                        Country          Local Currency        USD
                        Australia                   1.76       1.38
                        Brazil                      3.47       1.64
                        India                      4.0       0.96
                        Italy                       1.11       1.47
                        Korea                   1,37.00       1.38
                        Netherlands                 1.19       1.7
                        Spain                       1.18       1.6
                        Sweden                     11.7       1.61
                        Switzerland                 1.77       1.46
                        UK                          0.78       1.3
                        US                          1.31       1.31

                       See page 18 for currency conversions




                                                                       Convergence Monitor: The Digital Home 11
0              Global and regional trends

Saturday night at the movies becoming a thing of the past?
The demand for downloaded movie                                   The growth in portable video devices,
content is also on the rise. More                                 in our view, will drive demand for
than 40% of all respondents have                                  downloading content. The trend in
downloaded a movie at least once, with                            video extends to user-generated visual
Asia Pacific, at %, showing the highest                         content as well. The integration of
numbers. Youth, as well as region, is an                          increasingly sophisticated cameras
important factor. More than half of all                           into mobile phones and the growth
16-to-4 year-olds have downloaded                                of memory capacity will have a large
a movie at least once, as have 47% of                             impact on sharing photos and personal
those in the -to-34 age group.                                  videos via mobile networks, and thus
The survey revealed that people are                               on bandwidth requirements. However,
willing to pay for permanent ownership                            speed and limited wireless transfer are
of downloaded content—much like                                   still issues.
purchasing a DVD or a CD (many of the
standard download offerings currently
include a right to view for a limited time,
for example, 4 hours). Respondents
also indicate a willingness to pay a
premium for recently released movies
(see Figure 11).




Figure 11: Approximate amount that respondents would be willing to pay
for movie downloads

                                         Movie*               New Release**                   Ownership***
                           Local                           Local                         Local
 Country                Currency            USD         Currency           USD        Currency            USD




                                                                                                                              40%
 Australia                    7.94          6.4              3.6          .80            .6          4.37
 Brazil                      19.31          9.13              6.39          3.0           10.68          .0
 India                     41.00           .46           117.00           .6         144.00           3.6
 Italy                        6.7          8.93              .3          .9            3.83          .07
 Korea                   8,40.00           8.4        ,86.00            .88       4,40.00           4.6
 Netherlands                  6.3          8.64              .36          3.1            3.68          4.87
 Spain                        6.44          8.              .31          3.06            3.46          4.8
 Sweden                      4.3          7.78            .16           3.16           33.06          4.7
                                                                                                                              Respondents who
 Switzerland                  9.11          7.49              3.66          3.01            .3          4.38
 UK                           3.98          7.80              1.1          .96            .3          4.61
                                                                                                                              have downloaded a
 US                           6.91          6.91              .4          .4            3.93          3.93
                                                                                                                              movie at least once
See page 18 for currency conversions
*   the average price respondents are willing to pay for downloading a movie with limited viewing (limited ownership)
** the average premium respondents are willing to pay for being able to download a newly released movie (or show at cinema)
*** the average premium respondents are willing to pay for unlimited ownership of the downloaded movie


1 PricewaterhouseCoopers
Conclusions                                                                                                               03
Our Convergence Monitor                       The battle for the customer                Customer focus is a key
                                              continues                                  differentiator
on the digital home has
                                              The market is highly competitive, with     Broadly speaking consumers’ adoption
revealed some interesting                     formerly disparate businesses now          of multiplay services has been quite
behaviours and reinforced                     finding themselves competing for the       slow up to now. Many customers
some current trends we                        same converged business. Although          are taken aback by the complexity
                                              convergence potentially will result        of multiplay service offerings, which
are seeing in the global                      in new revenue streams, and the            limits the adoption of these services.
markets.                                      opportunities associated with them,        Customers who have purchased
                                              existing customers become vulnerable       multiplay packages have been so
Multiplay scenarios are becoming              to competitive offerings. This fact will   disappointed by the associated
a reality                                     force providers into intense marketing     customer service that they would be
                                              and sales campaigns—even when the          willing to pay extra for good customer
Communications operators continue
                                              underlying technical and organisational    service. Customers (with the exception
to upgrade their communications
                                              infrastructure may not be ready. The       of the innovators/early adopters) need
infrastructure to better handle data and
                                              short-term gains are clearly offset by     to be certain that what they buy is
mobile applications. At the same time,
                                              longer-term risks. Time to market thus     simple, reliable and hassle free.
increased use of the Internet is fuelling
                                              becomes a critical success factor.
the demand for broadband access
technologies such as digital subscriber       The intense competition is expected         Providers across the competitive
line (DSL), cable modem, and fixed            to lead to further consolidation in the     arena face the great challenge of
wireless. Technology companies                market in order to acquire customers        keeping it simple. In other words:
are benefiting from this competitive          or to achieve the economies of scale        •   The service has to work.
environment as telecom and cable              necessary for remaining competitive. At
                                                                                          •   It has to be simple, easy, and
operators race to build a single, unified     the same time, providers face strategic
                                                                                              convenient to use.
voice and data network.                       make or buy decisions in order to
                                              be able to offer integrated multiplay       •   If something goes wrong,
Most media and communications
                                              propositions; such decisions will lead          prompt and effective service
companies are developing and
                                              to developing more partnerships and             should be available.
organising for multiplay service
                                              alliances with content providers and        •   Providers must make good of
offerings—and are marketing multiplay
                                              device manufacturers, but also to               what they promise.
in some form. The survey shows us that
                                              merger and acquisition (M&A) activity
multiplay strategies are becoming more
                                              in the form of horizontal integration.
and more relevant from a customer
                                              Examples include regional cable            In fact, there are few other
perspective as well. Customers seem to
                                              operators merging to be able to offer      differentiators—and fighting the battle
be warming up to combined offerings,
                                              services on a nationwide level and         on price alone will not contribute to
with a lower price, new features, and
                                              telecom operators acquiring ISPs.          generating operating margins and
the convenience of one package and
                                              This M&A activity does have additional     shareholder value.
one bill being the primary drivers. In
                                              impact on internal organisation and
itself, this development is good news for                                                Providers thus need to be sensitive
                                              on streamlining processes and service
providers. The potential is for significant                                              and responsive to customers’ wishes
                                              offerings toward the newly acquired
gains, yet also for dramatic losses.                                                     and expectations, and have the agility
                                              customer groups.
                                                                                         to translate the expectations into their
                                                                                         organisation, processes, and portfolio.
                                                                                         Succeeding in these areas will both
                                                                                         drive migration toward converged
                                                                                         services and create competitive
                                                                                         advantage over other providers.




                                                                                          Convergence Monitor: The Digital Home 13
03         Conclusions

The objective is to organise                  Also driving the integration issue are
for simplicity                                the consolidations that both take
                                              place and are expected to take place
So, the objective is to offer high-quality,
                                              in this sector, which affect internal
integrated services and, at the same
                                              organisation, and the streamlining of
time, to keep it simple in the eyes of the
                                              processes and service offerings toward
customer. Meeting this objective means
                                              the newly acquired customer groups.
meeting the challenge of organising the
company for simplicity. By no means           When a service (e.g., a DSL service in
easy, this change requires mastering          the case of a mobile operator) is offered
the integration of technologies,              through partners, the main challenge
organisation, and processes.                  is to integrate the service offering
                                              seamlessly and in such a way that the
Migrating from traditional telephony
                                              customer experience is that of one
networks and infrastructures toward
                                              service provider, avoiding any suffering
integrated IP offerings proves to be
                                              from the silo structure inherent in a
technically challenging and costly, as is
                                              partnership/wholesale arrangement.
the move from analog to truly interactive
digital TV. Many providers are currently
struggling with aspects of this                Customers are integrating
technology issue. Signs indicate that          technology and the Internet
the technology is maturing; however,           into their lifestyles, significantly
until it is stable, a full-blown marketing     affecting business models
offensive comes with inherent risks, and       throughout the value chain.
precautions should be taken (and a risk-
related budget prepared) to mitigate the
risk of dissatisfied customers.
Integrating a service requires integrating
organisations as well. The challenge is
to create a truly integrated, customer-
oriented organisation, which requires:
•   Integrating cultures and
    technologies.
•   Integrating marketing strategy (plus
    developing a market approach
    aligned with both the convergent
    strategy and the marketing
    opportunities that come with
    convergence).
•   Integrating billing.
•   Developing customer sensitivity
    and the organisational flexibility to
    quickly change service offerings
    in response to rapidly developing
    customer preferences (plus
    reducing time to market).




14 PricewaterhouseCoopers
                                                                                                       03
                      Consumers know no boundaries                   The same goes for mobile TV. Although
                                                                     the numbers are low, the survey reveals
                      Consumers integrate Internet services
                                                                     interest in it. Our expectation is that the
                      into their everyday life and already spend
                                                                     parallel development of the required
                      a significant portion of their media time
                                                                     devices and infrastructure will facilitate
                      on the Internet.
                                                                     significant growth in consumer demand for
                      Social networking and online gaming            TV distribution through mobile networks.
                      (including integration of gaming and
                      social networking, e.g., Second Life,          Content is important
                      and gaming communities like “World of          Although file-swapping arrangements
                      Warcraft”) have developed a significant        are a reality, the survey indicates a clear
                      following. Though some analysts predict        case for commercial downloading of
                      that blogging is a fad that will gradually     content, and quality content at that.
                      blow over, creating communities and
                      sharing experiences is a social need           The increasing penetration of MP3 and
                      that, in our view, will continue to grow in    video player devices will drive growth
                      one form or the other.                         in the content market. Especially
                                                                     the developing integration of digital
                      Service providers will have to decide to       technologies and video players in the
                      what extent they will develop their own        home or car stereo/entertainment
                      portfolio of value-added Internet services     system will create the need for higher-
                      and content services or decide to remain       quality music.
                      a channel for other content providers.
                      That being said, the benefits of Internet      Although the survey indicates a price
                      and digital TV in terms of marketing and       point per downloaded file, the main
                      advertising, and especially in measuring       message is the willingness to pay. Other
                      customer behaviour, are growing rapidly.       commercial models, e.g., subscription
                      Advertising models will change—and the         services, are valid all the same, and we
                      market is currently experimenting with         encourage providers to experiment with
                      how they will change.                          new propositions.

                      Whereas TiVo-type services are                 At the same time, customer—and
                      gradually becoming commonplace in the          community—created content is
                      US, digital TV penetration is relatively       becoming a main impetus for Internet
                      low on a global scale. However, the            media consumption, and service
The increasing        survey shows that the interest is there,       providers will have to think about how
                                                                     to link into this stream, as interactivity
                      especially in digital video recording/
penetration of        delayed viewing. With the advent of            is key in acquiring and retaining
                                                                     customers. The hype surrounding
                      EPG (Electronic Programming Guide)
MP3 and video         services, these developments will              YouTube will develop even further once
                                                                     mobile phones have the video camera
player devices will   dramatically change viewing behaviour
                      in the not too distant future, and thus will   functionality and memory capacity to
                                                                     support higher-quality capturing of
drive growth in the   significantly affect advertising revenue
                      models. TV broadcasters and advertisers        events.
content market.       alike need to create a strategy to take
                      advantage of these developments.




                                                                      Convergence Monitor: The Digital Home 1
  Invest in
  satisfying heading here
        insert
  customers; be
  sure to back up
sadsdsd

  your promise
  of good service
  with processes
  and capabilities
  throughout the
  organisation.




16 PricewaterhouseCoopers
Recommendations                                                                                                              04
Develop intimate customer                   Build an integrated, agile,                 Develop an open collaboration
relationships:                              customer-focused organisation:              between value chain partners to
•   Invest in measuring and                 •   Make sure your business is able to      drive new products and services
    understanding what is really                offer the simple, reliable services     to customers:
    motivating your customers when              that customers value.                   •      Adopt an open business model
    choosing, buying, and using your        •   Organise in chains, not silos; create          with partners and customers
    service; integrate this information         a front-to-back, customer-segment-             alike; remove internal and
    into your day-to-day business               specific operation.                            external barriers to create a
    operations. New channels to                                                                maximally transparent company
    customers facilitate capturing          •   Create the organisational sensitivity
                                                                                               or partnership; be proactive in
    customer data, which will lead to           and flexibility to quickly change
                                                                                               adopting new business models; and
    new forms of one-to-one customer            service offerings in response
                                                                                               don’t focus too much on defending
    marketing and addressability.               to rapidly developing customer
                                                                                               existing positions.
                                                preferences. Reduce time to
•   Invest in satisfying customers;             market, invest in reducing product      •      Include customers in R&D processes
    be sure to back up your promise             development cycles, and choose                 and content development.
    of good service with processes              simple solutions for complex            •      When growing through M&A, make
    and capabilities throughout the             problems.                                      post-merger integration a key
    organisation. Offer premium
                                            •   Invest in changing attitudes and               objective, but make sure that the
    customer service at an additional
                                                mind-sets on all levels of the                 requirements as stated above are
    price, but don’t forget to make your
                                                organisation; change the reward                part of the plan.
    basic customer service good, too.
                                                system throughout the organisation      •      In partnering, consider transparency
•   Engage your customers by                    to include customer-related key                in reporting and independent
    maximizing opportunities for                performance indicators.                        verification to be critical to the
    interacting with them through all
                                            •   In-source critical customer                    continued success of all parties.
    available channels (interactivity
    enhances customer “stickiness”).            processes, such as customer care if
    Make sure that interaction with             this makes sense for the company.
    your customers is a key component       •   Expect integration problems and
    of your service (make good use              budget for them in the business
    of interactive digital TV, facilitate       cases on which convergence
    the creating and publishing of              decisions are based.
    consumer- or community-generated
    content, invest in creating
    interaction on your website, etc.).
•   Focus on your brand. With the
    high level of competition and the
    increasing complexity of converged
    service offerings, consumers
    are becoming uncertain. In this
    situation, strong brands have a
    better chance for survival.




                                                                                            Convergence Monitor: The Digital Home 17
0             Methodology

PricewaterhouseCoopers surveyed nearly                   Percentage of respondents by region
8,000 PwC partners and staff from 17
countries around the globe on their propensity
                       A                           32%
to buy and use converged technologies and
                         A                         32%                               36%           Asia Pacific
services in their personal A lives. This is the
                                                      32%                             36%
first in a series of online surveys that we have                                                    Asia
                                                                                                   EMEA Pacific
                                                                                         36%             Asia Pacific
dubbed Convergence Monitor.                                                                         EMEA
                                                                                                   Brazil & Chile
                                                                                                         EMEA
We believe that the trends identified from the                                                      Brazil & Chile
                                                                                                   US
survey will provide insight into consumers’                                                         US
                                                                                                         Brazil & Chile
preferences and attitudes that are of               6%
                                                                                                         US
interest to communications, media, and               6%
entertainment companies.                                   6%
                                                                    26%
The survey represents the following                                  26%
countries: Australia, Brazil, Chile, China,                             26%
Germany, Hong Kong, India, Italy, Korea,
The Netherlands, Singapore, Spain, Sweden,
Switzerland, Thailand, the United Kingdom,
                    B
and the United States of America.                        Percentage of respondents by gender
                     B
We found the global consumer to be far from
                           B
homogeneous: The take-up rates of various                                             47%
services and channels in various parts of the                                             47%
world reflect the diversity of consumers as                                                  47%
well as the availability and penetration rates
of technologies around the world.                                                                  Females
                                                    53%                                             Females
                                                                                                   Males
Willingness to pay                                   53%                                                Females
                                                                                                    Males
The willingness to pay element of the survey            53%                                             Males
was derived through conjoint analysis.
Conjoint analysis is a multi-variant technique
used to understand the dimensions of
respondents preferences for different
services or products. It is a statistical
tool that allows for evaluation of trade off
scenarios. The conjoint part of the survey
was developed by PwC’s Economics Group
                      C                                  Percentage of respondents by age
in the Netherlands. C
                          C                                              2%
                                                                   7%               15%
                                                                    7%    2%
                                                                                     15%
                                                                         7%    2%
One $USD to local currency equivalent as                                                15%
                                                                                                   16-24
of nd March 007                                        20%
                                                                                                    16-24
                                                                                                   25-34
                                                          20%
 Country                        Local Currency                                                           16-24
                                                             20%                                    25-34
                                                                                                   35-44
 Australia                    AUD       1.73
                                                                                                         25-34
 Brazil                       BRL       .11                                                       35-44
                                                                                                   45-54
 India                        INR      44.170                                                            35-44
                                                                                                    45-54
                                                                                                   55+
 Italy                        EUR       0.76
                                                                                                         45-54
 Korea                        KRW     994.707                                                       55+
 Netherlands                  EUR       0.76                                                            55+
                                                                                    56%
 Spain                        EUR       0.76
 Sweden                       SEK       7.006                                       56%
 Switzerland                  CHF       1.16                                          56%
 United Kingdom               GBP       0.10


18 PricewaterhouseCoopers
Contacts                                                                                                                                           06
Mitch Cohen                                         Deborah Bothun
Global Technology, Communications,                  Global Convergence Leader
Entertainment & Media Leader                        Tel: [1] (13) 17 330
Tel: [1] (973) 36 430                             e-mail: deborah.k.bothun@us.pwc.com
e-mail: mitchell.d.cohen@us.pwc.com

William Cobourn                                     Marcel Fenez                                        Paul Rees
Global Technology Leader                            Global Entertainment & Media Leader                 Global Communications Leader
Tel: [1] (646) 471 70                             Tel: [8] 89 68                                Tel: [44] (0) 713 4644
e-mail: william.cobourn.jr@us.pwc.com               e-mail: marcel.fenez@hk.pwc.com                     e-mail: paul.g.rees@uk.pwc.com



Global Contacts
Asia-Pac                            TICE Leader
Australia                           Paul McNab                     paul.mcnab@au.pwc.com                                  [61] () 866 640
China (incl. Hong Kong)             Marcel Fenez                   marcel.fenez@hk.pwc.com                                [8] 89 68
India                               Deepak Kapoor                  deepak.kapoor@in.pwc.com                               [91] (11) 413 001
Indonesia                           Irhoan Tanudiredja             irhoan.tanudiredja@id.pwc.com                          [6] (1) 1 901
Japan                               Akihiko Nakamura               akihiko.nakamura@jp.pwc.com                            [81] (3) 3 179
Korea                               Jungsik Kim                    jungsik.kim@kr.pwc.com                                 [8] () 709 014
Malaysia                            Uthaya Kumar                   uthaya.kumar@my.pwc.com                                [60] (3) 693 397
New Zealand                         Fred Hutchings                 fred.hutchings@nz.pwc.com                              [64] (4) 46 704
Philippines                         Wilfredo Madarang              wilfredo.s.Madarang@ph.pwc.com                         [63] () 84 78
Singapore (incl. Brunei)            Chao Choon Ong                 chao.choon.ong@sg.pwc.com                              [6] (6) 36 3018
Taiwan                              Howard Kuo                     howard.kuo@tw.pwc.com                                  [886] () 79 6
Thailand                            Prasan Chuaphanich             prasan.chuaphanich@th.pwc.com                          [66] () 344 111
Eurofirm
Austria                             Bernd Hofmann                  bernd.hofmann@at.pwc.com                               [43] (1) 01 88 333
Belgium                             Koen Hens                      koen.hens@be.pwc.com                                   [3] () 710 7 8
Denmark (incl. Greenland)           Mikael Heibrock Sørensen       mikael.sorensen@dk.pwc.com                             [4] (39) 4 91 0
Finland                             Marko Korkiakoski              marko.korkiakoski@fi.pwc.com                           [38] (9) 80 10
France                              Bernard Gainier                bernard.p.gainnier@fr.pwc.com                          [33] (1) 6 7 81 31
Germany                             Werner Ballhaus                werner.ballhaus@de.pwc.com                             [49] (11) 981 848
Greece                              George Naoum                   george.naoum@gr.pwc.com                                [30] (10) 6874 030
Israel                              Joseph Fellus                  joseph.fellus@il.pwc.com                               [97] (3) 79 4 683
Italy                               Andrea Martinelli              andrea.martinelli@it.pwc.com                           [390] () 778 19
Luxembourg                          Serge Saussoy                  serge.saussoy@lu.pwc.com                               [3] (49) 48 48 30 6
Netherlands                         Ronald van Tongeren            ronald.van.tongeren@nl.pwc.com                         [31] (0) 68 4346
Norway                              Bjørn Leiknes                  bjorn.leiknes@no.pwc.com                               [47] (9) 6 00 07
Portugal (incl. Cape Verde)         Nasser Sattar                  nasser.sattar@pt.pwc.com                               [31] (13) 99 48
Republic of Ireland                 Neil Murphy                    neil.murphy@ie.pwc.com                                 [33] (1) 704 86
Spain                               Enrique Sanz                   enrique.sanz.ferre@es.landwellglobal.com               [34] (91) 684 07
Sweden                              Magnus Brandstrom              magnus.brandstrom@se.pwc.com                           [46] (8)  333 36
Switzerland (incl. Liechtenstein)   Peter Wittwer                  peter.wittwer@ch.pwc.com                               [41] (8) 79 7680
United Kingdom (incl. N. Ireland)   Murray Legg                    murray.legg@uk.pwc.com                                 [44] (0) 71 4667
Central & Eastern Europe
Czech Republic                      Petr Sobotnik                  petr.sobotnik@cz.pwc.com                               [40] (1) 11 111
Hungary                             Nick Kos                       nick.kos@hu.pwc.com                                    [36] (1) 461 933
Poland                              Chris Monteleone               chris.monteleone@pl.pwc.com                            [48] () 3 4411
Romania & Republic of Moldova       Dinu Bumbacea                  dinu.bumbacea@ro.pwc.com                               [40] (1) 0 880
Russia                              Nathan Birchall                nathan.birchall@ru.pwc.com                             [7] (49) 967 6469
Middle East
United Arab Emirates                Ian Sanders                    Ian.Sanders@ae.pwc.com                                 [971] () 694 680
North America
Canada                              Jean-Guy Martin                jean-guy.martin@ca.pwc.com                             [1] (14) 0 68
Mexico                              Luis Roberto Martínez          luis.roberto.martinez@mx.pwc.com                       [] () 63 861
US (incl. Puerto Rico)              William Cobourn, Jr.           william.cobourn.jr@us.pwc.com                          [1] (646) 471 70
SOACAT
Argentina                           Juan Carlos Grassi             juan.c.grassi@ar.pwc.com                               [4] (11) 480 409
Brazil                              Estela Vieira                  estela.vieira@br.pwc.com                               [] (11) 3674 380
Chile                               Rafael Ruano                   rafael.ruano@cl.pwc.com                                [6] () 940 0160
Africa
Egypt                               Alaa ElSoueni                  alaa.k.elsoueni@eg.pwc.com                             [0] () 16 801
South Africa                        Berno Niebuhr                  berno.niebuhr@za.pwc.com                               [7] (1) 49 000




For more information or to download other convergence related material visit www.pwc.com/monitor

                                                                                                              Convergence Monitor: The Digital Home 19
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