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Multi-Play Services Market in Western Europe

Just as the cable sector moved from analogue TV delivery to multi-play portfolios of TV, telephony and broadband Internet access, the telco sector is looking to multi-play �- and, in particular, to high-ARPU TV services -� for future growth and a means of achieving differentiation.

Although well-established, the pay-TV sector has yet to reach its full potential in many markets. In Western Europe, pay-TV subscriptions are set to grow by 31 percent between 2005 and 2011, according to Analysys. Low penetration of premium services in many markets also suggests room for continued ARPU growth. Incumbents are rapidly joining the innovative altnets that already offer TV services.

Demand for bundled services, however, remains uncertain, and many telco triple plays have yielded disappointing adoption rates. At the end of 2005, only 3 percent of Western European households subscribed to fixed telephony, broadband Internet and pay-TV services from a single supplier.

Nevertheless, competition in this supply-driven market is intense, and outcomes will depend upon the strategies chosen by service providers. Players moving into new markets often employ aggressive pricing to differentiate themselves from the existing competition.

Dutch incumbent KPN, for example, is undercutting the Dutch cablecos with its TV services, offering sizeable discounts to subscribers of other services. In the UK, dominant pay-TV provider BSkyB is offering �free� broadband to entice subscribers. Both have little in the way of legacy revenues to protect. The aggregate effect of such moves is deflationary, and with the major players looking to each other�s customer bases for growth, casualties are inevitable.

According to Analysys, the evolution of the multi-play market will very much depend upon growth opportunities in individual markets and the relevant players� ability to address them. For example, where there is strong potential for growth in the pay-TV market, players will target particular market segments to address the opportunity, and the impact of price competition will therefore be reduced.

In more mature markets larger players are likely to benefit from increased price competition, whereas smaller ones will struggle to survive on ever tighter margins. Where heavy discounting dominates, potential increases in pay-TV spend (if any) could be squandered as TV services are subsumed in triple-play bundles.

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