Don’t Change the Channel on Mobile TV

Despite Fuzzy Reception to Date, Qualcomm, Others Say Long-Term Picture Is Good

Telecom is surpassed only by politics when it comes to hyping a message, and everything from IMS to municipal Wi-Fi has felt the burn when reality fails to catch up with the promise. The latest technology to fall into this unfortunate circumstance is mobile television, which as a nascent market is suffering from a hype hangover. Nonetheless, the outlook appears sunny for mobile TV.

Source: Gartner Dataquest, 2007

Gartner Inc. predicts mobile TV will become a mainstream service in most developed markets by 2010 with close to half a billion subscribers worldwide. The marketplace for mobile TV will vary widely by country and will be shared between TV services that are delivered via cellular and broadcast methods. TV broadcasting specifically will reach 133 million subscribers by 2010, driven by the availability of more compatible handsets.

That’s good news for a sector that has seen its image change rapidly over the course of a year. Last year at this time, Verizon Wireless launched V CAST using Qualcomm Inc.’s MediaFLO broadcast network, accompanied by a huge marketing push to get consumers interested in the video service. AT&T Inc. announced it too would be deploying on MediaFLO. The MediaFLO technology (which is delivered via Qualcomm subsidiary MediaFLO USA) has been developed as an overlay to existing 3G networks; the purpose-built network leverages the 700MHz band and television-tailored standards and codecs, and is available for wholesale service to mobile operators interested in delivering live television.

Since the early part of 2007, however, a series of setbacks has led to hand-wringing over the outlook for broadcast mobile TV. For one, AT&T delayed its launch, originally slated for the second half of 2007. AT&T has said the delay is the result of a need to fine-tune and optimize the experience. AT&T, which declined to comment for this article, is expected to follow through and launch a broadcast mobile TV service "sometime soon."

Meanwhile, Qualcomm’s competitors, in what had been a three-pronged competitive mobile broadcast market, abruptly have exited the business, leaving MediaFLO USA the last man standing. Aloha Partners LLP subsidiary HiWire was testing a DVB-H network in Las Vegas in the second quarter of last year, and was the largest holder of 700MHz spectrum to date, covering 196 million U.S. residents in 72 of the top 100 markets in the United States. The company had plans to take the network national. But then AT&T announced it was acquiring all of Aloha’s holdings for $2.5 billion. The other competitor, cell tower management company Crown Castle International, launched a DVB-H-based mobile TV network in New York under subsidiary Modeo LLC, but failed to attract the required investment from new partners, private equity firms or venture capitalists to support the venture in the long run. Crown Castle wrote off all of its Modeo assets (other than the spectrum itself, which it is leasing to other companies) last quarter.

And, while Verizon is mum on its broadcast TV adoption numbers for V CAST — and the carrier doesn’t break out its data revenue by service in its earnings reports — recent reports from the U.K. indicate lackluster results, with The Guardian reporting that a mere 1 percent of the population has signed on for mobile television in that country. The U.K. is considered similar to the United States in consumption habits, but the question remains as to whether the quality of those services is to blame for the lack of uptake, or if the idea of watching television on a small screen simply doesn’t appeal to the average consumer.

Gartner says there has been "questionable" early demand for premium content, so the key to adoption actually lies in giving subscribers TV as part of their mobile subscription. "Uptake will not be driven by consumer demand so much as by operators including TV in basic bundles as a default service so that it appears ‘free’," says Carolina Milanesi, research director at Gartner. Gartner estimates that only 30 percent of the total number of mobile TV subscribers will ask for the service, while 70 percent will receive it as part of their service bundles.

For its part, MediaFLO USA isn’t worried, and blames the early hype for creating the pall that seems to stretch across the industry. "The truth is, we have all the hallmarks of a nascent market," says Omar Javaid, vice president of business development for MediaFLO Technologies. "You’ve seen a number of technology standards being filed, and to date, limited deployments. Despite the ups and downs and recent hand-wringing, people now realize there are a number of valid technology approaches, and we’re getting market experience. Hutchison in Italy has a million mobile TV subscribers. Their total base is 4 or 5 million subs, so that’s a considerable percentage."

MediaFlo's Omar Javaid

Indeed, indicators point to plenty of juice left in the mobile TV proposition. As voice revenue continues to decline, operators seeking to recoup the millions spent on 3G licenses are looking to increase data revenue from a wide range of services, and the idea of elevating TV on the handset from time killer to something as mainstream as clicking on the cable in the living room still piques carrier interest. And the basic premise of MediaFLO remains solid. While services like MobiTV, used by Sprint and others, deliver television over 3G, the indicators are that video quickly would overtake the capacity of those networks if adopted in large numbers. In fact, if just 40 percent of subscribers view even eight minutes of video per day, the networks would not be able to handle it, according to research firm Analysys. That’s because streaming video consumes 10 times the bandwidth of voice traffic, while full-motion, TV-quality video can use up to 100 percent more. Because cellular networks are unicast, meaning that every subscriber has a one-to-one link to the network, it’s inefficient to deliver full-motion video at 20-30 frames per second to thousands of subscribers at the same time. Broadcast networks, in contrast, leverage a one-to-many architecture and are far more efficient.

The industry also is becoming more realistic as to the right packaging and business model for mobile television. The content to date was — and still is — split between on-demand and live television channels, with paid-for premium and advertising-supported models available. Gartner’s Milanesi says that successful operators will get away from competing on rate plans, instead focusing on creating a unique mobile TV experience, with mobile-specific or user-generated content from user communities like YouTube to drive up the installed base. "Driving mobile TV uptake in the next three years to grow the installed base of subscribers to a point where it starts to look interesting to advertisers will be key," she says. "The most successful operators where mobile TV is concerned will be those that treat it as a long-term opportunity, not a quick fix." When it comes to the two kinds of TV businesses, Javaid takes a different tack: "There is the free air, advertising-based business, and pay TV with subscription revenue. Our view is that MediaFLO is pay TV on your handset. For the service providers, the companies best positioned to do that are the pay TV companies."

The LG vx9400 is one of four MediaFLO-enabled handsets available in the United States today. When AT&T launches service, it will introduce more devices.

MediaFLO’s research, culled from 4,000-plus focus group hours and surveys, indicates that the biggest predictors of early mobile TV adoption aren’t a person’s age or gender, but how many televisions they have and/or how much television they watch in general. Those who consume a lot of television will want to take it with them; within that umbrella, early adopters include young people, news hounds, people fascinated with celebrity drama, sports fans and gadget guru types.

We are a TV nation, Javaid points out: the average American home now has more television sets than people; there are 2.73 TV sets in the typical home. People also watch more than four hours of television per day — and they typically pay for the pleasure. "Cable or satellite is the majority of television penetration here," he notes. "Few get TV via free air anymore. You have a number of countries where rabbit ears are the norm. Pay TV is so pervasive that the UHF spectrum is not even being used. So that’s why the FCC has been able to auction that off."

Javaid says that with a user base accustomed to paying for television, that means the big opportunity lies with purveyors of non-mobile, paid broadcast television — i.e., cablecos, companies deploying IPTV and satellite DBS providers. "It’s an extension of their core business," says Javaid. AT&T, for one, says the MediaFLO deal complements its efforts to deliver video from its flagship U-verse, video-driven service bundle to three screens — the TV, PC and the handheld device.

Alongside the consumption of living-room television as predicting mobile TV interest is the revelation that consumers are interested in an experience that mimics what they’re already used to.

"We came in with a premise that people will only want to do short video snacking," says Javaid. "What we found is that people aren’t interested in made-for-mobile — they want TV as they know and love it today, and they’re watching 30 to 40 minutes on average per session. So we’re learning."

Given all this, Qualcomm remains bullish on the market despite recent setbacks. It has pledged to invest $100 million into MediaFLO and has no intention of pulling back on the market, Javaid says. "This is a developing market, in early stages, with a lot of promise."

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