IPTV Deployment I Challenge and Opportunity

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Agenda

IPTV deployment – confronting challenges to success

Over-the-top content…threat or opportunity?

Focusing for success

The convergence equation

IPTV Deployment – Challenge and Opportunity

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IPTV: Do I Really Have To?

Alternative platforms are driving loss of eyeballs

PCs, smartphones, pull viewers away from the TV

Younger demographic is migrating away from the TV

Increasing societal mobility

Free, over-the-top content is driving fundamental change

Lack of control of OTT content makes network and CAPEX planning difficult, and creates unreimbursed OPEX to facilitate 3rd party profit

Traditionally sacred walled gardens are being cannibalized for the web by their owners (Hulu)

Is the print media landscape a glimpse of the future for broadcasters?

Worldwide IPTV deployment is growing nevertheless

End of 2Q08 – 17.1M subscribers

End of 2Q09 – 26.3M subscribers (+53%)

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IPTV Investment Considerations

Broadband is an essential investment

Broadband customers are sticky customers; eventually ALL customers will be broadband customers

Relevant revenue generating applications and services require broadband delivery

The business case for IPTV is most attractive when treated as one component of a portfolio of broadband services

IPTV is currently the most complex broadband application, with the lowest gross margin – a short term investment in a longer term payoff

Cornerstones of current successful IPTV offerings

Differentiated, HD intensive content delivered via MPEG-4 encoding

Time shifting (VOD, Restart TV…)

Compelling applications

Local demographic focus and execution

It‟s increasingly clear that video is becoming a requirement

The customer can be won thru video

90+% of AT&T video customers are also broadband subscribers

60+% are VOIP subscribers

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Strategic Considerations forIPTV Deployment

Customer retention and acquisition

Difficult to compete effectively without a full broadband portfolio

Leverages initial broadband investment

The single most marketable application

Opportunities do exist to leverage investment in IPTV

Shared headend and network resources

Content aggregators

Intelligent network planning and content distribution

May discourage competitive incursion or expansion

If competitors are kept out, all services are protected; video may be the key barrier to entry

IPTV is the primary portal upon which to construct an advanced applications portfolio in an all video world

Easily extended to additional screens/portals

Enhances monetization, customer retention, brand effectiveness

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The Whole Enchilada

Premium broadband pie Complementary applications

Traditional telephony/ISP features

Caller ID

Voicemail

Call management

Email/IM

The widget

The lesson of the iPhone

100K developers*

150K+ available apps*

1.5B downloads*

Enable incremental revenue streams

Attract new customers and reduce churn

Directly targets the millennial demographic

Mobile/PC like functionality creates a homogenous multi-screen experience

Broadband

Source: Entone*SF Chronicle 07-15-09

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Agenda

IPTV deployment – confronting challenges to success

Over-the-top content…threat or opportunity?

Focusing for success

The convergence equation

IPTV Deployment – Challenge and Opportunity

8

Over-the-Top Emergence

A light at the end of the tunnel…?

Or an oncoming train?

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What Is Over-the-Top Video?Video content riding over a broadband pipe, where the content

provider has no affiliation with the broadband provider

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Compelling Over-the-Top Dynamics

Cisco estimates 90% of all consumer IP traffic will consist of video by 2012

Internet video transactional revenue (Parks & Assoc.)

2008 - $1B

2013 - $6B

US web video streams (+41%) and time-per-view (+38%) both rose dramatically y-o-y from 8/08 to 8/09

158M US users streamed 21.4B videos in July „09

Hulu downloads have grown 490% over the last 12 months (Hulu)

With 40M+ viewers, Hulu now has more than Time Warner Cable

“Lost” had 1.4M unique online views in December „08

“Lost” was not aired on television in December ’08

US consumers spent $1B+ on Internet connected TVs in 2Q09 (ITV Reporter, 08-16-09)

Unit sales doubled to 620,000 vs. prior quarter, in the midst of a historic recession

Best Buy owns Napster and is working with CinemaNow

As of 3Q09, y-o-y DVD sales were down 23%

Implications for physical media and appliances are becoming clearStatistics provided by Nielsen unless otherwise noted

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Compelling, but TV Is Still King

Video consumption

Viewers (millions) Minutes per month

4Q07 4Q08 4Q07 4Q08

In-home TV 281 285 145 151

Internet video n/a 123 n/a 3

Even though total viewership for OTT content is significant (>100M), the actual time spent viewing content was just half the incremental increase in time spent viewing in-home TV The Nielsen Company

TV is still the only screen that supports the social and “event” viewing experience

"Our average user spends 15 minutes a day on the site. They spend five hours in front of the television. People say, 'YouTube is so big,' but I really see that we have a ways to go." Hunter Walk, Google Director or PM, SF Chronicle, 01-04-10

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Telco Monetization of OTT Content

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Implications for the Network

Broadband is going primetime

Streaming, unicast entertainment traffic accounted for 26% of total broadband traffic (32% in primetime: 7-10 PM) in September ‟09: 211% y-o-y increase

During primetime, unicast traffic has surpassed P-to-P, and the gap is widening

More and more streaming unicast traffic is HD

The steadily increasing percentage of traffic being unicast presents a real threat to network capacity

Streaming real-time applications are more susceptible to service degradation

Subscribers are becoming increasingly sensitive to quality of experience, and are increasingly willing to pay for dependable quality

An opportunity is emerging for the service provider to deliver a personalized, premium service offering, featuring premium bandwidth and popular applications

Source: Sandvine: 2009 Global Broadband Phenomenon

20 N. American, AsiaPac, & EMEA DSL & Cable Networks

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Implications for the Business

Obstacles

“Hitchhiking” applications that ride for free

In-home platform: Roku, Vudu, AppleTV…

Hosted, Internet based applications: Hulu, YouTube, Facebook…

Peer-to-peer audio and video

Who built and maintains the network? Why should Google and Facebook get all the money?

Lack of granularity in terms of network utilization visibility

Discrete, unconnected databases: Plenty of data, little information

No clear “big picture”: No end-to-end customer view

Danger of being relegated to a “utility” by simply offering ever fatter pipes and settling for nominal flat fee participation

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Implications for the Business

Objectives

Apply your knowledge, presence, responsiveness

Facebook knows their IP address; you own the customer

Application and content creation and participation

Do-it-yourself and/or partner, but do it

Brand and package a superior broadband portfolio; continuously innovate

Accessibility

Common multi-screen experience

Capitalize on unicast demand: Start with VOD, and share the revenue

Exploit your network; leverage the “cloud”

The cloud is more than a “hosted applications”; it’s an emerging business model

Availability, ubiquity, quality

Directly supports user preferences: Dimension shifting, on-demand, instant gratification

Live, scheduled, “event planned” programming: Sports and ???

Proactivity equals success; reactivity equals irrelevance

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Avoid This Strategy

to dumb pipes

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Agenda

IPTV deployment – confronting challenges to success

Over-the-top content…threat or opportunity?

Focusing for success

The convergence equation

IPTV Deployment – Challenge and Opportunity

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Growing Universe of Interactive Functionality

VOD Caller ID Content Sharing

Content Feeds Local Content

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Local ContentStefanie: What do you think

about this film...?

Government Channel

Local Weather Community Channel

School Channel

Local Content as a Differentiator

Local High School Sports Church Channel

Local Video Production

Source: Dascom Systems

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Branded, Local Relevance -A Competitive Weapon

Custom packaged, locally relevant

Increases take rate and reduces churn

Custom skins enhance brand recognition

Enables direct subscriber/carrier interaction

Viewed favorably by franchise authorities

Public entities

Schools

Libraries

Municipal agencies

Customer validated

CenturyTel, HickoryTech, Pineland, WT Services, Mahaska

Service providers subsidize production facilities/resources

School districts and churches print & email communications to parents and parishioners directing them to carriers UI

Don‟t forget to lock up the rights

Don’t let competitors steal your advantage

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Successful Local Focus

Take rate >60% of homes passed

So successful the cable company sold out to them

In addition to being a communications provider BEK has also transitioned into a broadcast media group

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Tactical Keys to Customer Satisfaction

Things to remember

Don‟t break your business

Locate “most watched‟ content closer to high usage areas Cost and operationally efficient

Superior customer experience

Embrace the role of compelling applications provider Make it easy to use; minimize navigation

One size fits one Personalization minimizes churn

Millennials are accustomed to having it their way

Social networking will NOT be a requirement on the TV screen

Enable mobility As many platforms/screens as you can offer

If you enable niche content, make sure you own it

Something to contemplate

King Gillette and “freebie” marketing Is broadband the razor?

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Forward Looking Strategy

IPTV is a main pillar upon which to construct an advanced applications portfolio in an all video world

Each new application represents a discrete, high margin revenue stream

OTT content is exploding, yet traditional TV isn‟t going away

OTT content is on the TV already; should be exploited as another revenue opportunity

The TV screen is and will remain the screen of choice

70% of US consumers rank TV viewing in their top 3 media activities, outpacing web surfing, music, or reading*

The average US consumer increased TV viewing time from 16 to 18 hours per week in 2009

Millennials increased their viewership nearly 50%, to 15 hours per week from 10.5*

Tribal marketing has evolved into a strategic tool

Targeting social and affinity groups, and acting on feedback is becoming the most effective source of consumer marketing, and consumer brand loyalty

The CSP possesses the most complete combination of presence, knowledge, and means to capitalize on 21st century social network based marketing

Who else is coming to the party?

BestBuy (Speakeasy + CinemaNow – physical media), Wal-Mart, Starbucks…*Source: Deloitte & Touche

“State of the Media Democracy”

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Agenda

IPTV deployment – confronting challenges to success

Over-the-top content…threat or opportunity?

Focusing for success

The convergence equation

IPTV Deployment – Challenge and Opportunity

25

The Network: Fundamental to Success

The network transforms to a scalable, efficient outdoor LAN

Capacity increases as OPEX decreases

Carrier bundles applications and services that

Contribute to profit

Reduce churn

Target competitors and their customers

IP

EthernetFiber

Application

Application

Application

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How Calix Helps You Win in an All-Video World

The Calix commitment

Frictionless business model

Direct engagement

Deployable standards

Committed to strength

The largest telecommunications equipment supplier focused solely on access

More video deployments than all North American competitors combined (240+)

More FTTH deployments than all North American competitors combined (375+)

Thank You