Convergence-driven competitiveness

Which companies will be most heavily impacted by sector convergence and how good is their starting position? These are not only two exciting but also crucial questions facing the broadband market. The prognoses of international experts provide some answers (Table 1).

Table 1:		Impact of convergence and competitive position (international experts)

According to the experts, convergence will have the biggest impact on telecommunications companies, followed by companies in the Internet and media sectors, just ahead of TV cable providers. The findings also indicate that the impact will be substantial in all sectors. No single sector can assume it will be able to escape the impact of these, in part, dramatic changes. But who is best prepared to master these changes?

The international experts believe that the Internet companies have the best competitive position in the process of convergence. After a gap these are followed by the media and telecom companies. Trailing them are the TV cable companies, who, according to the international experts, are endowed with the worst competitive position with respect to convergence.

It is a little surprising that especially the infrastructure-based companies (telecom and cable) are regarded as having the weaker competitive positions in the convergence process. The reason could lie primarily in the IP-based conversion of distribution networks. Compared with other countries such as UK, the use of IP-based data transmission is not as far advanced in Germany.

This situation is set to change over the next few years. The broadband experts predict that, to a large extent, the telephone network will have migrated to IP-based data transmission by 2010 (Figure 6). According to the experts, the telephone network will have migrated to a high to very high degree to IP-based data transmission by 2010, ahead of DVB-T, satellite and finally cable networks.

Figure 6:		Migration to IP-based data transmission by 2015 (broadband experts

Convergence is also a crucial growth driver in the information and communications sector. As already mentioned in Chapter 2, this is where major growth spurts are expected to occur by 2015 (Figure 7). By 2010, according to the predictions by the experts, the overall market is expected to grow by more than 33%. By 2015 growth of around 25% is expected.

Figure 7:		Growth of the information and telecommunications market in Germany by 2015 (experts from public institutions)7

Against a backdrop of strong growth in the information and communications market, broadband experts were surveyed for their opinion on future market share in the convergent broadband market (Figure 8). Telecom companies are expected to have the biggest market share in 2010 as well as in 2015, followed at a great distance by the content-based, cable-based and Internet-based providers.

The predicted development in market share between 2010 and 2015 sees a relative gain on the part of Internet companies - more pronounced than for content and cable providers. Relative in this context means: in an overall market subject to strong continued growth, the telecom providers will not grow as strongly as the others. They will continue however to retain their leading position in the market as a whole.

Figure 8:		Figure 8: Market share prognosis in the convergent broadband market (broadband experts)

In recent years media companies in particular have suffered significant losses as a result of the convergence-induced competition between the markets for offline and online classified advertising. In some areas classified advertising sales have shifted by as much as 50% to the online sector.

What are the conclusions to be drawn from this? We asked Social Web experts how well-prepared conventional media companies are for convergence-induced competition (Figure 9).

Figure 9:		Readiness of media companies for facing convergence-related competition (Social Web experts)

These results are surprising and represent cause for concern for companies in the media sector. According to the findings, media companies have introduced the fewest changes to their organizational and editorial structures to adapt to the dynamic competition with innovative companies from the Internet.

According to Social Web experts, the situation is scarcely better with regard to the marketing and sales activities of the media companies. Here, too, media companies have adapted their activities only partly to the changing business environment.

Nor have they made adequate progress in adapting their business strategies to meet the demands provoked by sector convergence. Only in the area of M &A activities do they show signs of having to some extent a good starting position for coping with the competition associated with the converging media sectors.

These findings are sobering, and it would appear that the media companies have not yet come to grips with the challenges presented by sector convergence. The biggest challenges, according to Social Web experts, are to be found in four areas: the first challenge involves the transfer of content to the Internet and the integration of user-generated content in the context of copyright and digital management.

Secondly, traditional revenue models in the publishing sector need to be reviewed and modernized to be able to counter the drift of advertising revenues to the Internet. Thirdly, there is a constantly growing need to integrate offline content with online activities and/or enhance it with multimedia components to be able to maintain reach. At a rate of more than 80% agreement, Social Web experts regard these three challenges as the most important areas that need to be tackled by traditional media companies. But the integration of user-generated content, for instance blogs, also represents a core challenge for media businesses. At the same time it is important to note that this integration must not be allowed to erode the value of editorial content. The challenge is not about replacing traditional editorial activities, but rather about using integration to generate added value.

Sector convergence is not just a phenomenon facing companies in Germany, but is, rather, a global problem. With the aid of international experts "Deutschland Online 4" has put the spotlight on this issue. The main focus is on the status of the convergence processes in the triad (Figure 10).

Provider convergence is most advanced in the triad (Europe, the United States and Asia). This is understood to be the creation of integrated providers of broadband access, content (Internet TV, VoD) and services (VoIP) in the form of Triple Play. After a small gap, this is followed by technology convergence. The latter term signifies the IP-based bundling of the same broadband services and content via telephone networks, cable networks and satellite.

This is trailed by the convergence of consumer end devices - understood to be the use of different services and networks using a single device (media centers). The smallest amount of progress has been registered in product convergence - the integration of different functionalities in a single online package (e.g. interactive shopping TV).

These findings show that convergence in the triad is happening more at an aggregated level, as the greatest progress has been made in the convergence of providers and technology. On the media center and product level, the rate of convergence will, according to the findings, be intensified. This will result in more integrated products and services for Internet users.

Figure 10:		Status of convergence processes in the triad (international experts)

Viewed overall, the convergence process has become tangible in all sectors, and consumers can now experience it through integrated forms of product offerings. A marked increase in sector convergence is expected to occur in the future. This will become particularly apparent to the consumer in the form of Triple Play - the subject of closer scrutiny in the next chapter.