Asia Pacific operators need to find the right way to sell connected-home services

Having traveled the global telecoms-conference circuit for more years than I care to remember, I have lost count of the number of forthcoming “revolutionary” services I have heard breathlessly pronounced by vendors and operators – most of which ultimately amount to nothing.

I need hardly trawl through the list of failures at length, but a special mention should go to 3G video-calling, a concept I must shame-facedly admit I enthusiastically bought into, even buying a cumbersome Motorola 3G handset to lend my weight to the doomed concept.

Despite multiple attempts by operators to breathe life into it, 3G video-calling was an unmitigated disaster. Consumers, for a multitude of reasons, did not want to engage with the technology. It just did not suit their behavioral habits or lifestyles.

The hot offerings of the moment are, of course, connected-home services, which are being deployed by fixed-broadband players across the globe, all of which are desperate to find new revenue streams for their expensive broadband networks. But will these services find commercial success?

The long wait
Attending the Broadband World Forum Asia 2012 conference in Kuala Lumpur recently, I was struck by the fact that several operator delegates who in previous years had talked of connected-home services on a theoretical basis were now launching full commercial services, though services remain in their infancy.

Whether Asia Pacific operators have already launched connected-home services or are still only in the planning stages, they pretty much agree on one thing: Selling such services to subscribers is going to be an uphill battle. After all, it requires operators to take subscribers well out of their comfort zones.

Consumers are used to buying one central component from their telecoms provider: connectivity. They are still getting used to the idea of buying content from their telecoms providers, and even then with no great enthusiasm in the vast majority of cases. So for these operators to start successfully retailing services such as home-security and energy control and device automation is a big step.

One senior executive from an incumbent operator in a middle-ranking Asia Pacific broadband market told Informa Telecoms & Media last week that selling connected-home services was going to be a “very tough task.”

“The real issue is that outside the small number of early adopters, the rest of the subscribers have very little understanding of what connected services really are, let alone the value that they provide,” he says. “We have had trials around these kinds of services but aren’t convinced that it is worth proceeding to commercial services if the demand in the market is not really there.”

The front-runners
Of course, some operators in the region – mostly, it has to be said, in bandwidth-rich and tech-savvy markets, such as South Korea and Japan – already offer connected-home services on a commercial basis and are reporting a steady, rather than spectacular, take-up.

With a combined IPTV subscription base of more than two million, Japanese broadband-market giants NTT East and NTT West launched their initial connected-home services in August. They are already offering multiscreen services on a commercial basis – the Hikari TV IPTV platform is viewable across a range of devices – but are still trialing home-security services, energy and device management and TV-based videoconferencing, with a view to a full commercial launch.

Moreover, NTT East and NTT West say they are actively seeking to work with third-party service providers to offer connected-home services, rather than trying to deliver the whole range of potential services by themselves. They’ve launched their FLETS Joint service platform to facilitate cooperation.

South Korean incumbent KT has also launched its own connected-home services, though the company has initially taken a tablet-centric approach, with services deployed via the Smart Home Pad tablet PC, a version of the Samsung Galaxy Tab 8.9 that retails for KRW669,090 ($570).

KT launched its initial connected-home services in November and has sold about 40,000 Smart Home Pads. The initial services are targeted at 40- to 50-year-olds. KT is initially offering subscribers home-security services, priced at KRW5,000 a month, as well as e-health and multiscreen applications, and it is looking to add new applications, most notably home- and device-management services, before year-end.

Intriguingly, it is not just fixed-broadband operators that are getting on the connected-home train. In Japan, third-ranked mobile operator SoftBank is offering a home-security service using its 3G/4G networks, employing a home-security system from Chinese vendor Huawei.

The Huawei H670 Home Control Station is a self-installed system that sends an SMS-delivered warning to the subscriber’s mobile handset if it detects a security breach, showcasing a potentially interesting new revenue stream for mobile operators.

But how do you sell it?
Operators in the US are slightly ahead of their Asia Pacific counterparts in terms of deploying connected-home services, and it is interesting that US operators such as Verizon are marketing their services under labels such as Home Monitoring and Control, essentially trying to position the services in terms of the value they provide.

Israeli vendor Amdocs, one of the many vendors eager to help operators deploy connected-home services, says that US operators are typically trying to slowly introduce subscribers to the overall concept of connected-home services by launching initial well-priced services, such as home security, for which Verizon charges just $9.99 a month.

The idea is then for operators to try to persuade subscribers to take a broader range of connected-home services, which will not just increase ARPU but also substantially reduce churn by making it much more difficult for a subscriber to defect to another operator, because they will be giving up a whole range of valuable services.

Amdocs officials say that operators do not need to make connected-home services a mass-market success for the services to be profitable. The company says operators typically need only achieve five per cent penetration over five years, charging US$5-10 a month, to achieve a revenue increase of 4-7 per cent – a tempting proposition for operators.

The figures supplied by Amdocs might be dead on, but one senses that achieving even a modest take-up rate of five per cent would most likely require a considerable investment in time and capital from operators to push the connected home to the mass market, not least in working out how to bring in outside partners to help them deliver popular services while keeping charges low.

In addition, the other potential headache for operators is that the more hardware they put into subscriber homes – security cameras, monitors, sensors, etc. – the greater the likelihood that they will receive costly and time-consuming subscriber complaints that devices are not working properly or that the entire system is not working.

Such problems can largely be alleviated by professional installation of hardware in the home. But how many operators are going to be willing to finance or even partially subsidize that if they are only going to be earning an extra $5 a month from the service?

I don’t think connected-home services will fail as spectacularly as video-calling did in the previous decade, but there are still plenty of questions for operators to ponder.

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