Canal Digitaal, a satellite pay-TV operator in the Netherlands, is looking to make broadband market inroads but has modest initial expectations for its satellite broadband Internet service, a company official said.

The pay-TV operator, which has around 600,000 television subscribers, plans to launch its broadband service in October using the Astra satellite system. The Dutch broadband market has a penetration of around 40 percent, so the potential market available to Canal Digitaal will not be huge. “At the moment, we just want to build the base of customers, and initially that might only be something like 2,000 customers,” Hans Wolfert, chairman of Canal Digitaal told Satellite News.

Like other satellite broadband offerings, Canal Digitaal will target areas where there are few terrestrial alternatives in an attempt to build its customer base. The Internet offering will be based on a hybrid solution, using Astra for downloads and GPRS, Edge or a telephone line for uploads. Initially, Canal Digitaal will offer three downstream speeds: 256 kilobits per second, 512 Kbps and 768 Kbps.

Wolfert would not disclose pricing. “It is too early to talk about the costs involved,” he said. “We are still negotiating prices with people like Astra and various operators.”

While satellite broadband service speeds have been compared unfavourably to those provided by terrestrial offerings, trials of the Canal Digitaal service have been fairly successful, Wolfert said. Satellite “does have limitations,” he said. “However, we have been testing it in the regions where we are looking to promote it. We have seen no drop of service levels whatsoever. To set it up is rather complex, but once it has been set up, it is working fine.”

Paul Erickson, a media analyst at IMS Research believes it is a natural move for operators such as Canal Digitaal to look at the broadband space as a way to stay competitive in a market that is moving toward triple-play options as a way to capture subscribers. “With share being taken via the push towards triple play, the DTH sector needs to have a competitive story to answer,” he said. “Offering broadband helps complete the DTH sector’s story when it comes to offering more than pay-TV. This is especially relevant in those areas where DSL and/or cable operators are already providing triple play.”

Television

While Canal Digitaal hopes to grow its average revenue per user with the broadband offering, the television market remains the main focus for the operator. The company hopes to grow to more than 1 million households throughout the next three to five years.

The Dutch television market also has some interesting dynamics. UPC, one of the main cable operators for example, is in the midst of an aggressive digitization process where it is subsidizing its customer base to make the move from analog to digital. Other cable operators also are accelerating their digital plans. Casema has around 100,000 digital subscribers and hopes to double this throughout the next year. Casema also plans to launch more progressive on-demand services as its makes it move to digital.

Wolfert believes cable players adopting aggressive digital strategies are balancing a double-edged sword. “This will increase the understanding that digital TV has a superior quality over analog,” he said. “Therefore, it will support the fact that digital is the new de facto standard for quality TV. However, cable customers will have to get used to the [set-top box] in the home. Connecting more that one TV to a digital system is not as easy as in the analog world. To keep customers happy, this needs to be explained thoughtfully.”

IPTV

The other emerging threat in the TV market will come from KPN, which intends to launch an Internet protocol (IP) TV service later this year. Wolfert is unsure as to what impact KPN will have in the market, which already has telco Versatel offering IPTV and other telcos also looking to provide IPTV.

“KPN will pick up some market share, but if they want to make money out of television, they will have to have a good economic model,” Wolfert said. “It will take some time before IPTV becomes a very profitable business. … If you want to watch IPTV, there are still a lot of issues from the customer perspective to get all that stuff into the home. If you look at Versatel (another telco) in the Netherlands, they have campaigns for here to eternity, but they haven’t convinced customers about the offer.”

Other Areas

With emerging competition in the Netherlands, Canal Digitaal will have its work cut out to reach its target of 1 million subscribers. Along with broadband, the company also is looking at additional services such as personal video recorders (PVR) that could attract consumers.

“In terms of the capacity of the boxes, we had internal discussions and we are leading towards 160 gigabyte boxes,” Wolfert said. “I think this is plenty of capacity even when you consider things like push VOD . These new type of products should be plug and play for our customers. We hope the retail market will take care of this. If not, we consider developing PVR packages for our customers ourselves.”

The operator could also look to do partnerships with mobile operators to make its content available on other platforms. “We have mobile operators trying to create their own models here,” Wolfert said. “We will be ready to do partnerships, but at the moment everybody is all over the place. Everybody wants to line up their own stuff. Once the telcos find out that television is a little bit more difficult than they realized, we will probably get a play at it.”

Throughout the next year, Wolfert believes there will be huge growth in the Dutch digital television market, and the company is determined that satellite can get its share. “Over the next year, another 10 percent of the Dutch households will go digital,” he said. “From that 10 percent of the television base, it means that 600,000 customers will convert to digital. There will be enormous growth and we will have our share of that growth.”

–Mark Holmes

(Erik Zegwaart, Canal Digitaal, e.zegwaart@ezilly.nl; Gradus Vos, Casema, gradus.vos@office.casema.nl; Paul Erickson, IMS Research, Paul.Erickson@IMSRESEARCH-USA.COM)