That's entertainment
By : Anna Kocinska
Cable operators are in trouble. After 10 years of unrestrained growth and with millions of viewers able to access domestic and international TV channels, operators need new strategies if they're to continue expanding.
Man with a mission: Tomasz Wegrzynski, president of Telewizja Kablowa Vectra.
Not surprisingly, many cable companies are looking to the Internet for the business growth of tomorrow.
"There are two ways to expand: either through consolidation or new services," said Tomasz Wegrzynski, president of Telewizja Kablowa Vectra (TVK Vectra), a cable operator based in Gdynia. With 265,000 subscribers, TVK Vectra, established in 1992, is the third-largest cable operator in Poland. To help the company grow further, Wegrzynski is standing by his philosophy and introducing services and consolidation into his business strategy.
Last year, the company led the cable sector in mergers and acquisitions, which have allowed it to set up a cable TV operation consisting of 54 smaller networks throughout Poland. This year it plans to incorporate another 30 regional networks, spending about zl. 55 million ($13.6 million). Meanwhile, TVK Vectra's goal is to provide new services through its cable network, including access to the Internet, video on demand (VOD), high-density TV (HDTV) and virtual private network (VPN).
"Today, a TV outlet is like a kiosk where you sell different goods," Wegrzynski said. "In the future, we will sell through that same socket services that we can't even imagine now."
TVK Vectra's 1,000 subscribers pay zl. 100 per month for unlimited access to the Internet at a speed of more than 100 kilobytes per second. "From a business point of view (the number of subscribers) is not much," Wegrzynski said. One of his networks, however, nets 20% of its turnover from Internet services. "The introduction of this service will take up to two years, but after that our number of Internauts might reach more than 10,000 and in the future dozens of thousands if not hundreds of thousands," he said. To achieve this the company is working on increasing its reach to more customers. The number of Vectra's TV-services subscribers increased by more than 50% last year compared to 1999, Wegrzynski said.
But introducing new services, especially when cable TV subscribers aren't demanding any, is costly. Last year, TVK Vectra invested zl. 12 million ($2.96 million) to modernize its networks, which enabled the company to introduce an Internet-access service, and this year that figure will treble to zl. 45 million. ($11.11 million), Wegrzynski said.
"While construction of the first cable networks several years ago was practically financed by our subscribers, today what they pay in subscription fees is not enough to make the necessary investments in the Internet," Wegrzynski said. To help this along, TVK Vectra received funds last year after striking deals with Bank Rozwoju Eksportu (BRE) and four investment funds managed by BRE. The funds acquired 26% of cable.com, a company created by TVK Vectra, for zl. 130 million ($32.09 million). "But today, after new-technology companies' failures, it will be hard for smaller cable operators to get such outside financing," Wegrzynski said.
Are you receiving me?
Cable guy: Working on Ratajska cable TV Internet operations.
The Polish cable market is still fragmented, with only seven operators serving more than 100,000 subscribers. Apart from TVK Vectra, the other two main players are: UPC Telewizja Kablowa with 1 million subscribers, and owned by Amsterdam-based United Pan-Europe Communications (UPC); and Aster City Cable, part of the Elektrim group, with 280,000 subscribers. By the end of this year, Aster City also plans to hook up 25,000 subscribers to the Internet in Warsaw. Another 24 operators have more than 10,000 subscribers each, but the remaining 2 million subscribers are customers of hundreds of smaller networks with fewer than 10,000 homes plugged in.
"You need a critical mass before you can think of welcoming the first Internet subscriber," Wegrzynski said. "What we now call a critical mass level is 200,000 subscribers in a network and that might still increase."
Cable operators from Poznan decided to reach the required critical mass by themselves. In 1999, the five largest cable networks in Poznan, with 120,000 subscribers, established Internet Cable Provider (ICP). ICP provides Internet access service (at more than 128 kilobytes per second) to subscribers of the five cable operators.
"We didn't have any problems making this deal," said Henryk Paluszkiewicz, president of cable operator Ratajska TVK Elsat. "The costs for installing the servers and rooters necessary to introduce the new services are so high that we couldn't afford them as separate companies."
For now, the potential reach of the new service in Poznan is limited to 15,000 households. But ICP is able to add 2,500 households per month, according to Paluszkiewicz. Meanwhile, ICP has only 1,000 subscribers, both individual and corporate, but Paluszkiewicz is hopeful the investment will pay off. "It's only a question of time," he said. "In the near future 10% of our subscribers should buy the new service. Besides, interactive TV has always been our goal, so we knew that we would need a two-way transmission cable network. Even seven years ago we built our networks with that condition in mind."
And the number of cable TV subscribers can still grow. Paluszkiewicz said cable operators can count on up to 120,000 new subscribers, some of whom will buy the new services. "It will all depend on price," he said. "And imagine if prices of transmitting data go down, and there is a world trend to scale them down as low as possible. We could make money on all those new services (Internet, video on demand, telephony, etc)."
Meanwhile, Polish cable operators are not alone in dreaming about the Internet's potential to bring in cash. Telekomunikacja Polska (TPSA), known for its crackling, dial-up analog connection to the Internet, plans to introduce NEOSTRADA, a new way of accessing the Net. NEOSTRADA will be available in four speeds: 256 kilobytes per second, 512 kilobytes per second, one megabytes per second, and two megabyte per second, all of which won't block a telephone line when in use. NEOSTRADA is based on Asymmetric Digital Subscriber (ASDL) Line technology, which provides broadband access to the Internet through an ordinary telephone line. The service is being tested in Warsaw, but it should be available across the country by the middle of this year, TPSA said. Cable operators seem to be taking it seriously. "If NEOSTRADA pushes prices down, we will have a price war," Paluszkiewicz said.
The price for installing NEOSTRADA will vary from zl. 100 to zl. 700 depending on the data-transmission speed selected. Subscribers will also pay a monthly fee of zl. 300 to zl. 1,500. Piotr Zabadeusz of TPSA's press office said the new service, especially the fastest version, will be geared toward corporate clients.
"But it requires huge investments from TPSA," said TVK Vectra's Wegrzynski. "These technologies are very costly so it has to impact the service's final price."
Pick up the phone, please
Special dial-up: Edyta Kurek, director for Internet services at UPC Polska.
While most cable operators don't have direct competition in their respective regions, Warsaw is where everyone wants to be, especially the big firms.
El-Net and Aster City Cable provide an integrated three-prong service of Internet, telephony and cable TV through a fiber-optic cable in Warsaw's Ursynow district. Since 1999, Aster City has also provided Internet access through its TV cable network. But apart from the growing number of cable and telecom operators, a new kind of Internet service was also introduced. And Warsaw was the first to have it.
In December 2000, UPC began offering its so-called "satellite chello" service, meaning Internet access via satellite, through UPC's direct-to-home (DTH) digital platform, Wizja TV. It requires a telephone, though, to guarantee the two-way transmission.
"The concept of such a service occurred last June the only one in Europe because UPC has no experience with satellite digital broadcasting," said Edyta Kurek, director for Internet services at UPC Polska. The project's testing began in November. "We were very careful to see how customers would accept this service," Kurek added.
But now Kurek has no doubt that the satellite chello service will expand throughout Poland, although she wouldn't reveal the number of subscribers. "Apart from Warsaw, satellite chello has been available in Katowice since March 15, and we plan to introduce it in all of the main cities in Poland by the end of May," she said.
While customers buying the new service need a telephone line, Kurek said UPC has its own special dial-up numbers granted by TPSA. "One doesn't need to worry about additional telephone bills because with the speed we guarantee (up to 10 times faster than a regular dial-up connection) they spend less time on the line," she said. Subscribers of Wizja TV pay a zl. 100 deposit and a zl. 120 monthly subscription fee for unlimited access to the Internet.
All of this started with the introduction of chello broadband, UPC's subsidiary, which provides this flagship service. In December, via UPC TK, it offered unlimited Internet access in Warsaw, and later Krakow, at a speed of 512 kilobytes per second, eight to 10 times faster than TPSA's dial-up data transmission. UPC TK is a cable network (formerly Polska Telewizja Kablowa-PTK) acquired from U.S.-based @Entertainment.
With a cable network reaching 1.8 million homes, UPC TK has more than 1 million subscribers across Poland. "But they also purchased Wizja and they had to do something with it," said Vectra's Wegrzynski. Wizja TV has more than 400,000 subscribers.
According to Wegrzynski, for the next few years flexible pricing of services will be the key to success on the market. "In a few years, if we are able to have competitive prices we can still be on the market, and who else? There will be terrestrial operators like TPSA, mobile and UMTS operators, cable operators and maybe someone else, which we even can't imagine today," he said. "Obviously, there will be no monopolist on the market."
