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Convergence in the TIME sectors

For much of the time since their invention, telephone calls, emails, and television and radio broadcasts were each delivered over different networks, and were only accessible through purpose-specific electronic devices. They also inspired industries based on various business models (subscription, advertising, public funding, private funding). In addition, each industry was often accountable to different policy and regulatory processes and institutions.

However, these modes of communication are now no longer separate. Advances in technology mean that physical network infrastructure initially deployed for a single purpose is now used for multiple purposes. The effect of this is that previously separate voice, video and data services are now all able to take place or ‘converge’ on a single technology network or platform.

Various telecommunications, cable, wireless, satellite and electricity providers are offering these platforms in competition with each other around the world, fundamentally altering the communications landscape. For example, traditional telecom voice providers are now providing video content and high speed data, and traditional broadcasting providers are technically able to provide voice services and high speed data. Figure 1 demonstrates the changes resulting from convergence.

Figure 1: Changes resulting from convergence
Figure 1: Changes resulting from convergence

Personal communication: services, devices and networks

The growing diversity of communications services, devices and networks means that consumers now have an increasing number of pathways to communicate with each other. Significant developments in recent years include:

  • Services: Network-based application services such as Skype, WhatsApp, Viber, and Facebook Messenger are becoming increasingly popular both locally and globally. Such applications deliver voice calls, video calls, and instant messages ‘over the top’ (OTT) of data networks. In addition, an increasing number of New Zealand-based phone and internet companies have begun offering new fixed-line telephone services, which allow customers to make calls over the internet rather than a traditional copper phone line. The cost of using such internet-based communications services is often much less than the cost of traditional communication services.
  • Networks: In addition to traditional fixed and cellular voice networks, Wi-Fi data networks are becoming increasingly ubiquitous. Having access to multiple alternative networks improves the overall robustness and redundancy of personal communications.
  • Devices: The number of communication devices each of us owns is increasing rapidly. The Cisco Visual Networking Index 2015 has estimated that by 2019 there will be more than 35 million internet enabled devices in New Zealand. That equates to more than seven devices per person, up from just fewer than four per person in 2014.

Each new service, device or network differs in terms of cost; quality (best efforts or minimum guaranteed quality of service); relationship between user and the service provider (formal or casual); longevity of use (ongoing or one-off); and regulatory treatment (regulated or unregulated). This diversity of communications options and their associated characteristics means that consumers are increasingly able to select the most appropriate device, service and network to suit their immediate location and situation. For example, at home, a person may elect to make an OTT video call to relatives using a laptop and fibre broadband in the privacy of their home, but use a private messaging application on a smartphone to communicate with friends over public Wi-Fi at a noisy cafe.

Figure 2: Consumer personal communication options
Figure 2: Consumer personal communication options

As a result of this explosion in consumer choice, previously common forms of communication, including fixed-line phone calls and SMS messaging, are now in decline.

Figure 3: Fixed, mobile and total calling minutes (Commerce Commission Annual Monitoring Report 2014)
Figure 3: Fixed, mobile and total calling minutes (Commerce Commission Annual Monitoring Report 2014)
Figure 4: Text volumes (Commerce Commission Annual Monitoring Report 2014)
Figure 4: Text volumes (Commerce Commission Annual Monitoring Report 2014)

Multimedia communication: content creation and consumption

As with voice communication, New Zealanders now have more options to access content in more ways, across a variety of networks, platforms, and devices. As such, creators of media and entertainment content, including film, radio, television, print and gaming, are using this opportunity to expand their reach.

For example, in audio-visual content, by early 2015 New Zealand had a total of five video-on-demand services competing for market share, compared with one in 2012:

  • Quickflix – March 2012
  • Lightbox – August 2014
  • Video Ezy On Demand – September 2014
  • Neon – February 2015
  • Netflix – March 2015

In 2014, 20 per cent of New Zealanders watching television content watched it both online and via a TV set, while four per cent watched it online only[1].  TVNZ’s OnDemand service reached 69 million streams in 2014-15 (up 27 per cent on the previous year) – more than 1.3 million streams per week.

The increase in content offered online is also occurring in other media forms, as providers take the opportunities presented to communicate information through different forms and across different platforms. Radio New Zealand’s website audience grew by 57 per cent in 2014, and since 2008 the number of New Zealanders accessing news online has grown from 25 per cent to 54 per cent[2].

These changes are altering the relationship between content creators and content distributors. Content creators have more options to distribute their content and can now access audiences directly through online platforms. Distribution is therefore less of a barrier to entry for content creators. Traditional distributors have less influence on audience consumption habits, with consumers increasingly switching between distribution methods to access the content they want, when they want it.

The way content is created is also changing. For example, audio-visual content is no longer produced only by large professional media companies: the popularity of platforms such as YouTube, Periscope and Meerkat means individuals can create and share content easily and quickly. YouTube alone has 300 hours of content uploaded every minute, with some New Zealand YouTube channels reaching over 1 million subscribers.

These changes are disrupting the market and providing opportunities. For example, there is an emerging trend of distributors commissioning their own content to meet consumer demands, and we are seeing more content creators and distributors entering the market.

Given broadcasting regulation was designed at a time when content production and distribution was limited to fewer players and different market structures than today, it is timely to review whether and how content should be regulated.

Jurisdictional boundaries are also becoming increasingly unimportant to consumers. The increased accessibility created by digital technologies means data is potentially available anywhere, and both providers and consumers can target and access a much larger global marketplace.

Figure 5: Consumer multimedia options
Figure 5: Consumer multimedia options

The effect on market competition

Convergence is also changing competition dynamics within the TIME sectors. New Zealand-based TIME companies now face enhanced competition from two directions:

  • Competition between firms in previously non-rival TIME sectors: Convergence has enabled existing media and telecommunications companies to diversify their product offerings into each other’s markets, spurring new competition.
  • Competition between traditional TIME firms and new internet-based TIME firms: Operating a traditional broadcasting and telecommunications business requires significant investment in network infrastructure. The cost of this investment must later be recouped from customers. By contrast, providers of application-based services can leverage off existing infrastructure. In addition, sector innovation is occurring at the level of the individual application or device, rather than the network infrastructure level. As a result, consumers’ relationships are shifting away from traditional, network-based service providers to software and device companies such as Google and Apple.

The impact of convergence related competition is further amplified by increasing competition between local and international TIME firms. While the small size of New Zealand’s domestic market and its relative geographic isolation once offered some protection to local firms, globalisation and the falling cost of international bandwidth are making it increasingly attractive for international communications services firms overseas to launch localised product offerings in New Zealand. Even where foreign companies elect not to launch localised products, New Zealand consumers are becoming increasingly active in seeking ways to access foreign content and services available in other jurisdictions.

These new sources of competition have sometimes had the effect of supporting regulatory outcomes. For example, promoting competition for the provision of voice telephony services was a traditional objective for telecommunications regulation. Now, competition has flourished since technology advanced to the point where Voice over Internet Protocol (VoIP) can deliver high-quality voice services. Similarly, the rapid entry of telecommunications and internet businesses into the distribution market for online video content has addressed many of the previous concerns resulting from the lack of competition in the domestic broadcast sector.


[1] Nielsen Media Trends 2015

[2] Nielsen Media Trends 2015

 

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