Articles and whitepapers

Home Networks in Europe: Key Applications and Drivers - A Parks Associates White Paper (1/11/2006)

By Kurt Scherf, Parks Associates

1.0 Home Networking: A Broadband-enabled Solution

The worldwide outlook for home networks is significant. The total number of global households using a data networking solution will grow from approximately 80 million households at the end of 2005 to nearly 145 million by the end of 2010. However, this is only the first step in home connectivity.

Devices Connected in Home Networks

The use of a home network largely as a broadband-sharing mechanism is just the first of several stages in the evolution of home networking. Both consumers and broadband and applications carriers will use connectivity for applications beyond shared Internet. For consumers, the desire to share multimedia content (music, photos, and video) from both home computers and other storage platforms will drive adoption of digital media adapters, either stand-alone or integrated with another platform such as a set-top box.

Carriers see the deployment of home networks as a service differentiator and a means to promote customer loyalty. However, carriers will seek to monetize their customer premise equipment (CPE) deployment by tying these devices into additional services, notably voice and multimedia. We expect them to deploy residential gateways (RGs) as part and parcel of their next-generation voice services and multiroom video applications. As the telcos in particular become more aggressive in offering music and video services to supplement their broadband and voice offerings, they will seek residential gateways that support multiroom distribution of this content. Therefore, there will be a shift away from a market dominated by retail sales to one in which broadband carriers are greater participants in home networking deployment, monitoring, and troubleshooting.

Home Data Network Adoption: Western Europe

Several European broadband carriers have been at the forefront of developing and deploying residential gateway solutions. Residential gateway deployment via the France Telecom Group's Livebox solution (a Thomson product) has already matched - if not exceeded - the service provider-deployed home networks in the U.S. market. France Telecom announced that nearly three million of these RGs had been sold in Europe by the end of June 2006. Livebox is an interesting example of how service providers can lay the groundwork for additional home networking-related services and features by deploying robust CPE. The RG facilitates broadband sharing and serves as the hub for a host of services, including voice, converged communications (videophone), video, in-home multimedia streaming, and remote home monitoring. In the U.K., BT (British Telecom) has launched a Total Broadband service that comes with the Home Hub, a residential gateway that supports both data-sharing and voice applications.

Notable Residential Gateway Solutions: Europe

Work by The Home Gateway Initiative (HGi), a forum to develop standards for broadbandenabled services, will also be a critical factor in allowing additional service providers to deploy an array of value-added services and use premise equipment such as residential gateways. With broadband providers now more heavily invested, the data connectivity space is still growing in importance. Key opportunities within this digital home subcategory will emerge as companies develop solutions that address remote management and diagnostics of the home network (using such industry standards as TR-069), simplify connectivity and resource sharing (printers, files), and enhance security.

2.0 Multimedia and Entertainment Networks

The addressable market for linking a home computer to a legacy CE device is quite small at present. Furthermore, the early market for so-called digital media adapters hasn't fared well due to challenges such as high prices and less-than-perfect connectivity. That being said, there's reason to believe that a market for multimedia networks (PC-to-CE) will emerge as consumer use of digital content services (music and video) - both downloading and streaming - increases and as they seek ways to extend entertainment beyond the home computer. For example, from our Global Digital Living research, we've identified a global base of households in the tens of millions that are likely buyers of at least a point-to-point music distribution system. Service providers may also play a key role in driving developments in this subcategory. As IPTV providers seek differentiation, they are likely to push set-top-to-PC links that would allow end users to display photos and video and play music that is stored on a home computer or other platform.

Identifying the Early Market for Distributed Digital Music Applications

Competition between the main players in the United States cable market and DBS satellite providers has sped the evolution of the digital video recorder (DVR) from a solution deemed "too early for its time" to an absolute necessity in luring new consumers, keeping existing subscribers, and building average revenue per subscriber/user (ARPU). With the entry of telcos into the television-provider mix, differentiation, customer acquisition and retention, and growth of revenue per customer all become critical, and home networking will play a key role in these areas. The penetration of whole-house DVR solutions - and set-top box media servers - will grow steadily from 2006 and beyond to meet customer demand for flexible access to time-shifted television programming throughout the home. And, as mentioned previously, we are not too far off from a market in which set-top-to-PC linkages (for distributed multimedia experiences) are a reality. Beyond the set-top box, additional CE media server platforms will grow in importance for such applications as backup and centralization of media files and for connectivity to a larger base of available video content from a host of Internet services.

Notable European IPTV Initiatives

Digital lifestyle products and services will have a bright future in the European market. The consumer base is large (the total population of European Union member countries exceeds that of the United States), there is much in the way of infrastructure improvement and deployment occurring, the competitive dynamics between and among carriers and upstarts will push the rollout of advanced services, and government and bureaucratic initiatives will provide a substantial push to continued investment and deployment. At the same time, each country's situation remains unique. We're not at the point of declaring widespread deployment of "pan- European" digital lifestyle solutions as current progress tends to be more piecemeal. And, above all, the industry's ability to innovate and develop creative and useful technology solutions must be balanced with the consumer's perception of utility and value.

Kurt Scherf is the Vice President and Principal Analyst for Parks Associates. Parks Associates is a market research firm focused on all product and service segments that are 'digital' or provide connectivity within the home, including entertainment, home networking, home controls, wireless networking, broadband, and on-demand services.

www.parksassociates.com