IPTV: The Big Picture — continued

Startups like FastWeb and PCCW have led the IPTV charge outside North America, but that will probably change going forward, Bosnell and Laszlo say. Telephone companies that actually own the last-mile networks are being hit by new competition from cable TV providers offering voice over Internet phone services via their broadband Internet networks. So telcos have a strong incentive to enter the IPTV market as a defensive measure, to keep customers from bolting to the cable providers who can already offer attractive one-bill, triple-play services.

Bosnell says most major European incumbents are now exploring IPTV, including British Telecom, France Telecom, and Belgacom, Belgium's ILEC.

Innovation is smaller in the U.S.
In the U.S., telephone companies have led the way in IPTV—but mostly small regional companies such as Dalton Utilities in Georgia, the Matanuska Telephone Association (MTA) in Alaska and Pioneer Telephone Cooperative in Oklahoma. There are 1,200 to 1,400 of these independent phone companies in the U.S. According to one estimate, 50 to 75 are already offering IPTV services, and 70 percent of the rest intend to offer service within 12 to 24 months.

"For the little telecom companies, just by virtue of the fact that their networks are pretty finite, it's much more straightforward to upgrade all of the network to offer IPTV services," Laszlo points out. They are also more likely to be able to fly under the radar. Big cable and satellite competitors such as Time-Warner aren't likely to react just because a Dalton Utilities or Pioneer Telephone starts offering competing IPTV services in their territories.

"The Bell operating companies," Laszlo notes, "have always moved more slowly and resolutely than the smaller players have been able to do.

Some big North American telcos are now making noises about offering IPTV services, though. Bell Canada, already in the satellite TV business, has been trialing Microsoft's IPTV technology for over a year. Verizon and SBC have both announced significant network upgrade initiatives.

"It's a long, costly upgrade for telcos to put network capabilities in place to offer IPTV," Laszlo says. "Verizon and SBC are at least now on record as saying that's where their future is lying, but it will be three to five years before their availability levels will put them on a par with cable and satellite providers."

Upgrading networks to make IPTV work and securing wholesale connectivity if you don't own the network are two huge barriers. The capital cost of IPTV-related infrastructure is another.

Different vendors give different accounts of what it costs for IPTV infrastructure, as we have witnessed in these pages. Estimating total costs—especially if you're looking to build a service on an existing network that must first be upgraded—is often difficult or impossible, Bosnell says.

The cost of making money
He offers an example. Some vendors estimate the cost of set top boxes at as little as $100 each, but at least one company trialing IPTV, Bell Canada, recently told Bosnell that actual costs were currently running at more like $600 to $700. Vendors of IPTV infrastructure equipment such as headends and media servers typically do not even include set top boxes in capital cost estimates, even though you can't offer a service without them.

Infrastructure vendors also frequently muddy the distinction between the potential revenue from and actual profitability of IPTV, Bosnell says. "You may get an average revenue of $50 a month from video. But often a lot of that will go back to content providers just to pay for privilege of using their programming."

The whole business of acquiring content is another major challenge. Many observers in Europe believe content will determine the success or failure of IPTV operations, Bosnell says. "It's content that ultimately that will drive this—who's got the big football game or the big sports package?" In some markets, some programming may not be available in the absence of regulations forcing owners to sell to IPTV operators, he says.

As Laszlo and others note, content aggregators are beginning to emerge that can save individual IPTV operators the time and trouble of acquiring content on their own, wholesaling them bundles of channels and video on demand (VOD) content which they can then retail to subscribers. But Bosnell notes that Home Choice in the UK recently abandoned the aggregator it was using and began negotiating deals with content owners on its own because the aggregator couldn't deliver the programming Home Choice felt it needed.

Build it and it will be there
Finally, there is the ticklish question of whether, even if the programming is there, customers will switch from cable or satellite TV providers to take an IPTV service. Will they see it as reliable enough, and will they see the vaunted benefits of IP-based TV as inducement enough to make a change? "It's a lot to ask," Bosnell says of the pitch to consumers.

Infrastructure vendors insist that IPTV operators will be able to compete on value-added features and quality of service rather than just price, but the jury is out on that Bosnell says. Where IPTV has been most successful to date, operators have plucked low-hanging fruit such as poorly served markets (France, Italy) and densely populated centers (Hong Kong). And in France at least, the IPTV operators are offering deeply discounted service bundles.

The supposed value-added benefits of IPTV include the ability to deliver more channels, faster shifting between channels, picture-in-picture for on-screen programming guides, time shifting programs and integrated services such as on-screen caller display for customers taking both phone and TV services.

"Obviously some early adopters are interested in all that," Bosnell says. "Whether the mass market is interested is a debatable point."

Laszlo agrees. "Even though there are some interesting, fun things you can do with IP-delivered TV versus digital cable," he says, "in practice, it looks pretty similar. It's high-quality video delivered to a set top box that may include [digital video recorder] functions."

Will consumers buy in? Preliminary results from FastWeb, PCCW and other early leaders suggest they might, but whether in big enough numbers to create a viable long-term business remains to be seen.

— End

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