Google IPTV Entry Called Key Worry for Broadband Providers

Confusion over IPTV’s prospects arises from several factors, said Chris Coles, CEO of Myrio, a Siemens company. Delivery options are expanding. Thanks to digital video recording, viewer habits are shifting from linear to demand- based. Digital content is exploding, as is traditional programming. Devices are simultaneously growing -- wide- screen TV, for instance -- and shrinking, as with iPods. Service providers must “add value or perish,” Coles said.

IPTV offers “enduring opportunities,” he said. Injecting interactivity into TV lets providers engage audiences through voting, SMS, chat and e-mail -- services traditional broadcasting can’t offer. IPTV lets consumers learn, order, pay and engage in other commercial transactions. And providers can teach consumers about services like call handling and recording.

By 2010, nearly 370 million homes worldwide will have broadband access, predicted Strategy Analytics analyst Martin Olausson. They will include nearly 2/3 of households in Europe -- a market dominated by DSL technologies, which could create competition problems if cable capability doesn’t increase, he said. The coming years will see Europe lead in IPTV projects, since its DSL market’s fragmentation means most providers want to offer TV over broadband. IPTV will play a significant role in Europe -- but amid strong competition from established platforms, he added.

Global Portals a Worry

“Uncertainties remain,” said Olausson. Pressure in core business areas has forced major telcos to launch IPTV, but they may not stay the course. Financial and technical pressures could discourage some service providers from committing to the infrastructure they need to support critical IPTV services. Digital terrestrial TV (DTT) launches in Europe raise the questions of whether hybrid IP- DTT models can succeed and whether DTT siphons off potential pay-TV customers.

Other IPTV products and players -- portals, iTunes, P2P -- could beat telcos to the punch, Olausson said. But the main worry is whether Google, Yahoo and AOL will offer IPTV services directly to users. The U.S. is having a debate on who should pay for access to high-speed networks, he told us. With fiber-to-the-home, cable, DSL and other networks gaining popularity, the danger is having Google or some other global portal providing content.

It will be important for broadband service providers to have access to crucial content, akin to the U.K.’s BSkyB and its exclusive rights to football matches, Olausson said. And Internet TV remains an iffy user experience, he said. Providers must change that by adding interactive and other services.

IPTV Ready for Prime Time?

A version of IPTV debuted years ago but failed for cost, technical and consumer-interest reasons, said Ovum Consulting Dir. Tom McKeever, who stressed he was talking about TV and video delivered over DSL, not Internet-based services. But now the time is ripe for IPTV, McKeever said. Costs are “fundamentally different” now; overbuild costs remains the most significant as others have shrunk. Higher bandwidth enables delivery of products and services that consumers actually want and that meet their expectations. Users are more willing to pay for TV, McKeever said. Someone who buys a “97-inch plasma screen” is more likely to buy programming to show on his new toy.

IPTV is spurred by “fear” as well as opportunity, McKeever said. Telcos, fearing cable firms will “eat our lunch,” are trying to hold onto as much of their customer base as they can. At the same time, IPTV offers new revenue sources as broadband service providers add paid-for content to basic services to survive financially. Incumbent telcos have to ask themselves “can we afford not to” offer IPTV, McKeever said.

Before 2010, IPTV users in the 5 biggest European nations will top 7 million, McKeever said. In N. America, IPTV will reach 21 million subscribers by then, or over 15% share of the market, according to Ovum. Development will vary greatly by market, he said. A heavy focus on defensive strategies could hamper IPTV penetration the next 3 years.

Web-based video services pose a “significant future threat” to IPTV, McKeever said: If consumers have Google on TV, why pay for Sky or a similar closed network? HDTV rollout also will affect IPTV, he said. IPTV is “proven” to require more than 25 Mbps, but it’s unclear how quickly telcos can upgrade their physical plant to meet that demand.

Ovum’s predictions about IPTV uptake in N. America by 2009 are “bullshit,” said Gartner analyst Patti Reali. Infrastructure construction will take a long time, she said. Verizon is marketing IPTV service to just 1/3 of 18 million homes this year, and AT&T hasn’t begun construction. N. America’s “highly mature” market -- and questions on whether IPTV not only will win over new households but grab market share from existing satellite and cable incumbents -- mean the best case is only about 9 million homes adopting IPTV between by 2009, she said.

Satellite providers could be more vulnerable than cable in the IPTV wars, since they're not offering triple- or quadruple-play services, Reali told us. They're talking about adding a fixed wireless broadband bundle, giving users broadband access and enabling on-demand programming and interactivity. If N. American satellite TV can pull that off, Reali said, that would mean 3-provider competition in the bundling market.