WATPA: Game on -- IPTV

From: Norm Jacknis <norm@jacknis.com>
Date: Sat Aug 11 2007 - 16:46:20 EDT

Game on

By Paul Taylor in New York

Published: August 10 2007 03:00 Financial Times | Last updated: August 10 2007 03:00

The flat-screen television in Randall Stephenson's office in downtown San Antonio, Texas is tuned to the CNBC business news channel. But AT&T's chief executive is not watching broadcast, cable or even satellite television. The video signal feeding his desktop television is running over the telecommunications company's new broadband video network, dubbed "U-verse".

AT&T's U-verse service uses a rapidly emerging technology called IPTV (internet protocol television) that many analysts and industry insiders believe is poised to become the standard for next-generation television delivery. Despite some early technology hiccups, IPTV could help revitalise a telecoms industry facing the steady decline of traditional fixed-line voice revenues. In the process, it could also disrupt the traditional television broadcasting industry and create a new distribution channel for media companies and content creators big and small.

"We are in the calm before the storm," says iSuppli, a California-based market research company. "As the major telecom carriers deploy services, there will be an escalating battle for subscribers between cable, satellite, IPTV and internet TV/video-on-demand."

IPTV services are mostly being rolled out by telecoms companies and internet service providers. They can deliver multiple channels of high-quality television and video content over dedicated broadband links to specialised television set-top boxes in consumers' living rooms. Programmes are typically viewed on ordinary television sets.

IPTV has the same technology underpinnings as internet television services, which are usually watched on PCs - they are based on the IP technology standard that powers the internet and the web, in which small packets of data are sent down a communications link and then reassembled at the other end. But while internet television services are offered on a "best-effort" basis, IPTV operators generally control the network from end to end and are therefore able to provide guaranteed quality of service. This is important because viewers - particularly those who pay to receive a signal - have grown to expect a high-quality service free from picture freezes, interference and other anomalies.

In addition, IPTV services are usually bundled with broadband internet access and other video services such as video-on-demand. Most also include interactive options that enable consumers to control aspects of the viewing experience such as camera angles, watch multiple channels simultaneously and receive e-mail messages or incoming caller ID information on their television set.

IPTV works quite differently from traditional unidirectional "multicast" networks such as cable or satellite television. In these systems, all the content is pushed down to the consumer's set-top box. With IPTV, by contrast, only the content selected is pulled from the network.

This frees up precious bandwidth and makes IP-based networks much more efficient than their multicast counterparts. So, for example, a 25Mbps (megabits per second) broadband connection of the type being installed by AT&T in the US can support the viewing of two simultaneous high-definition channels and two standard-definition TV programmes.

AT&T is one of dozens of telecoms groups - led by operators in Europe and Asia - that have turned to IPTV technology in the past few years to deploy the television and advanced video services that they believe are necessary to compete head-to-head with cable operators and drive a new video-based wave of growth.

"The total number of IPTV households will grow dramatically over the next five years, rising from just under 6m homes worldwide in 2006 to more than 80m in 2011," predicts Strategy Analytics, a US-based telecoms consultancy.

European telecoms groups have been in the vanguard of this trend. "Western Europe dominates the IPTV market, with 68 per cent of global IPTV subscribers," says Ditterberner, an international market research company that tracks broadband usage. "Only Asia, with 28 per cent, has a comparable slice of the market."

While Hong Kong-based PCCW claims the largest number of IPTV subscribers, with around 700,000, six of the top 10 providers are based in Europe and include France Telecom, Spain's Telefónica, Belgacom and Italy's FastWeb. France Telecom, which had around 450,000 IPTV subscribers at the end of last year, ranks as Europe's biggest supplier, while rival operators Free and Neuf Cegetel are both in the top five.

Meanwhile, Telefónica is exporting its IPTV model to its subsidiaries in Latin America - CTC Chile and Telesp Brazil - as well as O2 in the Czech Republic, and has set a target of garnering between 1.2m and 1.4m subscribers for its Imagenio service by the end of next year.

The strength of the IPTV market in Europe reflects a combination of factors: particularly intense competition, which has forced service providers to be more aggressive in signing up IPTV subscribers; the recent launch of many operators' IPTV services; and the spread of pan-European carriers such as BT, France Telecom, Deutsche Telekom and Telefónica.

The US is noticeably absent from the top 10 IPTV nations, partly because of the strong position of incumbent cable and satellite providers and the fact that most commercial IPTV deployments to date have involved small local and rural carriers. About 85 per cent of US households subscribe to cable or satellite services.

"In North America, the IPTV battle lines have been drawn between the cable television companies and the telecommunications providers," says Frank Dickson of iSuppli. "The cable companies offer a significant installed base of pay television subscribers and fast data rates using their cable modem technology as they expand their services into data and voice communications. "For their part, the telecommunications providers view the cable companies' incursion into the voice realm as an act of war. The telcos have little choice but to respond."

The launch of new IPTV services provides telecoms companies with the opportunity to hit back at cable companies that are using their own broadband internet pipes to offer high-speed internet access and voice telephony based on VoIP (Voice over Internet Protocol) technology. Both groups are hoping that by offering cut-price "triple" or "quad-play" bundles of data, video and voice - potentially both wireless and fixed-line - they can attract and retain customers.

AT&T's Mr Stephenson believes that the ability to offer mobile services gives the telecoms operators a key advantage in this "battle for the living room". "Wireless service is the most personal of the services," he says, "and that gives us an advantage."

AT&T is spending $6bn (€4.4bn, £3bn) to roll out the U-verse network based on hybrid copper/fibre-optic communications links, set-top boxes from Motorola and Cisco's Scientific Atlanta unit and the core IPTV "middleware" (software that glues other components together) from Microsoft.

"Here is how I think about IPTV," says Mr Stephenson. "Every decade we do one major infrastructure, transformative-type technology deployment. If you go back to the 1980s it was wireless - we started from zero and we invested billions in building a business. Now it is a $40bn business growing at double-digit rates.

"In the 1990s that foray was broadband and we invested billions in deploying broadband into the infrastructure and it changed the company. In the 2000 decade, it is IPTV. IPTV is a transformative type of architecture and infrastructure that I think will change what this company looks like five years from now."

For AT&T and its counterparts in Europe and Asia, the move into television and advanced video services comes at a critical time. "Telecommunications companies increasingly are looking to IPTV offerings to augment their declining voice communications revenue," points out iSuppli's Mr Dickson.

But industry executives say the rush to offer IPTV services is about much more than simply offsetting the loss of traditional fixed telephone access lines. "Operators clearly want IPTV to do more than just plug the dam of leaking subscribers," noted a recent report from Accenture, the IT consultancy. "As attested by their aggressive roll-outs, hope is building in the industry that IPTV will translate into major revenue growth."

IPTV is expected to deliver more than just video, offering access to digital music, on-demand gaming and data services, as well as having home security applications. As a result, iSuppli expects the global market for IPTV video services to grow to $26.3bn in 2011, up from just $779.2m in 2006.

"Telcos view IPTV as an opportunity to recapture the revenue generated by many of the internet-based services that have bypassed them by travelling through their broadband pipes," says Mr Dickson. In the past few years both cable and telecoms network operators have watched as internet start-ups such as Google's YouTube, News Corp's MySpace and social networking services such as Facebook have built huge new internet audiences.

The move towards IPTV is part of a much broader trend towards converged IP-based services. Ultimately, as telecoms companies and other network operators move towards an entirely IP-based architecture, analysts believe that video will be offered as "just another service" alongside voice and data.

In the meantime, the impact of the rush to develop IPTV services and the shift towards IP-based infrastructure has triggered a slew of mergers and acquisitions among telecoms and network equipment makers. "A spate of corporate acquisitions is redrawing the competitive landscape in the world of IPTV and telco TV," says Michael Arden of ABI Research.

Motorola, one of the leading set-top box makers, Cisco Systems, Alcatel and Ericsson have all made strategic acquisitions in the past 18 months. As Carl-Henric Svanberg, Ericsson's chief executive, told shareholders at the company's annual meeting: "IPTV will drive traffic and generate more equipment needs as well as exciting opportunities in services and multimedia."

But even IPTV's most ardent boosters agree that technical prowess and even discounted prices will not assure IPTV's success. Ultimately, they note, IPTV service providers will have to offer differentiated services including unique content in order to win customers away from established video providers such as cable television and satellite operators.

That could prove a challenge for telecoms operators which, despite recruiting from the ranks of cable companies and Hollywood, have little or no experience negotiating content deals, let alone creating their own content. IPTV providers are, however, already beginning to offer other features designed to differentiate their services, including niche programming, user-generated video and interactive features such as user-selected camera angles and instant polling.

If the new players on the video block get it right, the potential for IPTV could be substantial. "Subscriber and revenue growth in the IPTV market will be awesome," predicts iSuppli's Mr Dickson. But while he sees enormous potential growth for IPTV services, he is also careful to put the numbers in perspective.

"Comcast [the largest US cable TV operator] had 2006 pro-forma cable revenue of more than $26bn," he notes. "It is very likely that the entire worldwide IPTV industry in 2011 will not be as large as Comcast alone is."

 <http://www.ft.com/servicestools/help/copyright> Copyright The Financial Times Limited 2007


Received on Sat Aug 11 16:46:24 2007

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