Services via phone confront confusion and rivals aplenty
LONDON – David Holt was leading a discussion at a conference on a new kind of television, sent into living rooms over telephone lines, when he decided to pop his toughest question. How many people in the audience, asked Holt, an executive at Nortel, actually watched television in this way?
The mostly young, male telecommunications and media executives facing Holt — Scandinavians in funky glasses, Americans with phones clipped to their belts — might have looked like early adopters. But only about a dozen people, out of several hundred in the room, raised their hands.
Faced with the loss of revenue from their core businesses, telecommunications companies around the world are spending billions to build high-speed networks that can deliver so-called IPTV services — like digital television, on-demand movies and interactive services — via telephone lines.
But as the sparse response to Holt’s question showed, telecom companies may face a significant challenge in persuading even their own kind, let alone ordinary consumers, to subscribe to IPTV, or Internet protocol television.
The biggest hurdle, analysts say, is that consumers already have plenty of ways of bringing digital television into their homes. Cable and satellite have attracted many of the consumers who want to pay extra for television. Free, over-the-air digital television has been introduced in some countries.
Video services like YouTube and Joost are growing on the Internet. Given the variety of other options, does anyone really need IPTV? “That’s the multibillion-euro question,” said Lars Godell, an analyst at Forrester Research. “On a stand-alone basis, there’s really no clear business case for these services.”
Of the companies with the most at stake with IPTV, the biggest single outlay may be the $18 billion that the U.S. company Verizon has invested in a new fiber-optic network for delivering high-speed connections to millions of customers’ homes. Companies like Deutsche Telekom, France Télécom and Telecom Italia have also announced big investments in faster networks.
Nortel, Cisco Systems, Alcatel-Lucent and Juniper Networks, companies that make routers, switches, set-top boxes and other gear, are already reaping the benefits of these investments, executives say. So is Microsoft, which provides software to help telecoms manage digital rights, video on demand and electronic program guides.
The telecoms and their suppliers say IPTV can match or surpass cable and satellite systems in channel capacity, and makes vast video libraries available on demand. IPTV also creates the prospect of improved interactive services, they add.
“TV today is a very archaic experience — it’s like the PC in the 1980s,” said Christine Heckart, general manager for marketing at Microsoft TV, which is providing software to IPTV providers like AT&T in the United States, Club Internet in France and Swisscom in Switzerland.
One reason IPTV has been a tough sell, analysts say, is confusion about what it is. Though IPTV stands for Internet protocol television, it is not delivered over the Internet. Like cable, IPTV uses a closed network to deliver video to televisions, via set-top boxes. That separates it from nascent “Web TV” services like Joost, which are accessed over the public Internet and viewed on personal computers.
Analysts say about five million consumers around the world subscribe to IPTV, though the numbers are concentrated in places like Hong Kong, France, Belgium and Iceland, where market conditions have been favorable. Elsewhere, analysts say, the main attraction of IPTV may be the fact that it is often bundled with telephone calling and broadband in a convenient package of services entering the home via one line, with one bill.
Estimates of growth vary widely. Eric Abensur, a vice president of France Télécom’s Orange division in Britain, predicted at the conference in London last week that there would be more than 100 million IPTV customers globally by 2010. MRG, a research firm, says the numbers will be about half that. Ovum, another firm, is even more conservative, predicting fewer than 30 million subscribers by 2010, though it does not include video-on-demand services in its estimate.
Several success stories for IPTV, or telecom television, as it is also known, were detailed at the conference.
In France, IPTV has attracted close to one million subscribers to at least a half-dozen competing services. In Iceland, the first country in the world to get a nationwide IPTV network, one- quarter of households subscribe to the service, according to David Gunnarsson, senior engineer for data services at Siminn, an Icelandic telecommunications company. In Hong Kong, the telecommunications provider PCCW has attracted 750,000 users to its IPTV service, said Paul Berriman, head of strategic market development.
But in markets where cable or satellite television are already widespread, IPTV faces an uphill battle, analysts say. In Germany, for instance, most homes are wired for basic cable, and consumers have shown little willingness to pay extra for digital cable or satellite. In Britain, well over half the households already get digital television in three major ways: from paid-for satellite or cable, or from Freeview, a free, over-the air digital service.
For some telecoms offering IPTV in these markets, “the main motivation has been defensive,” said Annelise Berendt, an analyst at Ovum.
By adding television to broadband and voice services in a “triple play” package — some telecoms have even included mobile calls, creating a “quadruple play” — they hope to stop existing consumers from defecting and to attract new ones with convenience.
Some telecoms have gone on the offensive, investing in premium content in an effort to attract viewers. Rights to top-flight soccer matches have helped Belgacom, the former telecom monopoly in Belgium, attract subscribers to its IPTV offering; it had 140,000 customers by the end of last year, in a country of 11 million people.
Another pioneering IPTV service, FastWeb in Italy, also used soccer to attract audiences, though growth has slowed recently. In what may be a sign of the challenges facing IPTV, analysts say, the company’s founder, Silvio Scaglia, has turned his attention to an Internet television venture, Babelgum.
Securing the rights to attractive programming can be expensive.
Godell, the Forrester analyst, said telecoms typically had to hand over about two-thirds of their IPTV revenue to content providers, tminimizing profit margins.
But if telecoms do nothing, they could stand to lose even more, analysts say. Video is going digital and online in any case, but telecommunications companies will see no benefit if consumers turn to openly available Internet services like YouTube or Joost instead of the telecoms’ IPTV offerings.
Some telecoms would like to start generating revenue from Internet video sites and other guzzlers of bandwidth, in effect charging them tolls through separate carriage agreements. This has emerged as a sensitive issue in the United States as the 2008 presidential election campaign begins. Silicon Valley businesses that benefit from free use of the Internet have put forth the case for equal access to telecom networks, or “net neutrality.” Without it, they say, only those who can afford the tolls will manage to get their content through an increasingly congested Internet.
Telecommunications companies, and some analysts, say mandatory net neutrality would actually hasten the day when gridlock seizes the Internet. Without the ability to charge fees for heavy users, the telecoms argue, they will be unable to afford the upgrades needed to keep Internet traffic flowing smoothly in the era of digital video.
“If Joost and YouTube think they can ride on someone else’s bandwidth for free, there will be a problem,” said Godell, the analyst.
In a European twist on the debate over network access, regulators in Brussels are locked in battle with the German government over a new law that allows Deutsche Telekom, the former monopoly phone company in Germany, to keep rival telecoms off a new, €3 billion, or $4 billion, high-speed network.
Deutsche Telekom hopes that exclusive access will help it recoup the cost by selling new services, including IPTV. But the European Commission recently warned the government that it faced legal action over what Brussels considers an illegal “regulatory holiday.”
Meanwhile, Telecom suppliers like Nortel will benefit whether video is delivered over the Internet or on private networks; one way or the other, their equipment is needed. But they, too, have a stake in promoting the capabilities of higher-speed networks.
“It’s like the transition from the corner store to the supermarket,” said Holt, the Nortel executive.
Fuente: International Herald Tribune