[IPTV Myths]Part 3: Deployments

For the past two issues we’ve run a fascinating series of articles authored by Hemang Mehta, IPTV Group Product Manager for Microsoft TV, focusing on the technical aspects of the burgeoning IPTV market and the myths surrounding the consumer experience. In this final installment, Mehta discusses some of the common misperceptions about IPTV deployments.

Myth: IPTV won’t be with us any time soon.

The reality. IPTV is already operational today in more than 20 countries, in dozens of major markets. Though no deployment currently extends beyond several hundred thousand homes, this is changing rapidly as major incumbent telcos take on the large investment required to create and operate nationwide IPTV systems. In the United States, for example, as of June 2007, AT&T has deployed its U-Verse service in more than 20 markets.

Virtually all forecasting organizations see IPTV becoming a major force in pay-TV delivery services, growing from a few million IPTV subscribers globally today, to anywhere between 25 and 40 million in three to five years.

The Explanation. Like many new ideas, only entrepreneurial operations invested in IPTV until it was clear that services were feasible, economical and acceptable to service providers and consumers alike.

This took roughly five years to achieve, and for many industry watchers, particularly smaller equipment suppliers and start-up companies looking to leverage the IPTV opportunity, it’s been a long wait.

As telephone companies’ voice revenues - their major source of income - began to decline due to increased competition and general price erosion, it has become apparent that IPTV services are one of the key ingredients in revitalizing telco revenues. That has led to some brave decisions and a bout of infrastructure development, which is now happening at a relatively rapid speed.

Triple-play services will create attractive service bundles, which in turn will reduce churn. For this to happen, IPTV must be rolled out quickly.

Many other countries are currently ahead of the United States in IPTV and will also be broadening the scope of their systems at the same aggressive rate. Given the time it has taken for cable and satellite to extend their footprint across the United States and the world, there doesn’t seem to be long to wait until IPTV comes to your town and those 40 million IPTV forecasts begin to look conservative.

Myth: The truly innovative features and applications of IPTV won’t be available for several years.

The reality. It is true that the networks of many telecommunications operators around the globe are not ready to support the full weight of IPTV applications. But with more than 200 million broadband lines currently installed around the globe, this is changing rapidly. It is also true that many of the early IPTV pioneers were either small companies or the operators themselves. Now the market has been clearly established, with several of the world’s largest and most successful technology companies behind it, expect to see service providers benefit and able to more rapidly drive the market.

The explanation. The very first IPTV installations happened during 2000, so this industry is less than 10 years old. In the early days, IPTV was “me-too” TV: it did not scale, didn’t always work, and much of the content went unprotected into the consumer world.

Since then, we have seen many innovations, such as IP-based DVRs, multiple picture-in-picture capabilities, mosaic interfaces and high-definition TV. Home media sharing capabilities that allow consumers to enjoy their personal content like music and photos on the TV is also already available.

To get each of these IP technologies to market in volume, the access networks had to be in place and core networks needed to be bolstered. In copper-based networks, this was only possible with the arrival of the ADSL2+ and VDSL2 chipsets bringing greater bandwidth to last-mile lines. These newer flavors of DSL are only now rising to volume deployments. Likewise, bringing these new facilities to market requires an entire ecosystem of technology providers and stringent testing to ensure that systems, once delivered, won’t later fail.

When you take into account the growing availability of third party developer tools that become available, the speed with which innovative services and applications will be developed and deployed will only accelerate. Microsoft, for example, recently released an application developer toolkit that will allow third parties to develop unique services and applications such as video-on-demand portals, multiview sports pages, or personal portals.

The good news is, the IPTV industry is now virtually through the testing phase of its development, and with each successful IPTV installation, the systems are achieving the robustness of cable TV, with the promise of rapid service evolution ahead. IPTV today already provides a better TV experience to consumers via its fast digital channel change, more intuitive and integrated search (taking advantage of the robust two-way network) and picture-in-picture features. And the future looks even better, with the promise of highly personalized and connected content and services.

Myth: IPTV is more expensive than cable or satellite.

The reality. In most of the countries where IPTV is being deployed, cable and satellite TV operations already exist, and yet IPTV is gaining ground. Obviously the telco operators, the initial IPTV providers, are convinced that in light of the features their IPTV service has to offer, they can price their offer very competitively opposite the cable and satellite TV competition, especially when bundling the IPTV offering with their broadband access and phone service.

The explanation. The cost of an IPTV system differs most dramatically from cable and satellite TV at the point of the last-mile network, and the equipment required to view IPTV services in the home (often called customer premises equipment). The largest costs are upgrading last-mile lines to ensure they are capable of carrying an IPTV signal and the set-tops that need to be supplied at the customer end.

Set-top box prices are all a function of how highly the set-top components can be integrated, thus bringing down the component count, the volumes of central chips and other major elements that are ordered and produced. While IPTV operators are waiting for these prices to fall, they have all shown that they are willing to subsidize set-tops against future IPTV revenues during the interim.

The cost of access lines is a very different issue for each operator and depends largely on the cost per line of the DSLAMs and how well all that copper wiring to the home has been maintained or replaced by fiber or coaxial cable.

IPTV systems will have an immediate impact on the prices of both cable and satellite pay-TV services, and we are already seeing a down-ward price spiral in cable and satellite pricing in regions where IPTV has been introduced.

IPTV has some advantages, in that it has the example of cable and satellite content deals to guide it, and IPTV operators can use care and hindsight and competitive experience to select the right content bundles for new markets.

In the end, all IPTV systems will be constrained by content costs, but by using an IP infrastructure, which delivers all services using the same IP packet switching, there are inherent cost advantages when it comes to offering a triple play.

Hemang Mehta is IPTV Group Product Manager for Microsoft TV.

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