IPTV: The Big Picture

There's a compelling business case but also a number of risks, so, in this article, we get the world's leading DSL analysts to weigh the pros and cons of IPTV.

by Gerry Blackwell [April 15, 2005]

Despite optimistic sales forecasts and compelling business cases presented by IPTV equipment vendors, analysts say that IPTV—pay TV delivered over a broadband IP network—faces a number of market and regulatory challenges, and probably slow, uncertain growth for the foreseeable future.

Jupiter Research, part of Jupitermedia Corporation, which publishes this website, and Point-Topic Ltd., a UK-based market research firm specializing in broadband communications services, have both begun tracking the emerging IPTV industry recently. With a few notable exceptions, they say, not very much has happened yet.

"There were a lot of announcements in 2004 of trials and service launches," says John Bosnell, senior analyst at Point-Topic, "but a lot of those haven't quite got going yet."

The challenges include inadequate network infrastructure, unfriendly regulatory environments, high and often unpredictable capital costs, the difficulty of securing content consumers want and the uncertainty around whether consumers will actually switch to an IP-based pay TV system.

Point-Topic has been keeping an informal tally of commercial IPTV operators and their success in attracting subscribers. A very rough November 2004 estimate put the total number of IPTV subscribers worldwide at somewhere between 600,000 and one million, although Bosnell cautions that this is based on adding up published figures and making informed guesses. It may be low. It may also now be out of date.

Over a third of the IPTV subscribers Point-Topic counted in November, 361,000, were customers of PCCW, a Hong Kong company that offers a triple-play service—broadband Internet, IP telephony and IPTV over DSL. According to a recent press release posted at the company's Web site, the number of subscribers to its Now TV service has increased to 416,000.

Another big chunk of the Point-Topic total, 161,000, are subscribers to the video service offered by FastWeb in Italy, another triple-play provider operating in major cities in Italy. Two French companies, Neuf and Free, both using unbundled telco DSL lines to get to customer premises, may between them swell the total by as much as 350,000, Bosnell says. Neither company publishes numbers of subscribers specifically to its TV service.

A patchwork of regions in the one net
The Point-Topic statistics, however tentative, illustrate a point that both Bosnell and his counterpart at Jupiter, Joe Laszlo, senior analyst responsible for broadband research, make about the IPTV market—growth rates will vary markedly by region because of regulatory and other local factors.

"It really comes down to the regulatory landscape," says Laszlo. "In places like the UK, France, and Germany, for example, where requirements about offering competitors access to DSL lines are stricter than in the U.S., IPTV is a bit more feasible for operators who don't own phone lines."

Even in those jurisdictions, of course, the carriers must have networks capable of delivering IPTV. This means, at a minimum, advanced DSL with network speeds to the home of up to 6 Mbps. That's what companies like PCCW and FastWeb are using. Many big carriers in the U.S. do not have such infrastructure now. More in Europe and Asia apparently do, or have at least begun the upgrade process.

ISPs in the U.S., Laszlo notes, have two strikes against them as prospective IPTV operators—inadequate infrastructure typically and uncertain access to that infrastructure. "It's a challenging market in the States for ISPs to take a role," he says, "but it's not impossible. It hinges on the telcos rolling out faster DSL tiers and [ISPs] still being able to get access to them."

IPTV providers such as Neuf, Free, and HomeChoice in the UK all take advantage of "unbundling" regulations that oblige incumbents to sell competitors access to last-mile networks at fair market prices. These three companies are also all startups formed for the express purpose of offering IP-based triple play services. They built their own backhaul networks and buy last-mile connectivity at wholesale from incumbents.

There are other reasons IPTV has caught on faster in some European and Asian countries, Bosnell explains. In Italy, for example, there is very little cable TV. In France, there are bigger gaps in cable coverage than in places like the U.S. and Canada. And there are also planning restrictions on the use of satellite dishes because of the country's determination to preserve historic skylines.

"It means a lot of people can't get multi-channel TV other than over DSL," Bosnell says. "That's the demand side reason for it."

It's also technologically and economically more feasible to build an IPTV network and service in big cities in Europe and places like Hong Kong where population density is very high and one high-bandwidth fiber connection to a high-rise will let you light up a significant number of potential subscribers.

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