IPTV the telco Catch-22?

IPTV is coming of age in 2007. Increasingly challenged on core revenues, most fixed carriers worldwide have launched consumer IPTV propositions to support growth and increase loyalty. The big question is: Will IPTV be profitable for telcos, or will it be a case of, can't survive without it, can't make money from it?

Today's competitive landscape is very different from that envisioned by the major telcos when they began looking at IPTV. Media companies are offering content directly to consumers over the Internet. Movies, TV shows and music videos are now available from sites such as MTV Overdrive, AOL In2TV and Movielink.

Consumer electronics companies and customer premises equipment vendors are expanding into IPTV. With the launch of its iTV device, Apple can deliver iTunes video content to the television. Sony customers can view online media on HDTV sets with the Bravia Internet Video Link. Cisco Systems and Netgear have products that allow multiple media formats to be viewed on the TV via wireless links from Microsoft media center PCs.

Internet TV players are emerging with ad-funded business models bringing free content to users for PC viewing. Joost — set up by Skype founders Niklas Zennström and Janus Friis — has announced content deals with Viacom and Warner Music, while Babelgum — backed by Silvio Scaglia, chairman of Fastweb — plans to focus on niche content. The ability of MySpace and YouTube to distribute content to a global audience challenges the entire model of traditional TV channels by making niche content available to the consumer directly from the producer.

Ironically, the telcos' own broadband network investments are enabling the very services that may eventually undermine their fledgling IPTV businesses. But there is a risk that proliferation of video services will overload the networks, undermining quality and degrading overall Internet performance. With control of the network, carriers are uniquely positioned to ensure that their end users avoid these problems. This presents a sustainable opportunity for carriers to differentiate their offers.

In this unpredictable environment, IPTV carriers face six key challenges as they try to build sustainable IPTV business:

• Fixing the basics: Today's bug-ridden service provisioning must be banished; self-provisioning offers a differentiator for carrier-based IPTV that cable and satellite offers will struggle to match.

• Securing content: Attractive content is critical, but carriers must be wary of over-investing in exclusive content they do not have the scale to afford. Differentiation in the user experience will be easier to achieve.

• Capturing advertising: Leveraging their superior customer relationship management knowledge and skills, carriers must leverage the power of advertising revenues. This means new partners and a new business model.

• Adding value to the bundle: Carriers should weave IPTV deeper into the fabric of consumers' lives with complementary services such as instant messaging, social networking and personal content display.

• Delivering personalization: Carriers should exploit their unique ability to personalize the IPTV offer. They have skills and data access no other players can match.

• Enhancing network capability: Building on technical skills and regulatory finesse, carriers must ensure that their service has best-in-class delivery while competitors merely promise best efforts.

IPTV does have the potential to deliver profitable services into millions of homes, but it will be a hard slog to get there. In the long run, the time-honored capabilities of the telcos in running robust networks will play a critical role in delivering market-leading IPTV services. In the meantime, carriers must build capabilities in less familiar areas to create the propositions and the user experience necessary to survive in this increasingly competitive market.

Bob House is a senior analyst with CSMG Adventis.