THE LOCAL OPTIONS TELCOS TUNE IN TO

Forget the Super Bowl — in Anytown, USA, the year's biggest sporting event pits the local high school football team against its arch rivals from across the river. Forget the Supreme Court confirmation hearings — in Anytown, the political debate centers on the race for the open city council seat. And forget “Desperate Housewives” — Anytownies care most about their families and friends, not the drama queens of fictional Wisteria Lane.

So, for telecom providers entering the IP television market — especially those serving the small, rural communities of middle America where IPTV is running strong — the clicker stops on local content, not global entertainment. While cable and satellite providers have lured subscribers with the promise of hundreds of channels spotlighting movies, professional sports and other traditional forms of mass-market content, telcos already into IPTV are thinking local and focusing on the world just outside their subscribers' front doors.

“There's not a lot of people who don't already have cable or satellite — if telcos want to address high-value customers, they have to make sure their offering changes the game and makes it exciting again,” said Derek Kuhn, senior director of marketing and business development for Alcatel's strategic solutions division. Local content may be the differentiator: After all, any cable or satellite service can offer soccer from Brazil, rugby from Australia or cricket from India. Only a telco with long-standing ties to its community, though, will offer on-demand viewing of the junior varsity's 63-0 opening game to nearby Shelbyville.

“Many telcos formed around a particular community, and they maintain deep roots there,” said Laura Buddine, CEO of Iacta, an interactive television consulting and development firm. “The mass media has gone more and more national — it's now very hard to get any information about what's going on next door and down the street, especially since nobody reads local newspapers anymore. But with IPTV, the set-top boxes know where they are, and the headends know where they are, which offers telcos the ability to provide local information. Now people can turn to their TVs to find out what's going on.”

The addition of local content dovetails perfectly with IPTV's inherent promise of interactivity, expanding the possibilities of what the viewer watches as well as when and how he watches it — for example, making the 6 p.m. local news available on-demand when a subscriber arrives home a little after 8 p.m.

“A telco needs to have that linear, localized feel, especially in Tier 2 and Tier 3 markets — the cable people can't make this stuff happen,” said Larry Holeman, chief operating officer and chief technical officer of video-on-demand (VOD) solutions provider ViewNow. “An IPTV provider could offer educational content, like community college classes, and appeal to special-interest groups with something like church content. They must open their minds to whatever will draw more than one person at a time.”

The push to localize content is part of an overall trend in the IPTV market toward personalization services, including one-button access to news and weather information, games and recording functionality. “IPTV is about personalization — it's different because the system has the potential to understand what kind of viewer you are and make recommendations,” said Kuhn, who is also chairman of the Broadband Content Delivery Forum. “It's not so much about the interactivity of the content, but the service itself.”

And because IPTV is not subject to the spectrum limitations that straitjacket traditional analog broadcasting, IPTV service providers enjoy the luxury of programming as much content as they choose, even if its appeal beyond particular audience demographics appears narrow.

“IPTV has no limitations on how much content you can throw out there — what's important is the ability to package that content differently,” Kuhn said. “That's a huge opportunity for broadcasters, who can now offer high school sports and other local content.”

Among the North American telcos already delivering localized IPTV services is Manitoba Telecom Services, Canada's third-largest communications provider. Its MTS TV package offers subscribers conventional premium VOD services along with more site-specific functions including access to local weather, school schedules, garbage pick-up information, lottery numbers, and airport arrivals and departures.

“Television allows us to leverage things we already did well, like customer service, and capitalize on our existing relationship with our customers,” said Roy Sherbo, vice president of Manitoba Telecom's MST TV services division. “Our customers are looking for somebody they can trust, and they're looking for a local-based company. Being local means a mixture of content and customer service.”

In late 2004, Manitoba Telecom introduced an interactive application called MTS Centre on Demand, which gives subscribers information about Winnipeg's new MTS Centre facility, including in-game statistics available during broadcasts featuring the local Manitoba Moose hockey team. But Sherbo warns that providers can err too far on the side of regional content as well.

“You have to satisfy all customer segments — there's still interest in what's going on globally, too,” he said. “But I see us doing more locally in the future. We've already created a separate interactive segment for our local golf tournament. But this is all still very new to the customer base — as providers, we must educate our customers, and we must understand what they need, want and will use.”

Indeed, the issue facing telcos wishing to offer local content is the same dilemma that has plagued network programmers since the dawn of Uncle Miltie — what do audiences want, anyway? Weather and traffic information seem like gimmes, but what else will compel viewers to tune in — and moreover, how do you get it on the air in the first place? Perhaps most important is addressing the issue of what users will be will to pay for.

“Content certainly needs to be personalized — IP providers have to make a one-to-one connection with the viewer,” said Jeff Miller, president and CEO of interactive television content provider ICTV. “But you have to get a handle on your local area, and that's not so easy to do. There might be news available for your small town, but getting it on TV is a problem.”

ICTV's solution: Repurpose content from the Internet for TV broadcast. “Web content aggregated and transcoded for TV is the way to go,” Miller said. “That's one of the most exciting things about the IP platform.”

Although a telco that has served a particular region for decades often lives and dies by its ties to the community, Alcatel's Kuhn concurs with Manitoba Telecom's Sherbo and warns against over-emphasizing local television content. “Local content is no substitute for good network content,” he said. “But if you can find the right balance, and make more and more local content available in an on-demand tier, you should be successful.”

The on-demand element of the equation is critical — local content and information can serve as the gateway that transforms viewers from couch-potato passivity to interactivity. In the process, telcos can expose their users to more advanced applications like games and premium movies as well as converged communications services like e-mail, short message service and even multimedia messaging service over their television screens.

“There are a number of everyday things that people will do on TV because it's convenient,” Iacta's Buddine said. “For example, most people keep a file folder full of carryout menus — now that kind of information can be accessed through the TV. There are a lot of everyday behaviors people have that they can map over [to interactive television].”

And it doesn't matter if viewers live in Brooklyn, N.Y., or Brooklyn, Iowa — their lives are accelerated, and their time for entertainment is scant. Offering them simple and direct access to the content they want, whether it's tomorrow's weather forecast or a quick game of virtual poker, is essential.

“If you only have an hour, do you want to surf through 500 channels to find what you're looking for or do you want to pinpoint the content you want?” Miller said. “The idea is that these new technologies, and their ability to personalize, makes it possible to make the most out of the time you do have. You have it prepared — it's waiting for you when you get home. What I want to see, when I want to see it, how I want to see it — that's the formula.”

Ultimately, IPTV is the culmination of a sea change that began with the introduction of the remote control, which empowered viewers to manage the evening's entertainment literally from the palms of their hands. Its success or failure will hinge on one of the guiding principles of show business — giving the people what they want. Particularly in rural America, where traditional values and concerns are so intricately woven into the fabric of everyday life, that means local content.

“There's so much opportunity,” Buddine said. “And the companies that will win will take advantage of the power inherent in their system and start listening to the community they serve.”