DECEMBER 8, 2006
Info Tech
By Kenji Hall
Put Your Own Stuff on TV
Everybody's getting ready for interactive TV, from Alcatel-Lucent to Deutsche Telekom to China Netcom. But do consumers really want it?
Months ago, as execs at French telecom equipment maker Alcatel finalized a takeover bid for U.S. rival Lucent Technologies, the Paris company's researchers in northeastern Belgium were planning the next revolution in TV. There, in Lommel, they installed special set-top boxes in about 200 homes for a new TV format that's delivered over broadband pipes called Internet protocol TV, or IPTV. By February the experiment was up and running.
The researchers' mission: Find out if couch potatoes would be interested in broadcasting their own TV content. Users would get to create a Personal Channel where they might upload videos, photos, and other digital paraphernalia so family and friends on a "buddy list" could watch.
Sound familiar? "It's like YouTube but on television," says Sebastien Lefebvre, director of Alcatel-Lucent's (ALU) marketing convergence business in Antwerpen. He demonstrated My Own TV at the ITU Telecom World 2006 forum in Hong Kong in early December. "It's bringing social interaction to your television."
IPTV Blankets the World Don't be fooled by the small scale of Alcatel-Lucent's My Own TV experiment. It could just be IPTV's—and the telco industry's—big break. These days a growing number of fixed-line operators are trying to figure out how to build a telco 2.0 that delivers TV, phone, and Net services over broadband pipes, instead of relying on voice calls.
On Dec. 4, Britain's BT Group (BT) launched its IPTV service, setting a target of signing up between 2 million and 3 million subscribers. AT&T (T), Deutsche Telekom (DT), Telefónica (TEF), Swisscom (SCM), France Telecom (FTE), Korea's KT, and China Netcom (CN) are also in various stages of rolling out their own services.
It's not just the telcos that have a stake in this. Just about every major tech company wants a piece of the action. Alcatel-Lucent is joined by Microsoft (MSFT), Hewlett Packard (HPQ), and Cisco Systems (CSCO) as well as upstarts such as UTStarcom (UTSI) and China's Huawei. The rivalry is expected to help the market ramp up quickly.
Same Basics, Different Details By 2010 the number of households with IPTV is forecast to reach 50 million from 3 million in 2005, and revenues could rise even more sharply, to $13.4 billion from $399 million, according to market researcher Gartner (IT). And that doesn't count the tech equipment side of the business.
IPTV relies on the same basic technology as streaming video over the Web except that the signals stay within the telco's network. If done right, IPTV shouldn't be all that different from the programs you're accustomed to viewing on cable or over the airwaves. Where IPTV has an advantage over standard broadcasts is its potentially limitless number of channels and instant, on-demand access to a vast library of content stored on a telco's servers.
David Hudson, Nortel's vice-president for product strategy and network engineering, reckons that a minimum transmission speed of 20 to 30 megabits per second would let you flip through news, sports, or movies on three TVs simultaneously. The fare might be old episodes of The West Wing or an NHL game that's playing on several channels, each showing a different camera angle.
Changing Who's in Charge Still, most haven't reached that point, and critics say many telcos aren't convinced they can profit off the business. "A majority of telecoms see the investment as a defensive measure," says Dan Elron, Accenture's managing partner for communications.
Certainly, none has the sophistication of Alcatel-Lucent's My Own TV pilot program. The company hasn't said whether it will commercialize the technology, but a move to do so would give telcos a new business model that rivals Web content. That's a major hurdle facing IPTV. TV has traditionally been a top-down industry, with studio execs deciding what consumers watch.
Now that Netizens can customize and swap videos, music, and other digital files on Web sites such as YouTube, which gets over 100 million video views daily, and social networking site MySpace, the old rules of the game no longer strictly apply.
Steep Startup Costs Meanwhile, mobile carriers are moving quickly to give users access to YouTube, as Verizon Wireless (VZ) did by agreeing to a deal on Nov. 28. Says Ted Hsiung, who heads business development at PCCW's IPTV unit, Cascade: "My boys, who are 23 and 26, would rather watch movies on a PC."
There are plenty of other challenges. Many countries still have separate regulators for telcos and TV broadcasters, and regulations can vary by country, which makes it hard to come up with a single global solution. And startup costs can be steep. In an October report, Yankee Group researchers calculated that for every new customer a telco will spend an average of $733, excluding equipment investments.
There's also competition from entrenched cable and satellite TV companies, which in many markets have had more time to bulk up on channels. "IPTV isn't a simple technology to deploy," says Kellena Taylor, HP's business development manager in Asia-Pacific.
Rivaling the Web PCCW's Hsiung should know. His company's NOW TV started off as a freebie for broadband subscribers in 2003. Now it has 125 channels, including ESPN and HBO, and pulls in revenue from 700,000 households, or a third of all households in Hong Kong. That figure is expected to hit 1 million next year.
Still, Hsiung's operations probably have yet to turn a profit. "I would guess that Telefónica of Spain and PCCW, which have been in the business for a few years, are nearly breaking even," says Ken Twist, vice-president and analyst at Ovum.
Hsiung is trying to change that by beefing up NOW TV's services. Users can already check stock prices or watch movie trailers and order tickets to nearby theaters. That has helped the company double average monthly bills to around $16.
Many in the industry believe IPTV programs could eventually rival Web content. "I view them as being complementary," says Ed Graczyk, director of marketing and communications for Microsoft TV, a software platform for IPTV.
Hsiung agrees. "YouTube is content. MySpace is content. In the old days, you had a channel that showed home videos. People didn't care about the quality of home videos, but they thought it was a form of entertainment. So why can't we take YouTube content on put it on TV for people to watch?"
Waiting for the Payoff Such sentiment is the reason there's a lot of interest in Alcatel-Lucent's My Own TV. Lommel residents have posted videos of their favorite local sports teams or footage of family outings from cell phones or PCs. The company's researchers, who used Microsoft TV's software platform, are sitting back and taking notes.
"It's still in research phase," says Alcatel-Lucent's Lefebvre. "Right now, the trillions of megabits of content will use up storage space but not generate money." Soon enough the number crunchers will have to step in and figure out how to change that.
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