If IPTV was simply a way for telcos to enter the video delivery game, it would be an attractive service just for the increased competition. A recent FCC study showed that cable rates increased at more than 3.5 times the rate of inflation between 1998 and 2003—but in the few places where cable faces competition from another wireline provider, prices are substantially lower than the average. The increased competition provided by the telcos will no doubt drive prices down further, as has already happened in Texas (where several telco TV projects are undergoing trials).

Apart from the effect on the competitive landscape, though, IPTV has the potential to deliver more interactivity than cable. An all-IP solution is switched digital by nature, does not depend on shared bandwidth, and uses well-known Internet technology, which should make for some interesting applications.

Expect to see caller ID information displayed on the screen when your phone rings, for instance, or alerts when you receive new e-mail. Because IPTV does not require expensive tuners, multiple picture-in-picture applications will become a reality, and DVRs will be able to record multiple shows at once without upping the cost of the unit (the main constraint will be bandwidth). An interactive program guide, pay-per-view functionality, and video on demand will all be standard features, and channel changes should be much quicker.

Because the set-top boxes will use Ethernet and IP, they should be simple to integrate into the existing home network, which includes a user's computer. STBs will be able to pull video and pictures from a home PC and display them on the television, and will also be able to easily network with other STBs on other televisions throughout the house. This will allow a user to own a single DVR that can be controlled from any set in any room.

IPTV: (Almost) here at last

The promise of IPTV has been, well, promised for some time now, but it really is just around the corner. In the US, AT&T (formerly SBC) is in the midst of its Project Lightspeed, a 40,000-mile fiber rollout. The company is dropping US$4 billion on upgrading its network, though unlike Version's FiOS service, the fiber will generally not run all the way to the home. As the rollout continues, the company will introduce its U-verse IPTV service, which is currently undergoing live trials in Texas.

Speaking of Verizon, they already offer 300+ channels of television service. It's not delivered over DSL, but by fiber strung directly to the home. They are also in the process of a multi-billion dollar network upgrade and have the jump on AT&T, having already laid fiber to three million homes at the end of 2005.

Running fiber to the home gives them incredible bandwidth and allows them to stream all channels at once; out of the 4.5Gbps available on the fiber, only 3.5Gbps are taken up with TV. (Though they plan to transition to a full-IP network in the future, FiOS TV is currently RF [radio frequency] based, except for video on demand, which uses IP.)

Prior to being acquired by AT&T, BellSouth had jumped on the fiber train early and has already rolled out more than five million miles of the stuff while preparing its own IPTV trials. Like both AT&T and Verizon, BellSouth was testing Microsoft's IPTV software; with AT&T swallowing up BellSouth, it looks as though the software giant may become the main provider of IPTV backend software in the US.

One potential roadblock to these rollouts could be franchise agreements, the licenses that most companies need from a municipality to offer television service. Cable companies have had decades of negotiating practice with cities, but it's a new world for the telcos, who have found the process to be excruciatingly slow (and costly). Verizon, for instance, calls the agreements "a major barrier to entering the video market on a wide scale" and claims that the cable industry has done its best to use franchise agreements to trip up the telcos.

The telcos have lobbied both the FCC and state legislatures to make changes to the rules governing these agreements, and it appears that some states, at least, are cooperating. Texas recently passed a law allowing the telcos to negotiate a franchise agreement with the entire state at once instead of with every separate community, and Verizon told the FCC that this had provided extra incentive for the company to conduct some trials in the state.

AT&T, for its part, has publicly taken the stance that they don't actually need a franchise license since they are essentially delivering an IP-based data service, not a video signal, and thus are not subject to the franchising rules. This could be a costly decision if the FCC thinks differently, but it could also save them a lot to time, money, and energy if their strategy gets an official thumbs-up.

The big loser here could be satellite, which has been providing the video portion of the telcos' offerings for nearly a decade. With the telcos going into the TV business for themselves, satellite will need to find a compelling way to offer both VoIP and data services along with its traditional video signal in order to remain competitive. (DirectTV, in particular, has been mulling a move to WiMAX technology to remain cometitive.) Fortunately for them, satellite companies currently control just over 30 percent of the pay TV market, which should give them some breathing room when the telcos deploy IPTV systems in force.

Another approach to IP-based video comes from web companies who do not necessarily own the complete network infrastructure, but who plan to offer IPTV services over the public Internet. AOL has already announced its plan for a service dubbed In2TV that will stream ad-supported programming to users over the 'Net, and companies like Apple and Google already offer what are essentially IP-based video on demand services.

Though such efforts typically rely on a computer to display the content, it would definitely be possible to roll out set-top boxes so that consumers could watch the programming on their own televisions. The idea's not quite as crazy as it sounds—Atlanta-based Dave.tv is currently in the process of producing its own box and plans to offer TV services right over the Internet. Such a move could leapfrog the traditional networks, but it faces problems.

The obvious challenge to this business model comes from being a "broadcaster" without a network, which means that users need to bring their own access and that content is delivered over networks owned by the telcos or cable providers (in most cases). Both groups have begun making noise about "tiered pricing" schemes, and you can expect them to push the idea even harder as increased amounts of video stream through "their pipes."

Any company serious about providing their own IPTV service would no doubt ante up, since consumers are unlikely to subscribe to a TV service that suffers from bandwidth bottlenecks or other inconsistencies.