IPTV promise meets reality

The first major deployment of an Internet-based TV service by a phone company will soon be under way, but the promise of new interactive features and lower prices for consumers could be a long time coming.

AT&T, the largest phone company in the United States, is preparing to launch what will be the biggest deployment of IPTV to date. As the company moves from a small controlled release of the service in San Antonio to widespread deployment in 20 cities by the end of the year, all eyes will be on Ma Bell and Microsoft, which developed the software enabling the new service.

Both companies say they are confident that the technology is ready for prime time. But they plan to move slowly and cautiously as they deploy service.

"We expect demand to be very strong," said Christopher Rice, executive vice president at AT&T. "But we need to be careful how we manage this demand. We learned a lot of lessons from the early days of DSL. We don't want demand to outstrip capacity."

IPTV promises to change the way people watch TV. They'll be able to interact with television shows, choose multiple camera angles while watching sporting events, search and view movies and TV programs from an almost limitless library of digital content, share pictures and home videos, access more high-definition content, and even shop from their TVs. And with the telephone company entering as a new competitor against cable, prices on TV service are expected to fall.

But cutting-edge features and deep discounts in pricing could be a long time coming, because, at least initially, AT&T's service will look a lot like what cable providers already offer. And unlike its current DSL strategy, which has slashed prices down to $12.99 for 3Mbps downloads, AT&T, which hasn't yet published pricing for its new TV service, said it isn't planning huge discounts out of the gate.

"We plan to be competitive with the market on pricing," Rice said. "Just like with our other products, people will get discounts the more services they buy from us. But we have no plans to be a low-cost provider."

AT&T's service, called U-verse, will not look much different from what is already being offered by cable providers. Like cable, U-verse will offer a digital video recorder, video on demand, and at least one channel of high-definition content.

Meeting customer expectations
Still, users who have been testing the service in San Antonio say AT&T's service is an improvement over what they can get from cable. Alan Weinkrantz, who has a blog describing his experiences using the AT&T service, said he especially likes the IPTV interface and the fast channel changing. He's also impressed with the breadth of on-demand titles that are already available in the video library.

He plans to become a regular, paying customer when the service is available commercially in San Antonio. But he said the price has to be right and AT&T must prove that high-definition programming works. Currently, AT&T is not offering any high-definition channels as part of the trial.

"I'm very intrigued by what IP can offer in the future," he said. "The interface is very simple to use. So, if I only had to pay $5 more and HD worked, I'd be willing to pay for it."

Christine Heckart, general manager of marketing for Microsoft TV, said consumers just want basic TV features right now. She said that adding more interactive applications too soon could overwhelm customers.

"This year we just need to get solid deployments with competitive offerings," she said. "It's a new market for carriers with brand new technology. The rollout will be very high-touch. It's hard to get cookie cutter about these early deployments, and there will be unforeseen issues that need to be worked out."

Parks Associates analyst Deepa Iyer agrees. She said most people who would consider switching their TV service to the phone companies' offering just want more of what they already can get from the cable operators at a better value.

"Early adopters may want to play around with new services," she said. "But most users just want to turn on the TV and sit back and be entertained. And they are happy to pay the same amount, as long as they get a bit more content or a few more features."

Iyer said new features that seem to most interest consumers include remote home monitoring, viewing caller-ID information on the TV, downloading music from the TV.

Even though AT&T will be selling a me-too TV service initially, the company likely won't cut prices drastically to win new customers. Fees charged by Verizon Communications, which has already begun rolling out its TV service, serve as good indicators of what to expect in terms of pricing.

While some customers have been able to individually negotiate reduced pricing in areas where Verizon's TV service is available, most cable companies have held their ground on pricing. Instead they've offered discounts on bundles of high-speed Internet access, telephone and video services.

For example, in New York City's Long Island suburbs, where Cablevision competes with Verizon's Fios fiber-optic service, the cable operator is offering a package of cable, high-speed Internet and phone service for $90 per month for the first year--very close in price to Verizon's Fios triple-play package, which costs $105 per month.

In Keller, Texas, the first city where Verizon offered TV service, the local cable operator, Charter Communications, is charging $70 for the first six months for a 3Mbps broadband and cable service. This is exactly the price Verizon charges for its new 5Mbps high-speed Internet access and TV offering.

Matching features--and price
Microsoft's Heckart said AT&T and other phone companies don't need to slash prices right away to win customers. According to a study Microsoft commissioned that surveyed over 800 potential IPTV consumers, AT&T and other phone companies offering TV service could get as much as 13 percent of the market simply by offering a service that matched cable's on features as well as price.

Even with predictions such as these, Cox Communications president Patrick Esser said he isn't too worried about competition from AT&T, which will compete in at least 40 percent of Cox's territory once AT&T completes its merger with BellSouth.

While AT&T takes its time deploying IPTV, Cox will continue to push new services and bundles into its existing customer base. The bundle is key, Esser said, because it makes customers more loyal to a service provider, which makes them less likely to switch to another company.

"As long as we can get one service into the home, we can work on selling a second service and a third service," he said. "Am I worried about competition from the phone companies? I worry about all competition, but I don't sit in fear. I sit in planning."