The fantastic promise of IP-delivered video clips, network programs and friends’ slideshows on your TV has been a mainstream topic in consumer electronics for several years now. In the dreams of panelists at IPTV forums around the world - and it seems there’s one every month somewhere, we get the impression that just around the corner, anything you might want to watch on TV will soon be Internet delivered. But there’s a big kink in the pipeworks that many seem to be overlooking.

John DiLoreto
Analyst and Editor for
Insight Media

How fast is your Internet connection? Like many, I’ve been getting by just fine for several years on basic DSL at about 1.5 Mbps download speed. That means that when I want to watch a YouTube or network video clip, I’m looking at a small window and several seconds’ latency for the streaming to get a head start.

This performance is far from what the telecom industry has in mind to compete with digital cable providers, whose modems easily offer several times the IP transfer rates. Yet the penetration of faster DSL technologies or FTTH (Fiber to the Home) remains miniscule. This can’t be too encouraging IPTV enthusiasts.

Well, help is on the way! Or is it? On Friday we got the good news that $41B in 2007 will mark a record high year (since 2002) for telecommunications expenditure on wired communication infrastructure equipment. But this growth is merely a 1.6% increase over 2006, according to research firm iSuppli, compared to increases of 10.7% and 8.3% the two previous years.

"The major reason for the slowdown is focused spending and a ‘pay-as-you-grow’ strategy among telcos," said Steve Rago, principal analyst, IPTV, broadband and digital home research for iSuppli. 2007 equipment spending is largely driven by telco deployment of IPTV services, and iSuppli estimates $9B will be spent on IPTV-related communications equipment this year.

That’s a lot of money, but the key question is will these investment levels bring us IPTV services anytime soon?

According to iSuppli, 2007 spending will increase investments in their core networks, which are necessary to support bandwidth and quality of service for IPTV delivery on a wider scale. OK, that makes sense; you have to build the backbone.

But iSuppli is forecasting IPTV to reach over 105M global subscribers in 2011 - a 98% annual growth rate, with North America and Europe to be most rapidly established. To serve this huge base, iSuppli says the telcos’ IPTV budget will have to grow to account for 20% of their total capital spending by 2011, including networking equipment, software and customer premises equipment for IPTV.

The current budget seems to meet this criteria. But the telcos’ investments in growing their IPTV infrastructure also reflect their desperation in the decline of their core voice business. Telecommunications companies have been losing an average of 4% annually from their subscriber base, and more than 4% per year from voice revenues.

And investment dollars in IPTV-related core infrastructure, needs to follow in order for the iSuppli forecast to come anywhere close to reality. No doubt that the rise of IPTV represents a boon to telecom equipment suppliers, but they need to continue to invest to make IPTV a viable alternative to cable and satellite - who are not likely to stand still either, by the way.