Telecom companies are investing in digital content in the hope of offsetting the fall in fixed-voice revenues. They focus primarily on offering television and video services, in particular IPTV - a necessary defensive move to combat the loss of subscribers to cable companies, which are increasingly offering VoIP as part of triple-play bundles.
But new internet developments again pose a threat to operators. The internet has already caused a transformation in the telecom industry in the domain of communication services, where new players such as Skype have forced telecom companies to offer VoIP at substantially lower prices than they previously offered for traditional voice services over the fixed network.
And now, the internet enables internet-TV startups to threaten telcos' nascent IPTV services. Today internet video is still delivered in rather low quality via sites like YouTube. In spite of grainy images and the small window format, these sites have been successful in attracting millions of viewers. And as broadband becomes faster and available to a broader public, start-ups will be able to offer professional video services with a continually improving image quality, in this way providing an alternative for IPTV.
IPTV delivers video content over a closed secure infrastructure that can only receive content from the IPTV providers' channels. IPTV focuses primarily on the TV in the living room with high image quality.
Internet TV, which has the same look and feel of IPTV, is delivered over the open public internet - 'over the top' (OTT) of existing networks, actually getting a free ride. Internet TV is usually delivered to the PC or another device using peer-to-peer technology. There are still issues with the video quality, and users generally need some technical know-how to set up. In addition, internet TV is not a controlled environment. There are no guarantees regarding accessibility, availability and reliability.
Internet TV providers offer programs for free, and revenue is preliminary based on advertising. Internet TV is still in the embryonic phase. The best known players are Joost, Hulu - the online video project from Newscorp and NBC/Universal - Narrowstep and JumpTV.
Variations on internet TV include BBC's iPlayer and Apple TV. iPlayer is an on-demand TV service enabling users to view BBC programs via the internet. Apple TV uses a STB to stream digital information from any computer with iTunes to a widescreen high-definition TV.
Together they represent a credible threat for the telcos, which have spent huge sums of money launching their own IPTV services. They are understandable worried that OTT providers will ultimately capture all the value that video-over-IP promises. In that case, they would be left with nothing to offer but the so-called dumb pipe.
Battle for distribution
Clashes appear to be unavoidable. IPTV and OTT providers will certainly be confronting one another in the distribution and advertising domains.
The OTT providers shift the distribution burden and the costs to the owners of the distribution networks. Telecom companies invest heavily in upgrading their networks for their own IPTV services, and now must handle the OTT traffic as well, which requires additional investments.