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A new study from market research firm Infonetics predicts that the number of IPTV subscribers worldwide will more than double each year from now until 2009, when the total number of subscribers will reach 68.9 million. That’s good news for AT&T (News - Alert), Verizon and other telecommunications service providers which are now starting to roll out nationwide IPTV services.

In addition, the report forecasts that sales of IPTV (News - Alert) equipment will continue to skyrocket-from $371 million in 2005 to $6.8 billion by 2009. That’s good news for equipment makers such as Cisco, Siemens (News - Alert), ZTE and Lucent, who stand to gain substantial sales if IPTV becomes the wave of the future.

However, the report acknowledges that there are still many hurdles to jump before IPTV goes mainstream. One thing that remains to be seen is how reliable the technology will be – and how well it will perform over various network architectures. Because it is bandwidth intensive, IPTV signals can be affected by a myriad of factors, including the compression and decompression of the signals, the type of the coding that is used, and the handling capacity of the network (or networks) the signals travel over. Transcoding errors and a lack of sufficient bandwidth can degrade IPTV signals and lead to poor picture and sound quality on the user’s end.

“IPTV is still in the ‘kick the tire’ phase, with service providers doing trials rather than mass deployments,” said Jeff Heynen, directing analyst for Broadband and IPTV at Infonetics Research, in a press release. However, Heynen added that despite the challenges, “there’s no question that IPTV is going mainstream.”

“The only question is about the timeline,” he said, “because there are a lot of pieces to this puzzle, and what looked like a 1,500-piece puzzle is really a 5,000-piece puzzle that’s more complicated to sort out.”

Heynen said while the technical hurdles are well known, the regulatory issues “are less predictable.”

“Legislators are asking, ‘How do we treat and regulate IPTV?’ While content owners are asking, ‘How do we best take advantage of these new markets?’” he said. “It’s complex, and depending on how the regulatory and content licensing discussions go, the timeline for IPTV taking off could either slow down or speed up.”

Another factor which is difficult to measure is whether or not IPTV presents enough of a compelling reason for current cable customers to switch. If, from a consumer's standpoint, IPTV offers few or no advantages over cable services, and yet costs about the same per month, will that be enough to get cable customers to defect and try out a new service?

IPTV, or Internet Protocol Television, is digital television delivered over an IP network. Typically it is delivered to residences and businesses via super fast DSL (usually VDSL2 or ADSL2/2+) and is often provided in conjunction with Video on Demand (VoD). It is also typically bundled with other services, including Internet access and VoIP phone service, in a package known as “triple play.” IPTV is delivered over a closed network infrastructure, and is not to be confused with Internet TV, which is delivered over the public Internet (and is often offered for free).

Numerous operators have been successfully delivering IPTV services in parts of Asia and Europe and its growth outside of the US has been brisk. It is reported that the total number of subscribers now exceeds 100 million worldwide – with most of these subscribers in Asia. Currently, Japan boasts the highest percentage of subscribers. Most of the major telecommunications providers are now exploring IPTV as a new source of revenue - and also to compete against the cable companies, which are the originators and dominant players in the bundled IP services arena. However it should be noted that IPTV is not all that new – the technology’s been around since 1994 - and there are tens of thousands of IPTV installations within schools, corporations, and other institutions that do not require the use of wide area connectivity.

Advantages of IPTV include the ability to integrate television with other IP-based services like high speed Internet access and VoIP. There are efficiencies to be gained as well: With cable, all the content constantly flows downstream to the customer, and the customer switches the content at the set-top box. This means the customer can only select from as many choices as the cable company can deliver through its “pipes,” whereas with IPTV, only the content the customer selects is sent into the customer’s home. In this sense, IPTV operates more efficiently and preserves many times more bandwidth on the network.

Other advantages include an “interactive program guides” which allow the subscriber to search for content by title or an actor’s name; “picture-in-picture” functionality that allows them to “channel surf” without leaving the program they’re watching; and “fast channel changing” that eliminates the delay experienced with other digital broadcast services. IPTV can also deliver interactive features – such as being able to control camera angles during a live sports broadcast or being able to search the Internet for facts on a particular topic while watching an educational program. When coupled with VoIP phone service, the caller ID feature can be displayed on the subscriber’s TV screen, thus allowing the subscriber to avoid missing programming in order to pick up an unwanted call. Ultimately, IPTV will give users full control to customize their television programming – and to interact with their TVs in ways which are similar to how they currently interact with their computers.

The Infonetics report, entitled “IPTV Equipment, Services, and Subscribers,” predicts that IPTV will generate significant revenues for service providers who roll out IPTV service over the next three years. It predicts that worldwide revenue from IPTV services will increase at an annual compound growth rate of about 169 percent between now and 2009. It finds that the bulk of this revenue will be generated by service providers in Europe, which are more aggressively rolling out IPTV services compared to their counterparts here in the US.

The report also finds that service providers worldwide are prepared to make significant capital expenditures in order to upgrade their networks for the delivery of IPTV services. Worldwide IPTV capex is expected to grow at a 41 percent CAGR between 2005 and 2009. The report also finds that the number of IPTV subscribers in the Asia Pacific region more than tripled between 2004 and 2005, where faster forms of DSL like VDSL2 and ADSL2/2+ are stimulating subscriber growth. In addition the report predicts that the number of IP set top boxes (STBs) sold worldwide will nearly triple between 2006 and 2007, led by China-based Yuxing InfoTech and UK-based Amino Communications, who are currently the worldwide leaders in IP STB unit shipments.

The comprehensive report provides top player analysis, current and forecasted market size, and forecasts for IPTV services revenue, subscribers, content and transport infrastructure capex, and equipment (including integrated digital headend platforms, VoD servers, IPTV video encoders, IPTV middleware and IP STBs).

For more information, visit www.infonetics.com.

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Patrick Barnard is Associate Editor for TMCnet and a columnist covering the telecom industry. To see more of his articles, please visit Patrick Barnard’s columnist page.