Western Europe leads the world in IPTV deployment, but big differences between country take-up rates reveal the key drivers and impediments critical to IPTV growth.
Just seven of 17 Western European countries account for 94 percent of all IPTV customers, according to the latest edition of TV Markets Quarterly Monitoring from InfoCom. The seven leading IPTV players, France, Belgium, Italy, Netherlands, Norway, Spain and Sweden had an estimated 6 million IPTV subscribers as of December 2007. France dominates that group with 4.3 million households watching IPTV.
 The concentration of IPTV growth within a handful of markets reflects strong national differences in communications infrastructure, competition, pricing, regulation and broadcasting and pay-TV cultures. Cesar Bachelet, ABI Research’s senior analyst for multi-channel Video says much of France’s leadership in the IPTV market stems from its regulator strongly policing the unbundling of the local loop from an early stage.
 This gave alternative operators more control over the services they offer and the ability to deploy technologies such as ADSL2+ without relying upon the incumbent telco. This in turn has spurred strong competition in the fixed telecommunications arena, resulting in attractively priced triple-play packages.
 At the same time, the cable industry had until recently been fragmented and faced stiff planning restrictions on the placement of satellite dishes. This forced leading content owner and DTH operator Canal Plus France to cooperate with IPTV operators to deliver its premium channel packages through IPTV infrastructure.
Bachelet has just published a Global IPTV report for ABI covering all the major markets. Bachelet says France’s strong “practical†enforcement of local loop unbundling (LLU) early on is in contrast to many other European countries, where LLU was not so effectively enforced at the beginning.
 In France, the emergence of three major providers--Orange (France Telecom), Iliad’s Free and Neuf Cegetel--has seen a strong head-to-head battle for market share. All major operators offer basic triple play packages priced around 30 euros (about $45.60) a month. Bachelet says this makes the actual incremental cost of getting IPTV only about five euros ($7.60): “Consumers who have signed up for broadband access and fixed voice and can therefore get digital TV at little additional cost.â€
 Iliad, which trades under the name Free, is easily the largest IPTV deployment in the world with 2.4 million IPTV-enabled customers as of end 2007. FT reported 1.2 million IPTV subscribers and Neuf 750,000 subscribers. All carriers enjoyed rapid growth in the final quarter of 2007.
 The dynamic take up of IPTV in France contrasts with Germany where Deutsche Telecom has had to drop its prices twice in an attempt to kick start demand. Bachelet says the German market is very price sensitive with low average TV ARPU rates. But with the local cable system still very much analog he says DT has a “window of opportunity†to grow its market. DT cut the subscription price by 25 percent last year and re-branded the service to Entertain IPTV.
 Late January it announced an aggressive target of 500,000 IPTV subscribers by the end of the year, a 350,000 growth over the year. And at CeBit, the big telco this month surprised the market again with another 17 percent price cut to bring the basic package down to 49.95 euros ($75.92) a month. As with France the basic triple play price--including IPTV--is now only moderately higher (10 euros—or $15.20--per month) than the double play--internet and voice—price.
 The use of discounting to grow the market has been most aggressive in Sweden where Bachelet says the local telco, TeliaSonera, has offered basic IPTV for free as part of a triple play bundle. TeliaSonera has expanded in Estonia and Lithuania and late last year said it would move into Finland where it already has a cable television service. It had 300,000 Swedish customers at the end of the year and 50,000 in Estonia and Lithuania and recently began a Video on Demand program in association with Disney and Discovery.
 According to InfoChoice, it is in those markets, where carriers have faced well-organized cable operators, where IPTV has struggled to gain significant traction. A combination of satellite and cable TV are the preferred platforms in Austria, Germany, Switzerland and Luxembourg. Cable is often bundled into a set fee for town houses and other multi-apartment developments. Cable is frequently delivered as a utility service, like gas or electricity, to tenants who have little say over which services they receive.
 IPTV has similarly struggled in the U.K. where the presence of a strong pay-TV operator, News Corporation’s Sky Television, has made it difficult for BT or any other player to gain a significant market position. But unlike parts of mainland Europe, SkyTV is not considered a utility service and has had to win market share off its own back.
In the late 1980s it was launched into a market with a limited number of free to air channels and no pay-TV and gained its market strength through the 1990’s by securing key football rights. “Sky is a smart operator, having acquired ISP Easynet to deliver a triple-play package to its customers, featuring free entry-level broadband access,†says Bachelet.
Other ISPs are also offering free or heavily discounted broadband access, which lessens the appeal of BT’s triple play package. In the U.S., Verizon executives have confirmed it is the attraction of high-speed internet rather than multi-channel television that is selling subscribers to its FiOS service.
Another key handicap for IPTV in the U.K. is the low access speeds on its core networks. BT currently uses R-ADSL, which delivers maximum download speeds of up to 8 Mbs. Although there are now plans to upgrade to ADSL2+ in France, ADSL2+ infrastructure has already been widely deployed and major operators are starting to roll-out fiber in the major cities.
 The use of smart programming offers has also been behind the success of Belgacom’s IPTV service, which had more than 250,000 subscribers at the end of 2007. Not only did it secure the Jupiler League soccer rights for three years prior to its launch in 2005, Belgacom has also been able to secure a deal with Warner Bros. to provide selected feature film titles on demand at the same time as they are released to DVD. This has proved to be a key driver in its take-up rates in Belgum.
 Belgacom has had more success in the southern French-speaking Walloon region because of the lack of a strong cable operator. In the north, there is one dominant cable operator that is digitalising its service. “As in some areas of the U.S., the presence of a digital cable operator has meant consumers can get many of the services IPTV can offer such as DVRs and true VOD,†says Bachelet. But, in markets where the cable operator is still largely analog, telcos have seen an opportunity. This is the case in Germany and most of Central and Eastern Europe, where the incumbent telco has faced largely analog cable networks.
 Spanish cable operator ONO has a predominantly digital subscriber base but this has not stopped Telefonica from emerging as one of the most successful incumbents in the European market. With more than 500,000 subscribers, it is the second-biggest incumbent player in Europe. Unlike DT which delayed its IPTV investment, Telefonica launched its Imagenio IPTV service back in 2004 and got early success in a country where there was not significant pay-TV penetration.
 In Italy, despite the lack of a cable industry, IPTV has struggled. Competitor carrier Fastweb was one of the first players to offer IPTV, but until recently it was held back by its limited reach and Italy’s low propensity for pay-TV services. It has only 170,000 subscribers to show for the six-year-old service. Indeed, DTT (digital terrestrial TV), which combines free-to-air television with an option to pre-pay for premium content, notably Serie A soccer , has been much more successful to date.
 Lack of competition also reflected inflexibility in the triple-play offering, but this has recently changed as competitors Telecom Italia, Wind, and Tiscali started to roll out their services. Bachelet believes there may also be a cultural issue at play with the climate and social habits creating a lifestyle not conducive to increase television watching.
 Looking out, the biggest change is likely to be regulatory, with the EU pushing for greater and more consistent access to the local loop, as well as incumbent NGNs (next-generation networks). The EU and Germany are at loggerheads, and backed by new local legislation DT has been reluctant to open up its new high-speed VDSL exchanges for wholesale access by competitors. It last week filed a proposed wholesale pricing agreement with the local network regulator.
 It has been the ability for multiple providers to access the local exchanges that has driven France’s rapid deployment of IPTV. How the EU manages this issue will determine if Europe is able to maintain IPTV leadership. Alternatively there is a risk of being left in a regulatory stalemate, with providers and carriers unable to roll out new services. This will be especially so in markets where IPTV take-up remains relatively low, such as the U.K. and Germany.
Other growth opportunities center around the next generation of services. Several carriers are now promoting media streaming services, enabling subscribers to access PC-based video content on their TV set, and a variety of blended services, such as caller display on the TV.
 Bachelet also points to the impending upgrade to MPEG-4 compression standard so as to enable HD television as an opportunity for vendors. Broadly the drivers that have created the favourable conditions are expected to continue and, if anything, improve. With the impending analog switch-off of terrestrial TV--which will occur at different times throughout Europe--IPTV operators are positioning themselves as one of the possible choices for digital TV.
 ABI estimates there are currently 7.2 million IPTV households across both west and east Europe. It predicts this market will quadruple over the next five years to 30.3 million subscribers.