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Is IPTV Destined to Follow the Path of ISDN?

A large number of pay-TV 'headends' have been built in 2005 and 2006 to support the increasing investment in telco TV deployments, and the wide availability of H.264 compression equipment in 2006 has prompted telcos that were waiting, to move forward with deployment plans, reports In-Stat.

In-Stat believes that growth in telco TV deployments and subscribers will result in the building of more than 800 new headends between 2005 and 2010. Upgrades to take advantage of technology advances will further fuel the telco TV headend infrastructure investment boom.

However, I would add caution to these upside estimates. It's still not apparent that telcos are choosing a viable and sustainable business model for their late entry into the video entertainment delivery business. Moreover, past experience with the telco's ISDN investment strategy demonstrates that they will 'eventually' abandon any decision that's proven to be out-of-sync with customer needs.

IPTV is already showing some similar signs from the telco's infamous failed ISDN BRI deployment scenario -- misreading the evolving market trends, and then launching a potentially 'soon to be obsolete" offering on an expensive service delivery platform with a very questionable ROI schedule. I also believe that the U.S. telco's misguided infrastructure investment to support the prior launch of SMDS was yet another example of this strategy-disconnect phenomenon in action.

"Much of the near-term upgrade revenue will come from telcos that are adding HD channels to their existing SD channel lineup," says Michelle Abraham, In-Stat analyst. "In 2009 and 2010, we expect telcos to replace equipment that is 4-5 years old, as compression algorithms will have improved to make the bandwidth savings worth spending the money."

In-Stat's study found the following:

- Headends are built today mainly to 'pass through' video streams. In-Stat expects that will change as telcos put an individual stamp on their TV offerings with services like ad insertion.

- Total telco TV headend vendor revenue opportunity will reach $869 million in 2010.

- There are currently large differences between telcos regarding the size and distribution of their headend infrastructure.

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