Several European phone companies this week plan to announce major expansions of Internet protocol television, or IPTV, led by Deutsche Telekom, which is spending € 3 billion and so far has wired 15 million German households, or roughly 4 in 10, for broadband TV.
The moves will put Europe, which some analysts say already leads the globe in Internet TV, further ahead of the United States and Asia in this field. But despite the flurry of interest in digital video, skeptics say that it is not clear that IPTV has a future as a stand-alone business for telephone companies.
With IPTV, subscribers pay a monthly fee of € 30 to € 60, or $41 to $82, to receive digitized broadcasts sent via the phone companies' networks to their television sets and personal computers. These are part of so-called triple-play TV packages that also typically include flat-rate Internet surfing and domestic, fixed-line voice calls. The TV lineup usually comprises a standard set of 50 broadcast channels plus 60 or more premium channels, some not available elsewhere.
''IPTV's decisive advantage is its ability to link programming with interactive services,'' said Timotheus Hottges, a Deutsche Telekom board member with responsibility for IPTV. ''Consumer viewing habits as a result are going to fundamentally change.''
Companies like Deutsche Telekom, Telecom and Vodafone are using the Internationale Funkausstellung, the largest consumer electronics convention in Europe, which opens Friday, to present their IPTV expansions. More than 200,000 people are expected to attend the show, which lasts five days.
''Europe is now the most aggressive market for IPTV,'' said Steve Rago, an analyst for iSuppli, a research firm in Scottsdale, Arizona, that covers the electronics industry. ''Even countries like Lithuania and Slovakia are introducing IPTV.''
About half of the IPTV consumers in Western Europe are in France, according to the consulting firm International Data Corp., which says there are 2.3 million paid subscribers to IPTV in Europe, less than 5 percent of households. By 2011, IDC expects the service to reach about 10 percent of households.
iSuppli estimates that phone operators will spend $9 billion globally this year - $3 billion in Europe - building video-ready VDSL and ADSL2+ broadband networks. VDSL sends data at up to 50 megabits per second and ADSL2+ at 16 megabits. The phone operators, faced with dwindling voice traffic, are looking to IPTV to fill the gap.
''I can't think of a single country in Europe where operators are not introducing IPTV,'' said Tiann Schutte, vice president for multimedia at the French company Alcatel-Lucent, a maker of IPTV components. ''The marketplace is expected to grow aggressively over the next decade.''
Some experts, however, question whether telephone companies will eventually reap the same payoff as equipment makers from IPTV, which faces a challenge luring TV viewers from established terrestrial, cable and satellite broadcasters. The technology, launched in Europe in 2001 by the Italian company FastWeb, began appearing widely in 2004.
In France, four operators - France Telecom, Free, Neuf Cegetel and Telecom Italia's Alice - and two resellers, Darty, a French retailer, and Tele2 of Sweden, are competing for IPTV business. Bouygues Telecom, a unit of Bouygues, is also planning IPTV service. France became the IPTV leader in Europe because the country lacked dominant satellite and cable broadcasters, said Jill Finger Gibson, IDC's research director in London.
Jean-Christophe Dessange, leader of European IPTV development at Cisco, which sells IPTV equipment, said French broadcasters and operators agreed early on a way to split revenue, with telecom operators owning the set-top boxes made by Cisco, Thomson, Philips, Motorola, Alcatel-Lucent and others, and generating revenue from premium channels.
French broadcaster Canal+, however, controls the billing of IPTV customers and derives revenue from its standard package of about 50 channels. Most French triple-play packages of TV, Internet and voice calling begin at € 30.
''The French were successful because the broadcasters and operators didn't each demand too big a share of the pie,'' Dessange said. ''They realized they both had a self-interest in making IPTV work, namely to help them each retain customers and possibly add new ones.''
In Germany, where terrestrial digital and cable broadcasts are available in most households, only 40,000 people currently subscribe to IPTV, according to GFU, organizer of the IFA convention. The technology also faces potential political hurdles.
The European Commission is suing the German government, which still owns 31 percent of Deutsche Telekom, for barring competitors from Deutsche Telekom's new VDSL broadband network.
In Britain, the satellite broadcaster BSkyB and the cable monopoly Virgin Media dominate the pay TV market. BT's IPTV service, BT Vision, began operations in December.
''It's still very much an open question whether IPTV will catch on,'' said James Crawshaw, an analyst in London at Heavy Reading, a research firm tracking IPTV. ''Operators were very enthusiastic a couple years ago. Then they started to question what the return was. None have been able to create a standalone business from IPTV.'' Crawshaw and other analysts said French operators were not generating significant, if any, profit from IPTV but are using the technology to retain or attract new Internet and phone customers.
But many hope to. Arcor, a unit of Vodafone that is Germany's second-largest fixed-line network, spent € 278 million in the fiscal year that ended March 31 on improvements, mostly to upgrade its broadband to ADSL2+. The company plans to launch Arcor TV in Germany's 12 largest cities this fall and expand to 250 cities by the middle of 2008. The triple-play service will include 50 free-to-air and 60 pay TV channels.
Bernd Wirnitzer, Arcor's IPTV director, said the skepticism surrounding IPTV's commercial potential, like the initial euphoria that accompanied its start a few years ago, was exaggerated.
“The technology will allow us to combine voice, Internet and TV in ways that aren't possible when you buy them from separate providers,” Wirnitzer said. ''And customers will also have the benefit of paying just a single bill instead of three.''
To be successful, phone operators will have to give consumers a reason to change long-held viewing habits, said Carsten Rossenhovel, managing director of the European Advanced Networking Test Center, a company in Berlin that tests IPTV components for operators and equipment makers.
''From a technical standpoint, these systems are ready to go,'' Rossenhovel said. ''The real challenge for service providers will be to convince consumers to switch to IPTV.''