Even if users flock to new television services offered over high-speed internet connections, telcos in Western Europe should expect only modest profits in the short term, according to a report released this week by Gartner.
To compete against entrenched pay-TV cable companies and free-to-air satellite operators, telcos will resort to low-priced services and bundles to drive initial subscriber intake, the market research company said.
Gartner projects that the number of households subscribing to IPTV (internet protocol television) services in western Europe will grow from 3.3 million at the end of 2006 to 16.7 million by 2010. But it forecasts carriers' revenue from these service will increase from €336m (about £233m) in 2006 to only €3bn (£2bn) by 2010.
IPTV is arguably one of the hottest new services in the communications sector. The service will include all kinds of on-demand content, network-based video recorders and even viewer-driven choice of camera angle.
A handful of western-European countries are already offering IPTV service. France is leading, with more than 1.7 million subscribers expected by the end of the year and around 5 million by 2010, according to Gartner.
Earlier this month, France Télécom and Buena Vista, a unit of Walt Disney, signed an agreement to provide movies via the French operator's new IPTV service.
Many are waiting to see what Microsoft is concocting, together with some big-name carriers.
Using the same DSL (digital subscriber line) high-speed connection that offers customers broadband internet access over copper telephone lines, Microsoft-aligned operators such as BT, Deutsche Telekomand, Telecom Italia, aim to add television to their product offerings to achieve the much-cited "triple play" of bundled voice, data and video services. Their motto: if - in our age of the digital packet - documents, images, music and even phone calls can be broken up into bits, thrust through networks and reassembled at the other end by the internet protocol, why not TV?
Last month, Deutsche Telekom joined the growing list of telcos that have signed up to use Microsoft TV IPTV-edition software. The German telco plans to make IPTV a central offering over a new high-speed network based on VDSL (very high speed DSL) technology.
Gartner estimates that the number of German households subscribing to IPTV will reach 47,000 this year and grow to 2.8 million by 2010.