It is not enough for the telcos to enter the video market with only a conventional broadcast TV experience, but must also add value to these services in order to compete effectively against the entrenched cable operators. Customizing the television viewing experience according to subscriber's preference is becoming key to gaining market share in the Internet protocol TV (IPTV) services market.

Frost & Sullivan finds that the North American IPTV Services Market earned revenues of $137.9 million in 2005 and estimates this to reach $4,601.2 million in 2011.

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Increased use of the Internet, Worldwide Web, higher bandwidth and improved compression technologies has proven to be major drivers for the IPTV services market. It is estimated that the number of IPTV subscribers in North America will grow from 677,000 in 2005 to 17 million in 2011.

"As customers migrate to VoIP-based telephony and wireless, the incumbent local exchange carriers (ILECs) are losing the associated revenue," notes Frost & Sullivan Senior Analyst Lynda Starr. "IPTV enables the telcos to leverage their digital subscriber line (DSL) access networks and customer base with an additional video service to supplement voice and data offerings in order to stem losses and retain customers."

While potential subscribers are attracted to IPTV for lower pricing compared to cable- or satellite-delivered content and for improved options in terms of bandwidth, features and customer service, telcos face a challenging task ahead.

This is because most telcos are late market entrants compared to cablecos, DBS and broadband fiber providers. The telcos will roll out IPTV-based services on a city-by-city basis, starting small and then increasing the number of subscribers as each market matures.

The key is to compete on service differentiation by offering subscribers better value through personalization of content, ease of use, cross-device capability and portability across devices.

Telcos and others entering the video service market cannot merely replicate the broadcast viewing experience. They must start slowly with a competitive offering and then upgrade to advanced services once they build an established customer base.

"The user experience and back-office support are crucial in determining the success of an IPTV-based service provider," explains Starr. "This covers everything from the navigation and electronic program guide (EPG) interface to assuring quality so that service is not disrupted during premier events."

Ultimately, service providers that offer simple services at lower-price points while maintaining high-quality video experience stand to gain the most in terms of market share in the IPTV services market.

North American IPTV Services Market, a part of the Communications Services Subscription, which provides a market analysis for IPTV-based services and the set-top boxes required to deliver IPTV services to consumers. In addition to comprehensive end-user analysis, pricing trends, competitive structure, and market share analyses, it includes detailed market opportunities and industry trends evaluated following extensive interviews with market participants. Analyst interviews are available to the press.