BT unveils new TV service

NOTE: a longer version of this piece on BT's new IPTV service is also running on the magazine's web site.

BT today launched its new television service, unveiling an aggressive pricing strategy and exclusive content deals to show Premier-league football and programmes on demand that it hopes will lure “refuseniks” onto pay-TV. The telco is projecting two million subscribers by 2008 and profitability in three to four years.

The telecoms operator plans to go head to head with BSkyB satellite services, cable offerings from NTL:Telewest and other IPTV services from Homechoice and those yet to launch.

BT Vision, as the service will be called, will offer a range of broadcast channels via digital terrestrial television (Freeview). A selection of content on demand and replayed content will be available using the broadband network. BT estimates that typical costs for its service will be around £379.64 for the first year, versus prices ranging from $434.88 to $610.50 for comparable packages from Sky and NTL.

Among the deals unveiled at BT Vision’s launch today was a deal with Setanta Sports, an Irish-based sports content aggregator and pay-TV broadcaster, to offer 46 live premiership games as well as another 242 near-live games, available for 50 hours from 10pm the night of the live broadcast. A spokesman for BT describes the total BT has spent on content deals in the “tens of millions of pounds” to date.

Ian Livingston, the CEO for BT Retail, said BT will be investing £100 million of Ebitda on all aspects of service, but it has not detailed how many subscribers it will need to have, or what kinds of ARPUs it will need to achieve, to get a return on its investment.

But despite being late entrants into the pay-TV market in the UK, IPTV providers could yet have a chance to achieve a critical mass for services. BT claims there are some 14 million homes with 47 million television sets that do not subscribe to any form of cable, satellite or Freeview services—described as “refuseniks” by Gavin Patterson, the consumer products MD for BT.

In a research note, Cyrus Mewawalla, an analyst at Westhall Capital, points out that given many of the problems that IPTV has faced, BT’s making the right move to use Freeview for the one-to-many portion of its service. “This strategy of limiting the use of IPTV technology to the bare minimum [of content on demand services] is smart because IPTV software is not yet fully proven--it suffers from the same problems as all software--i.e. it has bugs, it has security issues and it crashes,” he said. BT will be using IPTV software from Microsoft and set-top boxes by Phillips for the service.

To contrast, when France Telecom’s Orange--formerly Wanadoo--plans to launch its IPTV service in the UK later in 2007, it says it will be offering broadcast services via broadband.

Yet there are many hurdles ahead. There is the ongoing debate about whether download speeds of 2 megabits per second—the typical speed today for most BT broadband connections in the UK—will provide adequate quality of service for video streaming.

Taking the larger business case, some analysts believe a target of 2 million users within the first year of service is optimistic. In total there are only around 4 million IPTV subscribers worldwide, according to investment analysts Westhall Capital.

And to date, take up of premium on-demand services has been slow for cable and satellite operators in the UK, while Freeview is—as its name implies—free to view for those willing to buy a set top box by going directly to a retailer, without getting a broadband subscription from BT.

There is also the issue of whether late pay-TV adopters will be happy to ante up for all the different services that will be needed to make the service work. On top of needing a BT broadband subscription and a BT “Home Hub” home gateway, customers must pay an installation fee of £60 and a connection fee of £30. Initally, BT will waive the cost of the set-top “V-Box.” In time, BT will offer a self-install option for the service, and it will start to charge for the V-Box.

Basic TV services are being priced at £6 a month (Sky+ charges £7.50 and NTL charges £5.50); subscribers then have the option to buy other content like music videos, films and television programmes by subscription or pay-per-view.