MUMBAI: Global IT research and advisory firm Gartner Inc said Internet Protocol television (IPTV) will face a raft of problems that will hold it back for at least five years, foremost being the low base of broadband connections to households in India.

Despite being a more advanced technology capable of additional functionality, IPTV is not well placed in India when compared against other digital broadcast distribution channels such as direct-to-home (DTH) satellite and digital cable. There’s also a large existence of analog cable TV users in India, who pay almost half for cable television when compared to digital subscribers, so have low propensity to shift to IPTV.

Gartner senior research analyst Neha Gupta said, “The primary reason for minimal IPTV uptake is the low broadband penetration in India. Without a mass-market broadband usage in place, the Indian IPTV subscriber base will struggle to exceed one million in the next four years.”

The Indian government has set aggressive targets for increasing broadband coverage, but even with strong growth, the penetration will stay low for the next five years. In 2006, the size of the consumer broadband market in India stood at 1.6 million lines and is expected to grow to 6.4 million by 2011.

“India‘s broadband penetration problems are unlikely to be resolved without the use of wireless broadband, either WiMAX or high-speed mobile services such as High-Speed Downlink Packet Access (HSDPA). While they will enable a better Internet surfing experience, we do not consider these as access technologies ready to deliver high-quality IP broadcast video to the TV set in the home,” said Gupta.

Moreover, 2007 is emerging as a critical year for India‘s pay TV business, with TRAI mandating the use of conditional access systems in three major cities while kicking off a phased implementation across the country; and more competitors are moving into the fast growing DTH market. Many middle class and wealthier Indians in metropolitan areas are making up their minds now about whether to upgrade to digital cable or take up DTH satellite, resulting in long-term contracts with the service provider. The existing pay TV platforms are tightening their grip on the market and will effectively block IPTV operators from being able to capture its target group of wealthy households.

Secondly, under the pricing regulations imposed on the pay-TV industry, IPTV will effectively be priced at the same level as digital cable and DTH, resulting in ARPUs in the range of Rs 300 – 500, as opposed to analog cable users paying Rs 150 – 300. IPTV therefore will not be able to differentiate itself from digital cable or DTH players in terms of price.

Indian carriers are unconvinced that IPTV offers them much revenue opportunity and, as a result, the leading state-owned carriers have adopted a new style of model that brings in third-party capital and ideas to run the IPTV operations under a franchise style model. While it is the carriers who hold the IPTV license rights and the broadband access infrastructure, the third-party investors buy the equipment, source content and run the IPTV operations in a particular city on behalf of the carrier. In return they get a major share of the revenue.

The franchise style model being adopted by the leading state-owned carriers is positive for the IPTV industry and brings new private sector ideas, rigour and capital into the business. According to Gartner, this model will help speed up the deployment of IPTV in the early years compared with what the carriers might achieve on their own. For the carriers involved, this model gives them a good way to offer triple-play and value-add to their broadband offerings without spending heavily on new equipment and expertise. Though innovative, this is an untried and still risky model; much will ride on the way in which the agreements are structured between carrier and franchisee.