Company: British Telecommunications
PLC.
Trials To Date: Commercial ITV trial in
Ipswich and Colchester with 2,000 paying customers.
Lessons learned: Customers will pay 5
pounds for good quality films-on-demand, but are impatient with slow
on-screen menus.
Trials Planned: In September, commercial
trial with up to 1,000 customers of BT affiliate Westminster Cable Co.
Company: Telia AB
Trials To Date: One, in Jarlberg, with
500 users.
Lessons learned: Consumers are willing
to pay more to see native language films, especially for children.
Trials Planned: Malmoe, in Spring 1997,
with 2,000 users.
Company: Societa Finanziaria
Telefonica (STET)
Trials To Date: Ongoing commercial tests
in Rome and Milan, with 500 users in each city.
Lessons learned: Customers don't like
wasting time finding programs to watch.
Trials Planned: Commercial launch of
near-video-on-demand planned for Autumn, starting with Rome and Milan.
Company: Deutsche Telekom AG
Trials To Date: Ongoing trial in Berlin
with 50 users.
Lessons learned: Not available.
Trials Planned: Autumn launch of
delayed, 2,500-user trial in Stuttgart. Trials also planned in five other
cities.
Company: France Telecom
Trials To Date: Testing in Biarritz from
1984 to 1991. Now conducting ITV trial over cable with 200 customers in
Paris.
Lessons learned: For video-on-demand in
Biarritz, consumer demand was weak and costs prohibitively high.
Trials Planned: None announced
By Jennifer L. Schenker in Paris
Europe's telephone companies thought customers like Anthony Cox would be their salvation. The 52-year-old British reverend uses his home computer to download liturgies from the Internet. And he uses his interactive television set to command literary videos such as "The Canterbury Tales" through the telephone wires.
The Coxes are one of 2,000 families who took part in British Telecommunications PLC's interactive commercial television trials in Ipswich and Colchester, two towns northeast of London, between September 1995 and June of this year. Between games and films, the reverend, his schoolteacher wife and their three sons, ranging in age from 16 to 21, racked up monthly ITV bills averaging 35 pounds ($54). They say they'd be willing to continue to pay that amount should BT launch a nationwide service.
But families across Europe are unlikely to be offered such services on a massive scale anytime soon.
Trials around the world have failed to prove the market viability of video-on-demand, and no other killer applications have surfaced.
A look at ITV trials across Europe.
BT, Sweden's Telia AB and Telecom Italia's parent company Societa Finanziaria Telefonica are separately planning to launch or announce the second phase of ITV trials this fall. But telephone companies are leaning toward offering more limited types of interactivity at later dates, rather than rolling out the overly hyped video-on-demand systems originally envisioned by the industry.
No Grand Visions
"I tend to compare video-on-demand with the Concorde project. It was the best airplane ever designed and built, but it was not coherent with the way the market went," says Peter Van Hoogstraten, chief operating officer of KPN Multimedia, a subsidiary of Koninklijke PTT Nederland NV. "Impressive technological visions are too dangerous. It is better to cut and paste existing technologies than to be driven by a grand technological vision."
Like their counterparts in the U.S., as little as two years ago most phone companies in Europe were putting their faith in ITV, a combination of technologies that offers consumers greater control over what they watch and when they watch it, as well as electronic banking and shopping services.
Video-on-demand, for example, allows consumers to order a film of their choice and receive it within seconds. All it requires is a way to tap into an outside content source, called a server, through a phone line or a cable hookup. The consumer needs to have a TV and a set-top box used to receive and code the signals. This two-way communication line then allows couch potatoes to take an active role in the programming.
Telephone companies hope these new two-way services will help them combat cable companies and others who have begun offering their own telephony services. But delays and curtailed plans have caused analysts to revise their projections about how long it will be before revenue begins flowing in.
London-based telecommunications consultancy Ovum Ltd., for example, in 1994 predicted revenue received by service operators in Europe from consumer subscriptions and other ITV-related services would be about $240 million by 1996. The figure was later reduced 83% to $42 million.
"Most telcos are less enthusiastic about this market than they were a couple of years ago. They found that costs were a bit higher and demand rather lower," says John Matthews, a principal consultant at Ovum. "Other things now seem to offer an alternative, such as narrow-band interactive services and Internet access or on-line multimedia via personal computers."
Like other consultancies, Ovum is still predicting a big market for ITV. It says service providers in Europe could reap as much as $13 billion from ITV-related services by 2005, a 5% increase from original projections.
But it will be at least another five years before interactive television services start generating significant revenue.
A tremendous amount of upfront investment will first be required. Revenue from ITV services won't permit operators to recover their investments even within 10 years, according to telecommunications consultancy Dittberner Associates Inc. of Bethesda, Md., which recently issued a report on 160 ITV trials.
It is no wonder, then, that France Telecom is feeling pretty smug. While other phone companies were shelling out big bucks for trials over the past few years, the French telephone company, which got negative results when it conducted trials back in the 1980s, took a wait-and-see-attitude.
'We Will Follow'
"Why should we invest?" in new ITV trials, asks Gerard Eymery, president of France Telecom Multimedia. "If (other telephone companies) find a killer application, let them fund it. We will follow."
Analysts now recommend that telephone companies take a gradual approach similar to France Telecom's. Begin by offering high-speed Internet access services, then move into interactive television with simpler services such as near-video-on-demand, a technology that allows delivery of films after a delay of about 10 minutes at dramatically lower cost.
The Dittberner report says other phone companies have made serious miscalculations, including:
Altogether, telephone companies have spent about $3 billion on ITV trials, without any clear-cut goals or ideas about applications, according to the Dittberner report. What they have learned is that it is possible to offer ITV services through a variety of technologies.
But many questions remain. "The technology is out there ... everyone knows how to do it," says Patrik Wikstrom, a project manager at Telia InfoMedia Television, a unit of the Swedish phone company and a manager of cable TV networks. "What we don't know is what the customers want and whether they are willing to pay for it."
Phone companies also need to find out what advertisers will pay, what terms content providers will be comfortable with and the ultimate cost of delivering service.
But it isn't certain that telephone companies have the know-how to move beyond transport into domains that hitherto were the province of cable television companies, such as advertising and programming.
And if they stick to simply relaying a series of packages that somebody else put together, "very little of the money will stick to their fingers," says Ovum's Mr. Matthews.
Still, hope springs eternal. The following is a snapshot of the current state of European telephone companies' trials and tribulations.
Britain: Paying Customers
BT claims its commercial trials northeast of London prove it is possible to generate and sustain revenue from ITV services transmitted via a telecommunications network. It plans in September to start up a commercial trial of similar services over a cable television network it owns in central London called Westminister Cable Company Ltd. The trial this autumn, which is based on a Digital Equipment Corp. media server, will offer service to up to 1,000 paying customers and is designed to test the tastes of seasoned multichannel viewers.
So far, test results have "broadly been in line with expectations," says Rupert Gavin, BT's director of multimedia services. But, he says, "we are going to migrate to these services rather than do so in a single leap." BT is experimenting with a broad range of ITV services, such as banking, shopping, games and television and films on demand. Its trials in Ipswich and Colchester proved that subscribers would pay up to five pounds for just-released quality movies, Mr. Gavin says. But, he adds, "no single service in isolation will be an economic driver." Mr. Cox says BT got the mix of services about right. In the beginning of the trial, there were unexpected system crashes and programming was initially limited. But by the end of the trials he liked what he saw.
Overall, Mr. Gavin sees ITV as being "quite an important marketplace," since 95% of U.K. residents have a television set but only 10% to 15% have a personal computer.
Sweden: See the Future
Telia plans to deliver interactive multimedia services to 98% of the Swedish population by 2004. The Swedish public network operator is depending on emerging multimedia services to generate new sources of revenue because it was exposed to competition before most.
Telia is expected to announce in September that it has chosen suppliers of equipment for a commercial ITV trial called Raphael involving 2,000 paying customers in the city of Malmoe, in southern Sweden. Service will start in the spring.
The commercial trial will include delivery of ITV services over both a digital telephone network and a cable television network. Telia began testing ITV services in February 1995 over a cable TV network it owns in Jarlberg, south of Stockholm, in a trial involving about 500 customers. That continuing trial is based on Digital's media server connected to a combination of fiber optics and coaxial cables.
Since its de facto monopoly ended in 1990, Telia has cut its work force by 20% from 40,000 to 32,000 and seen its market share drop from 100% to 85% in 1995. It expects to have only about 50% of the market for telecommunication services by 2000, says David Philipson, managing director of Telia Infomedia Content Center AB, a division set up to acquire content and skill sets needed to introduce interactive services. By 2000 only an estimated 15% of the operator's revenue will come from multimedia services like ITV, but that percentage is expected to account for 30% of overall profit, he says.
The reason? The heyday of huge profit margins for basic connections and international calls is over. New technologies, such as voice over the Internet, are adding additional pressure, prompting telephone companies like Telia to diversify into new businesses.
Italy: Competitive Push
The Italian telephone company is scrambling to blanket the country with interactive services before serious competition takes hold. Many phone companies want to offer interactive video services to regulators or governments as the primary justification for the construction of the local telephone infrastructure into a two-way broad-band capability, according to the Dittberner report. In this way, the broad-band expansion can be partially accomplished at the expense of existing telephone subscribers, rather than future investors.
In the run-up to full-fledged competition in 1998, Stet is spending $6.2 billion on a project to connect with 10 million homes in a cooperative effort with Telecom Italia.
Trials based on technology provided by Bell Atlantic Corp. of the U.S. are scheduled to finish at the end of the year. But Bell Atlantic has struck a deal with Telecom Italia's rival Olivetti SpA, souring the relationship. Commercial near-video-on-demand trials are set to begin this autumn. Those trials will be based on digital video broadcasting services and software developed by International Business Machines Corp.
Germany: Taking Its Time
Telephone giant Deutsche Telekom AG, which also owns most of the country's cable television network, had grand plans to test ITV technical solutions between 1995 and 1997 in Berlin, Hamburg, Cologne/Bonn, Stuttgart, Nuremberg, Leipzig and Munich. The Stuttgart trial, involving some 4,000 paying customers, was to be Europe's largest multimedia showcase.
But 11/2 years after the announcement only one ITV trial -- involving 50 customers in Berlin -- is operational. The delays have led to public finger-pointing at hold-ups in government funding, and at technical glitches with set-top boxes. The Stuttgart trial is now scheduled to begin this autumn, according to a Deutsche Telekom spokesman. He declined to give details about why the trials have been delayed, and repeated requests for interviews with Deutsche Telekom executives were denied.
A source connected with the Stuttgart trial said set-top boxes for that trial, to be supplied by Alcatel AG, are still in the system-test phase. Rather than the initial 4,000 customers, about 100 ITV subscribers will be linked in Stuttgart by the end of September, with a target of about 2,500 by year end, according to the source.
France: Testing the Water
As an early tester of video-on-demand, France Telecom is taking a cautious approach to ITV.
The French phone company spent an estimated $100 million on trials, which took place between 1984 and 1991 in Biarritz, a resort city on the southern coast of France. The tests found weak consumer demand for services like video-on-demand.
France Telecom is currently testing a variety of ITV services including home shopping with 200 customers in Paris's seventh arrondissement over an analog cable television network it owns. The experiment, which started last November and is scheduled to end this autumn, involves outfitting that network with equipment needed to allow for two-way communications. But France Telecom has no plans to bankroll the kind of expensive fiber-to-the-home projects originally envisioned by some phone companies for delivering ITV services to consumers.
"Give a consumer who wants to cross the Atlantic a choice -- would you rather swim across, row across or take the Concorde?" asks Mr. Eymery. "Now give him the same choice but tell him he has to pay for it."