IP television promised telcos advanced weaponry with which to fend off the cable companies encroaching on their residential telephony markets. With IPTV, it is held, telcos not only can match their cable competitors' video offerings but go even further using IP's more malleable aspects to offer entirely new kinds of video experiences the cable companies haven't dreamed up yet and can't offer. Consumers might build their own personalized unichannels, picking and clicking content as they would over the Web, making the old model of basic and extended cable channel packages seem like quaint relics.

That's the idea, anyway.

So far, although telcos as a group have made significant inroads into the video market, they are still a good distance away from fulfilling the promise of IPTV. Even among IPTV pioneers, many are offering little beyond relative approximations of their cable competitors' video offerings. Any capitalizations on IP technology are experimental, and very few play an active role in converting cable subscribers.

“[Customers] do not choose us because of IP,” said Haavard Sterri, director of marketing and product management for SureWest Communications, which has about 22,000 subscribers to the IPTV service it launched in early 2004.

SureWest, like other IPTV pioneers, reports positive feedback on the early common IPTV features, such as TV-screen based CallerID, video-on-demand (VOD) libraries and “walled gardens” of local Web content. But like many IPTV providers, it is proceeding with caution, cognizant that it's easy to falter on unpaved ground.

“IPTV as an industry talks about whiz-bang features, but the fact is, that stuff isn't proven yet,” said A. Bernardin Arnason, principal with the consultancy Pivot Group. “For a good cross section of companies deploying IPTV, this is a new business. They need to get some experience under their belt with just the video stuff. They want to take some baby steps before they go all out. Vendors don't want to hear this, but it's going to take a few years before people are willing and able to deploy some of these advanced features.”

Understandably, telcos want to be sure they can offer a new feature reliably and scalably before they embrace it fully. CC Communications, a telco in northern Nevada with about 1200 IPTV subscribers, is no exception.

“On one hand, you want new features; on the other hand, you want reliability,” said David Tilley, CC's broadband engineering supervisor. “I have never had to reset my middleware server ever. It never locked up because we never asked it to do too much. We're not seeing the features we'd like to see.”

Like some other IPTV pioneers, CC offers a walled garden, a sort of portal where users can access local content such as weather forecasts and lottery numbers. It also lets users access the Internet through their TV, but that application is “not very robust,” Tilley said, because it doesn't fit the screen well, forcing users to scroll left and right to view whole Web pages. Still, it lets users easily check their e-mail on TV.

“Walled gardens are at a very early stage,” said Bob Larribeau, IPTV program director for Multimedia Research Group. “I don't think they're as effective at this time.”

Another feature CC is considering would remind subscribers, over their TV screens, to pay past-due bills, a nice feature for CC, but not one that would lure customers away from their cable companies.

According to Matt Cuson, vice president of marketing at middleware vendor Minerva Networks, telcos wanting to conquer the IPTV market first must convince consumers that telephone providers are capable of providing the same video service as cable companies. Their initial video services shouldn't overreach by relying on consumers to change the way they watch TV.

“New applications that require behavioral changes from the user — those things delay time to revenue and time to profit,” Cuson said. Instead, telcos should “exploit behaviors that already exist.”

There are multiple ways for IPTV providers to try to best their cable competitors without changing consumer behavior, such as having greater channel capacity (including local channels the cable companies may not offer) and on-demand libraries. CC's library of VOD content has blossomed in the past year, as movie studios got comfortable with the security aspects of the service. Today CC has more than 200 titles. This year and next, “you're really going to see VOD explode,” said Jim Lynn, CC's marketing supervisor.

Canadian telco Manitoba Telecom Services, aka MTS, is offering one of the more compelling uses of IPTV that doesn't force consumers to change their behavior. Taking advantage of its IP architecture, MTS offers some 200 channels. More important, it minimizes the number of unwanted channels paid for by any given subscriber by offering modular channel packages tied to common interests.

Cable providers typically force users who want, say, the Discovery Channel and the History Channel to buy a huge basket of other channels like the Food Network and MTV. But MTS grouped its channel packages into 25 small clusters with common themes. Subscribers pay $28 (Canadian) for a basic package and add only the theme groups they want — $5 each or three for $10, and so on. The theme categorization isn't perfect; the “News” package, for example, includes Fox News, Bloomberg TV and MTV. But it gives customers a feeling of tighter coordination between what they're paying for and what they want — a clear differentiator from cable.

“If you're going to do a TV service, you have to deliver a TV service that is customizable, personalizable,” Cuson said. “Telcos have an advantage in that their networks will scale massively for personalization. The cable guys can't, until they switch to IP, which they will.”

The personalization of TV service helps monetize the model, as well, because it allows advertisers to target consumers more precisely. And, in theory, it would foster more stickiness between carriers and their customers. Individual advertising, Cuson said, is “the holy grail of IPTV.”

This increased precision in marketing might become even more useful as IPTV takes on more e-commerce applications. Nevada's CC is already talking to middleware vendors about a feature that would pop up when subscribers ordered an on-demand movie, asking them if they wanted to order a pizza from a local parlor. (A first-generation product would signal the parlor to call the subscriber over the phone, but later versions would allow subscribers to order the pizza via their TV screens.) That feature is probably two quarters away from commercial availability, the company said. Over time, advertisers will get a fuller sense of each subscriber's tastes and interests and will be able to target e-commerce offers very efficiently.

As they look for numerous ways to let users personalize their TV service, IPTV providers will be looking eagerly for the TV equivalent of a ringtone: the surprise $4 billion market that sprang unexpectedly from mobile users' craving for individual expression. Minerva allows users to choose their own TV “skin,” the main menu screen through which they interface with their video. You like the Red Sox? How about a TV skin decked out with Red Sox colors and logos, links to Red Sox info and video and a season calendar that allows you to order tickets through your TV? Minerva is demonstrating such a product today with its partner, Nortel Networks, and expects general availability in the fall.

“From a technology perspective, nothing there has to be invented,” Cuson said. “It doesn't ask users to do anything they're not already familiar with. But you can't do it with cable TV without a major overhaul. With IPTV, it's darn near trivial.”

Once consumers (and telcos) are comfortable enough with IPTV to start changing the way they watch TV, who knows what applications might develop? In April, Virginia-based Communication Technologies (aka COMTek) used its IP-based PowerTV service to conduct what may have been the largest live, interactive IPTV event ever. The service, developed internally over three years for $11 million, linked nine science and religion experts with 16,000 high schools nationwide for an Earth Day video chat on global warming. What sort of live events might arise from IPTV in the residential TV market is anyone's guess.

“The two-way nature of IP networks is a significant advantage over cable and satellite,” Multimedia Research Group's Larribeau said, adding that developers of interactive applications have reported the effort required to make and implement those applications on an IP network is one-fourth that required to do it on cable networks.

In other words, IPTV will be very fertile ground for app makers to invent the next ringtone. IPTV providers will be listening for it.