IPTV trundles on

The promise behind internet protocol television, or IPTV, is enormous, but fulfilment of that promise sometimes seems a long way off.

A year into major IPTV deployments around the world, progress on new features is slow, although a new version of Microsoft's IPTV software takes at least a small step toward tapping the technology's considerable potential.

On Monday, the first day of telecommunications trade show NXTcomm in Chicago, Microsoft will announce the third generation of its IPTV software, now called Microsoft Mediaroom. The software, which is used by telephone companies to deliver TV over an IP infrastructure, will include several new features that will help operators create new interactive experiences for users in the future, but it's light on features that consumers will see right away.

IPTV is just getting off the ground. Over the past year, Microsoft, one of the world's leading suppliers of IPTV technology, has begun deploying its software and middleware in 10 markets, including to AT&T in the US and Deutsche Telekom in Germany.

From the beginning, people have said that IPTV will change the way people watch TV. They'll be able to interact with television shows, choose multiple camera angles while watching sporting events, search and view movies and TV programmes from an almost limitless library of digital content, share pictures and home videos, access more high-definition content, get local traffic updates at the click of a button, and even shop from their TVs.

But cutting-edge features have been slow to emerge. For example, even a year into its launch cycle, AT&T's U-verse service still looks a lot like what cable providers already offer.

"We are just getting to the point where IPTV is more than just an experiment," said Vince Vittore, a senior analyst with Yankee Group. "Microsoft and operators are still getting their hands around the technology. So it's going to take time."

Verizon Communications, which doesn't compete directly with AT&T in any markets, has taken a hybrid approach that combines some traditional video delivery technology with IP. Verizon has been aggressively building a new all-fibre network called Fios, which is way ahead of AT&T both in terms of subscribers and features offered.

One major reason that AT&T has lagged behind is because it is using brand-new technology developed to deliver service purely over an IP infrastructure. And new technologies tend to have bugs. Earlier this year, AT&T executives cited glitches with software as at least part of the reason the company had to scale back its IPTV deployments at the end of 2006. AT&T had predicted that it would deploy the service in 15 to 20 markets but, at the end of the year, it reduced the total to 11.

The deployment race
AT&T never explicitly explained the software issues, but some industry experts suspected that the company was having difficulty getting the software to support larger numbers of subscribers.

"The software works very well in the lab," Vittore said. "But the question has always been: can it scale to tens of thousands or millions of customers? And, if so, how many servers will you need to make that kind of deployment possible? Then you have to consider whether that's feasible from a cost perspective."

So far, none of the IPTV deployments in the world have reached that scale yet. PCCW in Hong Kong, which has built its own IPTV network using home-grown technology, had about 833,000 subscribers at the end of March, according to market research firm iLocus. France Telecom had about 768,000 and Free Telecom, also in France, had roughly 680,000, according to the firm.

But for Microsoft, which began releasing its software commercially only a little over a year ago, subscriber numbers are much lower. AT&T said that, as of mid-June, it had more than 40,000 subscribers. Since the beginning of the year, the company has ramped up the pace of its deployments and now offers service in 21 cities. Earlier, AT&T had said it hopes to reach eight million homes by the end of 2007.

Microsoft said that any issues that AT&T experienced at the end of last year have been resolved. But it's clear that just getting the service to work has been AT&T and Microsoft's primary objective over the past year. The result has been that the features consumers see today are not much different from what's available from cable operators. The current version of Microsoft's software that AT&T uses supports features such as digital-video recording, video-on-demand, and high-definition television — all services that cable operators and satellite providers also offer.

AT&T claims it has differentiated its service by enhancing these features and giving subscribers more. For example, while most cable operators support DVR recording for only two shows at once…