The delivery of television programming and interactive services over a converged IP network—called video over Internet protocol (IP) or now, more frequently, IPTV—will be a critical part of keeping high performance flowing in the communications industry over the next decade.

As broadband penetration continues to expand—both in connectivity and in products and devices—a "land grab" is coming as telcos, satellite companies, and cable providers vie to attract and retain customers.

To respond to this competitive environment, one where the price and bandwidth ratio keep dropping, telcos are putting a new IP infrastructure in place so they can offer additional bandwidth at as low a cost as possible. They also want to be able to introduce new bundled products such as IPTV.

The business case for IPTV adoption is strong. Not only do companies get an increase in average revenue per user, but telcos can also put together a bundle that helps them compete more successfully with cable offerings. Telcos can also reduce churn when customers begin to seek VoIP options.

In spite of the benefits telcos can get from IPTV, the fact is that no operator has yet launched IPTV services that are scalable, stable, and high-quality, and that deliver an acceptable return on investment. Obviously the challenges are substantial. However, based on our experiences and lessons from the early adopters, here are the most important factors to be addressed with an IPTV strategy.

Some of the excitement about IPTV services focuses on the interactive and on-demand capabilities that can be delivered over the high-bandwidth IP network. Companies do need to be adopting those capabilities in pursuit of differentiation and increased customer loyalty. However, even in countries such as the United Kingdom—which has the most advanced interactive services in cable, satellite, and terrestrial technologies—interactivity is not yet generating significant revenue uplift. This situation is likely to continue, at least until a "killer app" emerges that leads to a dramatic uptake in demand for interactive, on-demand services.

What is the killer app for IPTV? The TV programming itself. Everything must begin from that foundation. The experiences from providers in the United Kingdom and the United States have made clear that the TV service itself must work as well as the consumers' existing level of service. No "me too" TV service will succeed—regardless of its interactivity—unless it functions as well as or better than existing TV services.

There is no turning back today from the imperative to bundle products and services to customers. A customer using multiple services from a single provider becomes much more entrenched and is less likely to churn if the value and quality of the entire bundle remains high. And there is the rub.

Looking at the extensive experiences of operators in Europe that have employed a bundle or solution-selling strategy, bundling is, in fact, a double-edged sword. If the bundle is good, with value differentiators built into the bundle as a whole, customers are less likely to be lured away from competitors for fear of losing the value of the bundle. However, studies have shown that operators that have trouble with the quality or value of one of the components or services in the bundle find that their customers are actually as much as 60 percent more likely to churn than a customer of a single service.

So service providers that aggressively launch a low-quality video service bundled with voice and/or data may not only lose that customer as a video buyer, but also as a buyer for voice and data services as well. And that can be a very expensive blow to the customer base. What to do? First and foremost, operators must monitor and rigorously measure both customer satisfaction and the stability of services being offered. This may require ensuring that customer-relationship management (CRM) capabilities are fully integrated throughout the entire solution that is being sold.

Service stability is the most important ingredient to IPTV success; and that means stability of the platform and architecture itself. If the IPTV service is unstable, high customer churn will result, and operators may end up with a customer base where churn negates their customer acquisition efforts.

A truly comprehensive IPTV solution encompasses the systems, video infrastructure, and network elements required for an end-to-end solution, as well as definition of the processes to operationalize the video services being offered. The most important success factor, in Accenture's experience, is to create a stable and scalable IPTV service over a broadband multiservice platform. This has proved to be challenging to almost every operator. All the network and service control issues required for quality of service (QoS) and bandwidth control between the different services over the same broadband access requires significant engineering know-how and an understanding of multiple broadband services and their characteristics. The architecture that enables the video service must also be stable over the access network and home access gateway using IP. This is not a trivial matter; design of such an architecture requires unique understanding of video as well as broadband.

The other important element of IPTV success is the set-top box (STB) and its integration and stabilization. In simpler broadcast environments, stabilization of the STB will take significant effort, time, and costs. The cost of the STB is often the determining factor in establishing the overall business case. Optimizing this element of the overall IPTV strategy requires an experienced and deep understanding of issues related to the deployment of STBs and applications, and also IPTV specifics related to such a platform.

Finally, the complexity of delivering an end-to-end IPTV platform is not just in the technical challenges in integrating all the video network components and systems involved, but also in the integration with operations support system (OSS)/business support system (BSS) platforms to be able to offer video services in tune with the operator's customer experience goals.

IPTV represents important competitive opportunities for communications companies, and operators should act now to address their most important operational challenges. For example, service provisioning and customer service are extremely important, as are storage and management of content and developing true, end-to-end quality of service in a complex network.

A robust and stable platform is the most important ingredient to success. Without such a platform, and the architecture that underpins it, operators cannot develop and retain the customer base necessary to succeed.