O2 to launch internet TV in Britain after Czech trial proves successful

O2 is to trial an internet-based TV service next year after trialling a similar product in the Czech market, a test bed for the mobile phone company's wider ambitions.

The Czech IPTV launch has proved a big success for O2 and its owner, Telefonica, since it launched in September 2006, attracting 70,000 customers so far. It offers more than 50 channels with content from leading producers including Sony, Disney, Warner Bros and HBO, the US TV producer behind The Sopranos.

O2 has been expected to launch IPTV services in the UK after it snapped up the small broadband player Be, which has the fastest network in the country. Although O2 has launched broadband services, the capacity of the Be network would allow for a robust IPTV service to be carried to customers.

Delivering TV over the internet has become a key customer retention tool for companies such as BT and Tiscali in the UK as customers start sourcing more services from one supplier.

Yet while its Czech customers are hungry to source broadband, mobile and pay TV services from the one supplier, the UK market could prove a tougher nut to crack. Virgin Media's quad-play has proved disappointing, while take-up of BT Vision, which launched in the UK at the same time as O2 went live in the Czech Republic, has been slow.

The Czech Republic represents an important market for the O2 Telefonica group as the rate of fixed-mobile penetration is much higher than in any other European country. Only 50 per cent of Czech households have a fixed-line phone as historically the incumbent fixed-line operator, Cesky Telecom, was very poor at connecting people. Hence Czech residents have been much quicker to embrace mobile phones and advanced services than in other countries, and the mobile penetration rate is around 125 per cent. The gap between fixed and mobile prices is also quite small compared with other European countries.

Telefonica bought Cesky Telecom and the mobile company Eurotel in 2005, and has integrated the two companies to offer a converged fixed-mobile service. With over 75 per cent of voice minutes being carried over mobile phones, the company faces a different challenge to that in the UK, as its big challenge is convincing the Czechs to take a fixed-line.

Salvadore Anglada, chief executive of Telefonica O2 Czech, said that the company is moving toward full service convergence, whereby customers can pay a flat-rate tariff to watch live ice hockey games, the most popular sport in the country, on whatever technology suits them best at the time, whether that is by a mobile phone, normal TV or over the internet.

Mr Anglada said that the company's experience in the advanced Czech market is vital to how it tackles other countries. He said that the launch of broadband in the UK this year was influenced by its Czech operation in areas such as network management and technology. "The trend we are seeing here is not unique but it is one step ahead," he said. "Step by step, it will happen in other countries. The UK and Spain are learning from us, which is critical for our company ... when we launch a product, the UK is watching carefully."

Competition intensifies in pay TV

While O2 ponders whether its IPTV service will appeal to UK users, Orange has rolled out its TV platform in London and Leeds ahead of a nationwide launch in the first half of next year. Three hundred paying customers will trial the service over the coming months and will be able to access content from suppliers including MGM and Disney. The mobile phone companies' plans mean that the pay TV market is going to become even more competitive with Sky, Virgin, Tiscali and BT already battling for customers. Competition in the market will be under the spotlight this week when Ofcom publishes its assessment of the sector.