It's all about cost...
A phone line costs $25-$35 just to have. Add ADSL plans on top.
ADSL plan costs vary with speed and pre-paid download volume.
Reasonable TV needs around 4Mbps these days - the highest speed and cost plans.
How many hours/week of TV per household?
Individuals may average 4-8 hrs/day [30-60 hrs/week] - or 15-30%.
The Free-to-Air stations and Pay-TV operators provide content 100% of the time.
4Mbps should be available up to 4km from an exchange - ADSL 1 or 2 - or around 50 sq. km. It's not everyone, but a large chunk.
For example, Canberra has 10 exchanges, 300,000 people in about 110,000 dwelling units and covers 275 sq km of urban land, or 176 sq km of residential land. Coverage is not uniform, overlaps and not laid-out symmetrically around exchanges. The 2004 ACT Telco Survey [5.5Mb Word 'doc'] estimates ~75% of households would have ADSL available (4km) - but 93% coverage by all means.
Monthly ADSL plans start at around $20 plus $30/20Gb. Which values download volume at $1.50/Gb - not the $50-120/Gb 'surplus' ISP charge.
A link utilisation of 81% means a 4Mbps link can download ~1,000Gb/month - 34Gb/day or 1.4Gb/hr.
60Gb plans cost $90-$120/mth - around 42 hours of viewing - 10 hours/week.
The highest volume plans are 120Gb for $250. - around 85 hours of viewing.
Compared to ~$30/mth for basic pay-TV plans, TV over IP is many times more expensive.
But that's not the whole story - most ISPs allow 'Free' traffic from their own servers and through 'IX's [internet Exchanges] from other ISPs peering with them.
ISP's could offer real-time IPTV services over their own infrastructure, but any vendor outside their network has an insurmountable price barrier.
Pricing to achieve market share
The pay-TV market has shown that ~$30/mth price-point works. Not every household signs on, but enough. This model also shows that people are very happy without "view on demand" - TV consumers understand broadcast schedules and if they need time-shifting, provide their own record/playback.
For IPTV to work, some content has to be free and, like pay-TV, charged per additional bundle. It will be competing directly against established pay-TV services, and the experiences of new entrants into that field - the incumbents control access to content - are poor.
It's very likely that only existing players will leverage their content into IPTV. And why would they want to cannibalise their existing service? Like the introduction of ADSL 2, it will be delayed well past technological availability.
The technology to broadcast real-time video over IP is stable, well known and multiple vendors provide it. A dedicated router at each exchange would be needed to reduce the load on the trunk. A classic speed/space trade-off.
1Gbps/sec - a single fast ethernet link on a fibre - would handle 250 TV channels. The router is going to be $10-50,000 depending on capability, to service 1-5,000 homes.
The key is to limit the offering to real-time scheduled broadcasts.
"On Demand" downloads - the on-line equivalent of renting/buying a DVD - will only be interesting to consumers a very small fraction of the time.
Whether or not households will be happy with a single IPTV channel at a time is unlikely.