5/2/2007 -- It seems as if Cisco Systems Inc. chief John Chambers has a nose for emerging trends. Consider Cisco's purchase late last year of cable set top box specialist Scientific Atlanta, which gave the networking giant a prominent foothold in the digital home of today -- for a head-scratching price tag of $7 billion.

If research from market watcher Infonetics pans out, however, Cisco's $7 billion head-scratcher might soon metamorphose into a fist-pumping bargain.

Between 2004 and 2005, Infonetics says, IPTV equipment sales, service revenue, subscribers and service provider capital expenditures rose dramatically. And by 2009, the researcher projects, IPTV-related revenues will explode, with worldwide IPTV subscribers swelling to 53 million by 2009.

The result, Infonetics indicates, is that service providers are rapidly investing in IPTV content and transport equipment.

By 2009, $26 billion of worldwide service provider capital expenditures will be earmarked for IPTV infrastructure costs. Over the same period, the market watcher says, worldwide IPTV equipment revenues should reach $6 billion, with service revenues jumping to about $38 billion.

Right now, broadband service providers with DSL and FTTH services account for the bulk of IPTV service revenue, but cable broadband providers are also expected to migrate to all-IP triple-play services over the next few years. In time, cable providers will also offer wireless services, too.

"Service providers expect huge returns from IPTV, and they are investing heavily in IPTV infrastructure to ensure those returns," said Jeff Heynen, directing analyst for IPTV at Infonetics Research, in a statement. "Right now they're focused on transport infrastructure, upgrading their access networks with higher-bandwidth ADSL2+, VDSL2 and FTTH platforms, and adding IP edge routers and Ethernet routers and switches to handle the expected traffic demands of the escalating numbers of IPTV subscribers."

This will change by 2009, Heynen predicts: "Over the next four years...[the] investments [of service providers] will shift a bit to content infrastructure, so they'll spend more on things like video-on-demand servers, encoders, content security platforms and head-end equipment."

Last year, Infonetics says, worldwide IPTV equipment revenue exceeded $400 million, while Europe, the Middle East and Africa was the leading region for IPTV service revenue, accounting for nearly half (48 percent) of global revenues.

Good news for Cisco: IP set top box sales generated 42 percent of all IPTV equipment revenue, as service providers began volume purchases of MPEG-2 enabled STBs for the presentation of IPTV content, Infonetics says. Even better, IP set top box sales will nearly double annually over the next three years.

Finally, the number of IPTV subscribers in North America will increase more than 40-fold between 2005 and 2009, the researcher concludes. --Stephen Swoyer