Telco TV has gained momentum in the past year and is poised to become a competitive, mainstream product within five years, according to experts. That growth will likely come with a more widespread use of advanced video encoding that promises to radically enhance the use of bandwidth.

That’s because many telephone company rollouts of video service will be underscored by the MPEG-4 format, considered to be the next generation of TV technology because it has the potential to deliver more channels and services using less bandwidth.

What’s more, the telcos’ work with MPEG-4 is likely to have a trickle-down effect in the cable business. As telcos prove MPEG-4 in the field, cable operators can take advantage of that experience as they too make what’s considered an inevitable migration over time to this next-generation format.

In most cases, using MPEG-4 cuts in half the amount of bandwidth needed to deliver video services. As such, MPEG-4 also lays the foundation for new businesses and product extensions. There is never such a thing as having too much bandwidth because operators can always use it to add another service, channel or interactive feature.

For some telcos MPEG-4 allows them to reach more homes by making better use of bandwidth. Cavalier Telephone plans to introduce video service this quarter and will be able to reach 2 million homes using MPEG-4, said Andy Lobred, VP of product management and marketing for Cavalier. The company would have been able to reach fewer than 1 million homes using MPEG-2, the compression format that most video providers now use, Mr. Lobred said.

“MPEG-4 revolutionizes the world in a specific slice of the world,” said Steven Hawley, principal with Advanced Media Strategies, a consultancy. “For the telcos MPEG-4 changes everything. For the first time, because of MPEG-4, telcos can deliver multiple channels of television programming, even HDTV, simultaneously over twisted-pair copper [wiring] that was initially put in place just for voice.”

The transition to MPEG-4 will begin in earnest this year. “We will see [MPEG-4] aggressively, over time, be adopted by cable operators [and telcos]-initially in trials to make sure it works,” Mr. Hawley said.

Telcos are inclined to move faster than cable providers to use MPEG-4, in part because they are starting with a clean slate in most cases and can use the latest and most cutting-edge technologies available. Additionally, because they have less overall bandwidth to work with in the first place, they often have no choice but to use MPEG-4.

But while MPEG-4 is a must for telcos, because it essentially doubles bandwidth, it’s also critical for cable and satellite operators as the industry makes the shift to a high-definition world. HD channels by their nature are bandwidth hogs, but MPEG-4 allows providers to offer double the number of HD channels over the same amount of bandwidth, said Ryan Petty, VP of product management for Myrio, an Internet-protocol TV technology provider. “It will be the de facto standard,” he said.

But it won’t be an easy transition. MPEG-4 is a major investment that entails upgrading headend equipment and set-top boxes. That’s why the transition will likely take place over several years.

Satellite operators will play a role in driving that transition because they need to add HD capacity and will likely tee up first, Mr. Petty said. As satellite providers switch over, the cost of MPEG-4 equipment and set-top boxes will start to come down.

Only a handful of providers have even begun to roll out MPEG-4, while most cable, satellite and telephone providers still rely on MPEG-2 today and will for the next few years. DirecTV will begin to make the transition this year as it rolls out local channels in high definition in several markets using MPEG-4, while some local phone companies, including SureWest in Northern California, are evaluating MPEG-4 this year.

The Cavalier Telephone launch this quarter will be one of the first instances in which a video service will rely on the new format. The company will begin its rollout of video service in Richmond, Va., where it counts 40,000 customers. It will offer more than 150 basic and premium video channels, 45 to 50 audio music channels, video-on-demand, an interactive program guide, broadband DSL and phone service. Cavalier also plans to add HD and digital video recorders this quarter.

After the Richmond launch, where Cavalier expects to reach 150,000 homes passed, the company plans to expand to Norfolk, Va., Baltimore, Philadelphia, Delaware and Northern Virginia. “By the end of the second quarter, our plans are to be across 2 million homes passed in the Mid-Atlantic region,” Mr. Lobred said.

“We made the decision to go with MPEG-4 because of the bandwidth advantages over MPEG-2,” he said. “So we can provide a solution that actively competes with Comcast, Cox, DBS, and deliver … 100 percent crystal-clear digital picture.”