Increased competition in the pay-TV market—especially from new TV services by telecommunications companies such as Verizon and AT&T—in the United States is driving cable TV operators to invest in their networks and launch new services, according to a report.

U.S. cable operators increasingly offer HD video, set-top boxes that promise to support interactive services, and mobile telephony as they seek to generate new sources of revenue,  reported researcher In-Stat.

“2007 will be the first in memory that the total subscriber base decreased for cable service operators,”  In-Stat analyst Mike Paxton said.

At the end of 2007, there were 67.9 million U.S. cable TV households, or about 67 percent of the pay-TV market, down from 68.5 million at year-end 2006, according to the research firm.

The decrease was largely a result of telecommunications companies entering the sector, said Mr. Paxton.

Telecom companies account for less than 2 percent of all U.S. subscribers today. But telecommunications-based TV rose sharply in 2007 from just a blip at the beginning of the year, to 1.6 million. In-Stat analyst Michelle Abraham said this trend should continue, projecting U.S.  TV subscribers to telecommunications delivery of service would reach 6.7 million by 2010. The remaining subscription base uses satellite networks.

The threat of telecommunications companies grabbing  pay-TV market position in the United States will force cable TV operators to at least maintain, if not increase, their $12 billion annual capital expenditures. They’ll also need to unveil more services to develop new revenue streams and hang on to their subscribers, wrote Mr. Paxton.

Ninety percent of the 50 U.S. cable TV operators surveyed by In-Stat —which included affiliates of big names such as Comcast and Time Warner Cable as well as local independents—said they now offer HD video services.

OCAP-enabled cable set-top boxes are increasingly implemented by cable operators across the country, the survey found. Twenty six percent of companies surveyed offer set-top boxes with the cable industry’s software platform, called OpenCable Applications Platform, installed.

Cable operators hope the platform will be embraced by developers to create interactive applications and services. There has been little innovation for the platform to date because of the limited market, Mr. Paxton said.

The most popular applications today are caller ID on TV sets and interactive programming guides. But developers should become more attracted to the market and spur innovation as more consumers have OCAP-enabled set-top boxes.

Cable operators are also increasingly offering mobile telephony, according to In-Stat research. Sixteen percent of surveyed operators now offer this “fourth” service—in addition to video, telephony, and Internet—and In-Stat expects that about half of U.S. operators will by 2009.

Mr. Paxton said this is mostly a defensive play by cable operators against telecommunications companies, which already offer the four services.