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Digital TX - Broadband Limits vs Online Content

Posted: 30th Jan, 2007 By: MarkJ
Alexander Cameron's IPTV & VoD Consultants - Digital TX Limited, has sent along another one of his interesting articles examining the growing market for online TV and video content.

This particular report also covers UK ISP's and the issues they and the market at large face between balancing content and broadband restrictions:

Much more importantly, it will bring the ISPs war directly to the content owning communities door. Clearly traffic of that size will not work with BT’s capacity-based charging approach or ISP download capping. The UK system is hilariously backward and conservative when it comes to enabling the development of advanced added-value services like TV. A movie is going to cost you half your 1GB monthly download cap, if the stream comes in reliably in the first place without being victim to bottlenecking and/or contention.

The problem is that a battle between the two sides has been brewing over time and got worse with the advent of bandwidth that allows us to easily download video. Someone has to pay the bill for it, and in a market that is continually driving down prices to compete (i.e. reducing margins) and suffering higher costs, something eventually has to give. The situation as it stands today is rosy for content owners, such as movie studios and broadcasters. They get to distribute their products essentially for free over the Internet. They may have a data centre bandwidth bill and traditional overheads (e.g. marketing, CRM, payment processing etc), but they don’t have to pay for the pipes.

That means an ISP pays, because they provide the connection into a subscriber’s home. They lease backhaul capacity from international transit providers and BT at a cost per Mbit, and the bill just keeps getting bigger as they are forced to buy bigger and bigger pipes for their customers, who want to download video and will go elsewhere if it’s too slow or too expensive. You don’t need to be a genius to see how it’s going to end.

The first steps have been taken in the form of traffic shaping, where heavy P2P users are being warned and kicked off networks. They will bounce around providers until they get fed up, and the ISP mindset is that as long as it’s someone else’s problem they aren’t going to work out a way to accommodate them and welcome them back. But what to do about live streams, download services and heavy web services?

There doesn’t seem to be an acceptable answer so far, but an emerging strategy is looming on the horizon that recovers backhaul costs, doesn’t need localisation and preserves download caps. Ultimately, the only way many companies can see working is a class action against content owners to block TV/video/P2P traffic to and from their data centres and websites. The content owner will then have to pay the ISP a quarterly/yearly access fee for the traffic to be connected, and doing so will mean it will flow freely to a subscriber and not be counted against their download cap/traffic allocation.

Yes, it s evil capitalism at its finest hour. These ex-academic hippies who created the Internet are fed up with squeezing the last drop out of their infrastructure and will be asking us to accept that the Internet was not designed to handle video, and as a consequence we will need to pay to access premium services. The chances are that content owners will also pass on their access fees to ordinary consumers in subscription or direct price increases.

You really have a death wish if you want to be a UK broadband provider. The sheer number of companies going into administration, sales and acquisitions, mergers, consolidations and crazy “free” offers makes it quite clear that the bloodbath is reaching a pretty horrid market conclusion. You can’t offer “free” services when your costs are so high. The competition for subscribers is so insane that only the bravest, and arguably, suicidal businesspeople pour money down the black hole of active customer acquisition. The big 5 are set to dominate, as they are the only ones with the stomachs and wallets for the fight.

The full report, which can be read as an online PDF HERE, then goes into detail about the costs of running a broadband ISP and related market difficulties. It's a truly excellent read.
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