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iPlayer Threatens Unlimited Business Model of UK ISPs

Posted: 21st Feb, 2008 By: MarkJ
Analyst Telco 2.0 has used a preliminary analysis of BBC iPlayer (IPTV) traffic from Plusnet to model the cost impact upon the wider market for UK broadband ISPs. The results suggest that iPlayer could have a far more detrimental impact upon providers than previously thought.

Firstly it's important to highlight Plusnet’s original and quite excellent summary of iPlayers impact since its Christmas launch at the end of December 2007 (here). The highlights were as follows:

  • 5% growth in total average usage since 1st December

  • 66% growth in volume of streaming traffic since 1st December

  • 2% growth in the number of customers using their connection for streaming since 1st December

  • 72% growth in the number of customers using over 250MB of streaming in a month since December

  • 100% growth in the number of customers using over 1GB of streaming in a month since December

  • Cost of carrying streaming traffic increased from £17,233 to £51,700 per month
A few stats first, 23,441 of our customers used over 250MB of streaming (download only) in January, with a mean of 947MB between them. That’s up from 13,569 customers that did more than 250MB in December (with a mean of 856MB) and going back a year 12,225 did over 250MB with a mean of 781MB in January 2007. 6,083 customers streamed more than 1GB of data in January 2008 (2.2GB mean) against 3,045 in December (2.1GB mean) and 2,253 in January 2007 (2.1GB mean).

Using this data and a rough customer base total estimate of 282,000 for Plusnet, Telco 2.0 predicts that the introduction of iPlayer could equate to an increase in costs for IPStream (BT based) ADSL broadband providers to £1.5m in January from 500k. The option for the ISP is either to allow degradation in performance or order more capacity:

The obvious conclusion is that ISP pricing will need to be raised and extra capacity will needed to be added. The data reinforces our belief expressed in our recent Broadband Report that “Video will kill the ISP star”. The problem with the current ISP model is it is like an all you can eat buffet, where one in ten customers eats all the food, one in a hundred takes his chair home too, and one in a thousand unscrews all the fixtures and fittings and loads them into a van as well.

An interesting corollary to the increase in costs for the ISPs is that we believe that the iPlayer will actually speed up consolidation across the industry and make the life of smaller ISPs even more difficult than it is today.

Additionally because of the high bandwidth needs of the iPlayer, the long copper lengths in rural England and the lack of cable or LLU competition to the IPstream product, we believe that the iPlayer will increase the digital divide between rural and suburban UK.

Telco 2.0 suggests that the BBC may need to consider paying an "equitable fee to the ISPs for distributing their content", while the ISPs would then offer unlimited BBC access. Part of this is because UK licence payers expect they paid for both content and distribution when they handed over the license fee.

However, the market has more than just one ISP and setting up such an arrangement so that it is fair to all may prove problematic. It could also set a dangerous precedent for similar situations in the future. One other solution would be for the largest providers to adopt a more realistic level of pricing but that is unlikely given the high levels of market competition. Telco 2.0's full report can be read HERE.

In related news, the BBC may drop its FLASH (web-based) iPlayer in favour of an alternative solution so as to improve the services video quality.
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