STL Partners

Telco 2.0 Growth & Innovation

Video Distribution 2.0 - Time to fix the fundamentals

Below is a summary analysis of the Video Distribution 2.0 session at the May 2009 Telco 2.0 Executive Brainstorm.

The premise we explored was this:

The demand for internet video is exploding. This is putting significant stress on the current fixed and mobile distribution business model. Infrastructure investments and operating costs required to meet demand are growing faster than revenues. The strategic choices facing operators are to charge consumers more when they expect to pay less, to risk upsetting content providers and users by throttling bandwidth, or to unlock new revenues to support investment and cover operating costs by creating new valuable digital distribution services for the video content industry.

Participants ‘Next Steps' Vote

Participants were asked: Which of the following do we need to understand better in the next 6 months?

  • Is there really a capacity problem, and what is the nature of it?
  • How to tackle the net neutrality debate and develop an acceptable QOS solution for video?
  • Is there a long term future for IPTV?
  • How to take on the iPhone regarding mobile video?
  • More aggressive piloting / roll-out of sender party pays data?

Lessons learnt & next steps

The vote itself reflects the nature of the discussions and debates at the event:  there are lots of issues and things that the industry is not yet clear on that need to be ironed out.  The world is changing fast and how we overcome issues and exploit opportunities is still hazy.  And all the time, there is a concern that the speed of change could overtake existing players (including Telcos and ISPs)!

However, there does now seem to be greater clarity on several issues with participants becoming increasingly keen to see the industry tackle the business model issue of flat-rate pricing to consumers and little revenue being attached to the distribution of content (particularly bandwidth hungry video).  Overall, most seem to agree that: 

  1. End users like simple pricing models (hence success of flat rate) but that some ‘heavy users' will require a variable rate pricing scheme to cover the demands they make;
  2. Bandwidth is not free and costs to Telcos and ISPs will continue to rise as video traffic grows;
  3. Asking those sending digital goods to pay for the distribution cost is sensible...;
  4. ...but plenty of work needs to be done on the practicalities of the sender-pays model before it can be widely adopted across fixed and mobile;
  5. Operators need to develop a suite of value-added products and services for those sending digital goods over their networks so they can charge incremental revenues that will enable continued network investment;
  6. Those pushing the ‘network neutrality' issue are (deliberately or otherwise) causing confusion over such differential pricing which creates PR and regulatory risks for operators that need to be addressed.

There are clearly details to be ironed out - and probably experiments in pricing and charging to be done. Andrew Bud's (and many others, it must be added, have suggested similar) sending-party pays model may work, or it may not - but this is an area where experiments need to be tried. The idea of "educating" upstream users is euphemistic - they are well aware of the benefits they currently are accruing, which is why the Net Neutrality debate is being deliberately muddied. Distributors need to be working on disentangling bits that are able to be free from those that pay to ride, not letting anyone get a free ride.

As can be seen in the responses, there is also a growing realisation that the Telco has to understand and deal with the issues of the overall value chain, end-to-end, not just the section under its direct control, if it wishes to add value over and above being a bit pipe. This is essentially moving towards a solution of the "Quality of Service" issue - they need to decide how much of the solution is capacity increase, how much is traffic management, and how much is customer expectation management.

Alan Patrick, Telco 2.0: ''98.7% of users don't have an iPhone, but 98% of mobile developers code for it because it has an integrated end-to-end experience, rather than a content model based on starving in a garage.''

The "Tempus Fugit" point is well made too - the Telco 2.0 participants are moving towards an answer, but it is not clear that the same urgency is being seen among wider Telco management. 

 

Event Participants: can access the full presentation transcripts, delegate feedback, and long-term recommendations for action at the event download page (NB. the URL has been emailed to you directly as part of your package).

Executive Briefing Service Members and Future Networks Stream members: can do so in a special Executive Briefing here. Non-Members: see here to subscribe.

(NB. There is also a detailed analysis in the Telco 2.0 Strategy Report "Online Video Distribution: Opportunities and Threats for Distributors at a time of massive Disruption".