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Friday, July 01, 2011

Zero-rating, sender-pays, toll-free data... the next business model for mobile broadband?

I've noticed a sudden upswing in discussion around the idea of "zero-rating" of mobile data traffic recently. This is where certain types of data - specific websites, apps, times of day, locations etc - do not count against the user's monthly data cap or prepaid quota. Clearly, zero-rating makes no sense if the user has a completely flat dataplan anyway.

Cisco has a blog post about the idea here , Andrew Bud of mBlox has been talking a good game on "sender-pays data" for some time, a company called BoxTop presented on its idea of "toll-free apps" at eComm, its cropped up in numerous discussions with operators recently - and its something I've been talking about for years in reports such as Mobile Broadband Computing (Dec 2008) and Telco 2.0 Fixed & Mobile Broadband Business Models (Mar 2010).

It's got the great advantage of being easy to understand - and there's often a zero-rate function built into existing billing systems anyway (eg to zero-rate internal "operational" data usage by the telcos for updates etc) so there isn't the headache of re-writing half the BSS/OSS stack that some other business models imply.

But in my mind though is a major question. Yes, certain data will definitely be zero-rated to the end user, but the big question is whether they will paid for by anyone else (ie an upstream party like an advertiser or app developer)? Or will the operator give away certain traffic "for free" as a marketing tool, or even as a way of (paradoxically) reducing their own costs?

Cisco's article points out advertisers as low-hanging fruit, something I wrote about myself last year. This is also a discussion I've had with companies such as Yospace in the mobile video arena, although when I asked an advertising agency at a recent mobile conference the notion of paying for bandwidth resulted in a look of bemusement.

However, there are some extra complexities to the model to consider:

- Excess usage and fraud risk / management. Would the upstream party be effectively signing a blank cheque for an unlimited amount of data use? I'm not sure how this works for 1-800 numbers, for example.
- Offload awareness. How does the model work for traffic which either does - or could - go via WiFi or femtocell access? Especially in the case where the data is backhauled through the operator core (femtos, or some new flavours of WiFi integration), I'd be mightily annoyed as the content provider if I was charged the same fee for data transmission even though the operators costs were 10x lower
- Is there any discrimination between data sent to busy cells during busy hour, vs. data sent during quiet periods?
- What happens with CDNs? Firstly, how do you account for and bill stuff routed via Akamai to a particular service provider? Secondly what happens if content comes from an operator's cache?
- Do you charge for the amount of raw data sent by the content company, or that which comes out of the compression/optimisation box in the operator's network and sent to the user?
- How do you deal with uplink traffic? And if the other party is paying, can I bankrupt the content company by emailing them a terabyte of random numbers?
- How do you sell and market this to media and content companies? How do you bill them? Do you need a completely new IT system to manage all of this?
- If the upstream company is paying, will they expect a strict SLA in terms of coverage, throughput rates - and for evidence that the telco has delivered on its obligations?
- Roaming will need to be considered - few content companies will want to pay $20,000 for delivering a movie downloaded by a user on holiday.
- Various types of problems identifying unique traffic streams when all this runs inside an HTML5 browser. Web mashups generally will cause a problem, for example if a "free" website has a YouTube video embedded on a page. Who pays for the YouTube traffic?

As a result, I expect that the short-term approach for zero-rating will be for those use cases where no money changes hands. Getting "cold hard cash" from this type of two-sided models is fraught with complexity. Instead, we'll see this type of zero-rating used mostly for promotional purposes: "1GB a month plus free zero-rated YouTube!", or for zero-rating the operator's own content and apps, especially where they are done "telco-OTT style". For example, I'd expect Orange to zero-rate traffic for its 50%-owned DailyMotion Internet video arm to some subscribers.

We may also see some zero-rating done as a way of encouraging content providers to use local CDNs, especially if they are run by the operator themselves. It would make sense for an Australian provider to tell Netflix that any content delivered from servers locally (and therefore not needing GB of data shipping across the Pacific needlessly by the operator) would get zero-rated to the end user. Obviously that would need to be set against radio and backhaul network load and would probably be part of a wider partnership deal.

There is also a promotional angle to giving away a certain amount of usage to non-data subscribers, in the hope that some will see the value and sign up for a data plan at a later date. Facebook Zero seems to fall into this camp at the moment.

Maybe some companies would stump up for the equivalent of 1-800 numbers. Maybe an airline's app, or a bank's? But in reality, the amounts are likely to be so small unless the apps are really heavy and frequently used (maybe 1MB per user per month for an airline app?) that the cost of sale might outweigh the revenues.

Overall, I expect to see zero-rating becoming more important in various guises. But I'm doubtful that it's as easy to monetise as some seem to think.


telecom books said...

hope this model can apply soon.

id said...

Another problem with identifying traffic streams is when the "toll-free" web page includes ads hosted elsewhere.
It is only the client-side browser that knows that a number of different downloads belong together - on the server-side they are just requests for different URL:s.

You wouldn't want the end user to get e.g free Facebook, but have to pay for downloading the ads shown on the side.