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Thursday, March 10, 2011

Revenue from content/app transport? Operators need to be part of solution, not part of the problem

I'm still seeing a lot of discussions that go along the traditional and rather tired lines of saying that Facebook / YouTube / Hulu / BBC etc should "pay for their use of our pipes". I've just been debating on Twitter with Flash Networks, an optimisation company, about the fact that YouTube is now watched by a huge proportion of broadband-enabled people in India (mostly fixed, not mobile)

Flash asked the question "should YouTube be financially accountable", to which the answer I think is pretty clearly "no" - the users are financially accountable for buying Internet access services. If they all seem to prefer the same website for video, so what? Maybe at some point it becomes a question for competition authorities, but I really can't see what difference it makes if people watch videos from one site or 10 different ones.

If I have a mobile phone plan with 600 minutes, and use 500 of them calling my best friend and 100 calling everyone else, you wouldn't send my friend a bill for "generating traffic".

But that doesn't preclude the operator doing a deal with YouTube for something extra. Maybe they offer QoS guarantees (empty promises won't cut it, there needs to be proof and an SLA) for prioritisation or low-latency. Maybe they have a way to over-provision extra bandwidth - for example the customer subscribes for a 6Mbit/s line speed, but YouTube pays extra to boost it to 10Mbit/s if the copper can handle it. Maybe the operator gives YouTube a way to target its advertising better, through exposing some customer data. Maybe the operator improves performance and reduces costs by using caching or CDN technology.

But all that is on top of the basic Internet access - and of course, YouTube will be doing its own clever things to squeeze better performance out of basic access as well. It will be playing with clever codecs and buffering and error-correction and so on, so the telco has to make sure its value-add "happy pipe" services give YouTube a better ROI than spending it on a more R&D tweaking the software.

What won't fly (in most competitive markets) is attempting to erect tollgate for the baseline service. The telco gets a chance to participate in the upside beyond that, if it can prove that it's adding value. It can't just exploit YouTube's R&D, user loyalty and server farms "for free".

The same is true in mobile - the operator needs to be part of the solution, not part of the problem. Which means that before it has the moral authority to say it's providing value from "extras", it needs to get the basics right, such as adequate coverage and reasonable capacity. It also has to demonstrate neutrality on the basic Internet access service - it can't be seen to transcode or otherwise "mess about" with traffic.

But assuming that there is good - and provable - coverage (including indoors, for something like YouTube), then once again the operator has a chance to participate in improving the performance of vanilla Internet access. It can offer device management, user data, possible higher speeds and prioritisation and so forth. But there are many more complexities to getting this right, as mobile is less predictable and "monitorable" than fixed-line. Ideally, quality needs to be seen and measured from the user's perspective, not inferred imperfectly from the network. And there needs to be some pretty complex algorithmic stuff going on in the radio network too - how do you deal with a situation where you have both "Gold users" and "Gold applications" competing for resources in a cell? And just how much impact should one Gold user/app right at the cell-edge have on 50 Silver users in the middle?

All of this needs to be based on upside from what is possible with a best-effort standard mobile Internet connection, where the user and app provider are in control and can alter their behaviour according to personal preferences. The operator and network need to show a demonstrable solution which offers more than can be reasonably expected, and not just try to extract fees by creating an artifical problem.

So in pharmaceutical terms, the performance of the baseline, unmodified transmission is like a placebo in a double-blind test of a new drug. Any new network "treatment" such as higher QoS or optimisation has to show measurable and repeatable benefits against the placebo. It is also possible (and necessary) to double-check that the placebo is uncontaminated.

This is the challenge for mobile operators in particular, looking to derive extra fees from users and/or content and application providers from "smarter" networks. They need to get the basics right (coverage), and provide an acceptable basic service (unmolested Internet). And then they have to offer something more (proven quality or targetting) at a cost and effectiveness better than that which could be done either by the app software, or simply providing more capacity.

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