Labels: 21st Century Global Summit, AT+T, Google, iPhone, ISP Products, next generation networks

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Suddenly everyone is a power user. I bet you didn't see that coming...

Wakey Wakey!
The iPlayer is a wake up call because we can all now see the beginnings of the final product. ISPs have known about it for years - the market estimates have been openly shared - but perhaps because the development process and consultation took 4 years, they might have forgotten that this day would someday come. Now the product is out there - with a prized place on the BBC's web site - all those light users that made the economics work (just) are suddenly potential power users too.

The BBC's online media organisation is formidable and is a mass market proposition. bbc.co.uk is the 5th most popular UK site according to Hitwise - most of us have sampled online video and radio from them already. Streaming clips validated the concept of online video, but the iPlayer brings the promise of what has been lacking so far - stuff that lots of people want to sit back and watch. Only the networks - with their threats of throttling and extra charges - stand in the way of mass market adoption.

They Got Themselves Into This Mess
It is hard to feel sympathy: we all know that ISPs have made decisions that have put them where they are today as they fought their way through the land grab over the last few years. The result is a market where customers think they are buying one thing, while their suppliers are delivering something different. What does " unlimited " mean to you? What does " unlimited* " mean to you?

The asterisk is vital as we all know, but even if you read the Terms & Conditions to find the Fair Use Policy (FUP), you are unlikely to be left with the impression that it is going affect you. The policies talk of using P2P and filesharing applications like they are some sort of nasty disease that you are very unlikely to catch. Some ISPs were up front about it - capped products were launched - but they really weren't very popular. Because they were trying to grow numbers in an expanding market, there remained the option to go unlimited* for just a little bit more money each month. And for a while, the model worked, especially when the market price hit the magic £17 per month tipping point.

Problem, What Problem?
Power users were simply not a problem for most ISPs because they became such a small corner of the base. As prices fell, adoption rates soared and ever lighter users were added to the network reducing average usage and actually making the price cuts work financially.

The trick with fixed price models is to set the price at a point where even light usage customers choose it anyway because it gives them certainty in their monthly bill for a reasonable price. The "under-utilisation" of your new customers actually makes average usage fall which reduces cost per customer. Set the fixed price too high and you only get the power users for whom the service is still cheap. Set it too low and you know what happens...

But the chickens are coming home to roost. The market is saturating and the inevitable has happened: light users now have the urge to use video filesharing applications too. Only we're not talking about mininova or some diseased video pirates now, it's the iPlayer from that bastion of British media, the BBC.

P2P: The Disruptive Force
Has the BBC caught the disease too, or are the ISPs wrong to treat filesharing as a parasite? It was certainly easier when P2P meant bootleg content. Then, service providers probably held the moral high ground even perhaps protecting the interests of media organisations in a strange sort of way.

Now though, mainstream media is using P2P technology because it delivers them a lower cost for their distribution. P2P was necessary in the piracy world because viewers were not paying customers and a way had to be to offload the cost. The solution was brilliant - use the spare CPU, RAM, Disk and Bandwidth of all users to remove the need for central servers that would a) be traceable and b) cost money. Is this a necessary move from big businesses or is it predatory?

Big media have turned the poacher into the gamekeeper. Of course P2P saves them money but it also helps their DRM by fragmenting the file into disparate pieces on its journey across the internet. The technology works in their interests but it does so at the expense of the ISPs. I'll save writing about the black arts of P2P economics for another day, but suffice to say, P2P generates a lot of extra upstream traffic and disaggregates traffic flows making them very difficult to manage (ie. it costs more). There are solutions, but that too is another article.

If big media was paying their share of distribution costs then perhaps the ISPs concerns would have a hollow tone. This is just not how the internet works: the BBC grant free peering much in the same way as peasants receive an invitation to one of the Queen's Garden Parties, something that is inconceivable in reverse. The fact is that users want this content out there and they don't care who their ISP is as long as long as the connection is free(ish). The ISPs are over a barrel.

What is Really Happening Now?
But lets take a reality check and look at traffic across the LINX peering point where the iPlayer's impact on network bandwidth is likely be seen first. Although traffic is up this week, it has almost certainly been due to wind and rain rather than diseases running wild over the network.

It certainly sounds like the apocalypse may be coming but in fact there is no real evidence of any iPlayer growth in demand although you would not expect to see growth in August. There may be signs that the seasonal lull may not be as obvious as in past years, but that could just be the terrible weather this summer. It will be interesting to keep an eye on these graphs in the autumn when the days get shorter.

Supply is NOT Infinite!
Before dismissing the problem, look at the year on year picture at LINX. Peak traffic loads are close to double what they were a year ago so while connection numbers are only increasing by 15% on an annualised basis. 115% of customers have used 200% the bandwidth used a year ago, indicating that usage per user even before the iPlayer may be going up by as much as 75% every year.

Has your broadband bill gone up by 75% in the last year? Probably not... you have an unlimited* product. Maybe though the * is getting bigger and more ominous? Am I going to get punished for watching the Beeb?

If you feel like this you are not alone - it's going to be an issue for everyone very soon. Looking at some estimates of the bandwidth impact, you can see the iPlayer itself - one application - being responsible for as much traffic in 2010 as is carried from every other source put together now. Total traffic will grow tenfold if ITV, Sky and the others follow suit.

It has amused me to see the rekindling of the network neutrality "debate" in response to the iPlayer launch. Network Neutrality is not a debate, it is a faith and the debate is no more constructive than arguing with someone about their religion. I agree with Martin Geddes - he's my god on this issue.

No, the problem is not that ISPs want extra money for carrying this traffic just to increase their bottom lines - although they would of course take it if they could. The problem is that most of them still haven't paid back the last loans that took them into broadband and are going to have to find more money from customers with unlimited* usage to pay the £831m iPlayer bill.

We Could All See it Coming
Someone asked me once if I had £6m would I put it into their LLU project. Only if I had £60m in the bank I said, because it was clear a long time back that investment was a recurring theme of the broadband business model. That was before a public body came along and wanted to double the load on the networks and them with the bill. My father researched black holes for a living in his career as an astronomer. I often feel like I am doing the same thing when I look at telecoms economics.

ISPs knew what was coming in the iPlayer. Perhaps they didn't believe it possible that the BBC would get this far. Perhaps they took their eye off the ball in the price war deathmatch? You don't want to worry your customers unnecessarily - especially when you are in land-grab mode - but more should have been done by the big players to clarify exactly what they mean by unlimited* before the problem arose. Maybe that is what is happening now?

Even now though there are gains to be made and there is a game being played out. Tiscali are playing chief bad-guy, perhaps because if TalkTalk had tried taking on that role, Dunstone would have been given the Graham Taylor treatment. Others are staying out of it knowing that they haven't dug themselves in quite as deeply and may be able to profit from the negative PR that the two fighting the case will surely receive.

In spite of the fact that the problem that the industry has caused itself has become so apparent*, they are still looking for ways to get one up on each other. That's competition and it shows that the market is working as it has been designed to.

But has it been designed well? Will ISPs find a way to make extra charges stick? If they do not, where is the money coming from to pay back the LLU bill, let alone the iPlayer bill? Will we see a further wave of Telco bankruptcies as yet another round of investment is written off and sold for pennies in the pound deepening the vicious circle of price decline and under-investment? If no money is made from LLU, who is going to lend the money to build fibre?

ISPs need to act as a cartel* on this, but then that is illegal... We're back to the natural monopoly issue again.



* subject to fair use policy. See Orange's as an example. Shockingly vague - I have captured it here for the historical record as I suspect this may have to change! Tiscali's is a little better, but it still tries to brush the problem aside "If you don't use Peer to Peer or file sharing software it is unlikely you will ever be affected by this Fair Usage Policy"

Labels: catch-up TV, iPlayer, ISP Products, Ofcom

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When you write to a word limit, as I did in my iPlayer Politics piece for The Register, there is often a fair amount that hits the cutting room floor. This article is going to pick up on a few of those themes and tries to answer an excellent question I received on the piece.

The Question
The question from Chris Fraser really gets to the heart of the debate from a user's perspective. An educated user, yes, but a user nonetheless.

"Why is it that once again we are being told by UK ISPs that our systems are not capable of delivering the type of service that has been available on the continent for some time? I am willing to believe that maybe the infrastructure is not up to the task. If that is the case why are they not willing to make the same investments as their European counterparts?

"Please can you give me a legitimate reason why Ofcom should not be forcing these ISPs to put their hands in their pocket and actually pay for a less out of date infrastructure when some of them are posting huge profits in their yearly financial accounts reports?"

History of UK Internet Access
The answer to this starts in the mid 1990s when internet access was via dial up and the vast majority of internet content was in English (US English to be precise). At that time, France, Italy and Spain in particular lagged behind in adoption rates because of the language barrier and so when DSL came along in the late 1990s, there was little to lose for the industry to make the step straight to DSL.

The other factor was the pricing schemes for dial up access. In the UK thanks to Freeserve, as elsewhere it became well established that dial up was via a local rate number. The difference was that local rate at peak times in the UK was close to 4p per minute. In France, Sweden and the Netherlands it was closer to 1p.

The UK's 0845 scheme was set up to provide artificially high (excess profits) to companies willing to invest in voice switches. This decision was made before dial up access was popular and was originally intended to spur competition in the voice market.

The result however was that dial up minutes swamped everything else and new entrant voice operators (OLOs) were guaranteed the lion's share (~70%) of the consumer price. A lot of this went in revenue share to ISPs, who had control over whose network their users 0845 minutes were carried by.

So with this nice gravy train benefiting OLOs and ISPs alike, no-one really wanted to do broadband. It took until 2003 for the latent demand to explode and DSL to really be taken seriously. This was fully 4 years behind France - a gap which we are probably still seeing today.

Other Factors
Population density is also a factor - Paris, Amsterdam and Stockholm is where the most notable OLO FTTH projects are now appearing in Europe. There you have a lot of multi-tenancy buildings which are much cheaper to connect than the individual dwellings we prefer here in the UK.

Laying fibre is not cheap, £600 per home in a city or thereabouts. If all you are doing is spending money to serve the same amount of revenue (prices do not go up when bandwidth increases) you get into the Broadband Incentive Problem. That's an article in itself but it is worth noting that BT may well soon start building fibre networks in new build estates - no copper, just fibre - where there is not the cannibalisation issue.

The Digital Divide and Natural Monopolies
The other issue that needs to be thought through is the whole Digital Divide problem. Is it right that ever faster broadband speeds are made available where it is economic and not where it is not? We have the luxury of being able to consider this still, because when you get to where France is now, you are on a one way street and may have to use significant state funds to address the problem. Do we as taxpayers want to do this in the UK?

The problem in my view is that telecoms infrastructure is a natural monopoly and competition is artificially imposed. The most efficient model is one network big enough to serve all and using cross subsidisation to level out inequalities in pricing and access speeds. Of course then the issue is not an economic one but a behavioural one.

Behaviour is less of a problem when you have multiple companies essentially reselling the monopoly asset at a regulated price, but then the problems are economic. All ISPs can do is stick a badge on the product and do some creative packaging. The value we as consumers see is not from the bits and bytes - they are a necessary evil - so we look for our broadband to be as cheap or as free as possible.

The LLU Factor Makes the Price War Worse
Some would argue that the last paragraph only describes the IPStream-based offers. LLU is different because the operators own the kit in the exchanges and control the circuits back to their core networks. LLU is cheaper than IPStream if you have more than around 300 connections off individual exchanges and its gets cheaper still the more users you have in that small geography.

There the ISP has an incentive to invest in LLU, but once you have made that incentive there is an incentive to play out a price war to grab market share. Consider the game theory behind the price war.

The reason ISPs lose their investment is because once you have made the investment, the next rational move is to reduce pricing in order to fill the network you just built because your incremental costs are extremely low. Obviously if everyone sees it this way (and they do) you end up with a continuation of the price war, only this time with a much lower floor.

This is not a unique problem for telecoms. Washing powder and countless other FMCGs have the same dynamic - for them investment in LLU is replaced by investment in production capacity. Once you have invested and find competitors have done the same, you might as well throw the original business plan away because the pricing power assumptions you might have made are just no longer there.

Recreating the Monopoly
The way out of this predicament is to rebuild your monopoly power through acquisitions, but when you do that you are again paying over the odds because the companies are valued by stock markets knowing the very weak position in which the buyer finds themselves. That's why so many companies that went on acquisition sprees find themselves in a bankruptcy position. The Goodwill you are buying is just not real because the product is such a commodity.

The final problem is that if you are really successful and get too big or rebuild the monopoly too far, you have the spectre of regulation and consumer group pressure as the US carriers are now finding since the re-creation of AT&T.

The Incumbents
The above is a very long winded answer to most of the question, but it still only deals with the position of a competitive carrier. The position of an incumbent is very different indeed.

There are really two incumbents in the UK - BT of course and Virgin Media will all the old cable franchise assets. I'll come back to BT in a minute because that is where the profits that Chris mentions in his question are being made.

Virgin has found itself in a strong market position - a superior service technically to BTs for the 47% on a cable run - but in a mess organisationally. Trust me, acquisition integration is nowhere near as easy as the CEOs will perhaps suggest in their briefings to investors. I liken it to spaghetti - a lot of customer service and network management systems that have been designed in isolation but have been brought together under one brand. I feel a huge amount of sympathy for support agents dealing with quad play customers because the information they have at their disposal is so poor!

BT is very different - they have a monopoly over the infrastructure serving the 53% and they face a very different problem. They make huge, humongous investments on a periodic basis like they are with 21CN which give them far more capacity than they need immediately on the routes they build. They are regulated to wholesale this product but they can't suddenly drop the prices to their new costbase because there is no immediate demand, so they have to leak it out gradually.

Nevertheless, both incumbents are in the same position: they have made investments and their shareholders want a return before the next wave of spending is released. Virgin in particular need to give back before they take more - which is why Private Equity has been circling the company. Both BT & Virgin have assets and market power and are in a position to make significant cash returns by slowing investment.

There is also the point worth considering that if BT moved too quickly fighting tooth and nail for the attractive markets, it could obliterate the competition that Ofcom has strived for twenty-something years to foster. Sure that would address the speed and capacity issue for some, but leave BT as a re-established monopoly responsible for a widening Digital Divide. Be careful what you wish for...

Ofcom's Attempt to Solve the Problem
So onto the final part of the question: what is wrong with Ofcom's gunboat diplomacy - get all these players, the OLO/ISPs, BT and Virgin to invest in a network for the 21st century and not just the 202nd decade?

Perhaps nothing, it was a similar strategy that led to the change in attitude by BT which got us to where we are now. Line everyone's business models against the wall at gunpoint, shine a light in their eyes and ask them some difficult questions.

Notice that I haven't mentioned the iPlayer at all in this analysis because the picture is much much bigger than the BBCs rather limited application. It could as much apply to YouTube, Joost or any other mass traffic source like Google or Yahoo!

The problem it seems to me is that it is very difficult to work efficiently at gunpoint. What is needed is for the ISPs and the content owners to stand down from the confrontation that has been bubbling up ever since AT&T vs Google in the network neutrality debates and work on a better way to make sure that the money flows down the value chain. It is absurd to expect a commercial entity to invest without the promise of stability and an ROI. ISPs today have neither.

Conclusion
The iPlayer's unique position as a free, advert-less, quasi-publicly funded product makes it an ideal political football. We are behind because of the unintended consequence of a regulatory decision in the 1980s to regulate NTS - long before most people had ever heard of the internet - and Ofcom is using the iPlayer as a battering ram to solve the unintended consequence of its actions years ago.

There is a very real danger that yet more aggressive action could have further unintended consequences. Ofcom may argue that actually it was the BBC Trust that had the final say on the iPlayer, but it would be naive to believe that this approval would have been given had Ofcom raised the ISPs concerns more strongly than they did in the MIA.

They may have plausible deniability but I think Ofcom knew exactly what they were doing and perhaps it will have the intended result - but it is a high risk strategy.

Labels: BT, digital divide, FTTH, iPlayer, ISP Products, next generation networks, Ofcom

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Sometimes, you see something so elegant and simple, you wonder why no-one thought of it before. An old colleague and regular visitor to this blog contacted me the other day to advise me to check out Arootz - and I'm very pleased he did.

A Relative Unknown
I wish I could claim an exclusive, but I can't. They have been in BusinessWeek & the Jerusalem Post already but it appears that the point was lost on most people. There are only 53 blog entries on the company, the vast majority seeming to repeat BusinessWeek verbatim while most of the rest focusing on the fact that the company raised some cash recently.

One article I found does add some value, commenting on the BusinessWeek piece rather than just repeating it - more questions than answers, concluded Businessofvideo.com - and I agree with that part at least, but perhaps Mr Rayburn had a lot on that day because he didn't actually ask the questions. I have asked the questions - I contacted Arootz and their CEO replied with a significant amount of detail - and having looked into it, I have to disagree with the negative thrust of what Dan says.

Old Technology, New Ideas
It is true that multicast has been around for ten years or more. I know, I was at UUNET 10 years ago when UUcast was being hyped and developed in parallel. As with most other attempts to use multicast, that product failed to find a market because in the end, all it was doing was replacing broadcast and as we all know, if something isn't broken...

Multicast has again come back into people's thinking recently as IPTV services have been rolled out using the technology for the linear (live viewing) portion of what they offer. The problem there remains that multicast has not catered for timeshift behaviour. If you want on-demand, IPTV has to unicast and that means that you use a whole stream all to yourself.

I was discussing this problem with an eminent industry architect back in April at the ISP Forum event - his suggestion was staggercast, which effectively means a multicast stream of a programme being distributed every N minutes, much like Sky's multistart service for prime time movies. It was a definite improvement on multicast / unicast combinations already in use, but doesn't really tick that on-demand box.

Businessofvideo.com is also correct in highlighting that personal storage has also been around for ever. Quite right, it has, but what Arootz has done is combine this with multicast so that the network sees one stream and yet everyone gets a copy that they can watch what they want on demand. It's a mashup of two very well understood technologies and that is the simplicity that I refer to in my opening statement.

The Solution in a Nutshell
In summary, there are 3 elements - Distribution Servers where the content owner injects content, a Multicast enabled network and a set of user Multicast-2-Storage (M2S) agents sitting on PCs or STBs. Arootz sells this CDN as a managed service to content owners and works with the ISPs to make sure that multicast is turned on over the network. I'll come back to the web of relationships later in the article, but I will focus first on the service piece.

Targetted Adverts
My initial reaction was: ok, sounds good they've dealt with on demand but if you are multicasting, you miss the personalisation capability that must be at the centre of IPTV to make it a step beyond broadcast. Erm no, they've thought of that.

"The ads are delivered to storage ... based on the advertising targeted parameters, the decision which ad to show is targeted individually (based on a doubleclick server somewhere) and then the ad is inserted in real time into the video stream but since it comes from storage, it is fast, high quality and real time." Arootz's CEO Noam Bardin.

That's clever - the media and the ads are delivered separately and reassembled to create the final, personalised media file...

Navigating Uncharted Waters
What about navigation and finding what you want among the wealth of possibilities?

"We allow users to subscribe to RSS like feeds from a variety of sources ... We provide interfaces for preference engines to assist in selection of content such as 'the highest rated channel based on yesterdays actual viewership' or 'all content with the word Shark somewhere'" (Shark is of course an example of something you might be interested in.)

Hmm, I like that too. This is the elegance - mashing up social networking, RSS and an EPG into something that can cope with the huge volumes of content...

Huge Volumes of Content
Arootz estimates that the average user consumes 125GB of content per month. Obviously it depends on resolutions: it might be a fair bit less than that for standard definition TV, but if we were talking about 1080p, we could be looking at four times that figure. Is 500GB a lot of data? I think that depends on whether you are a unicast network or a hard-drive.

Terabyte drives are the basis for Arootz's business model and that starts to explain why you have not seen this model previously. Storage has always been far too expensive to make plans like this work but Arootz reckons that by 2010, you will be seeing cost effective drives offering 5 Terabytes... At this point, the limitation is back on the network.

Multicast takes care of the core network capacity issue because as with caching models I have discussed previously, each media file need only be sent once to each exchange and not once per user as with unicast delivery. This saves many thousands of identical 2Mbps plus streams and brings us back and the point where the bottleneck is again the physical speed of the local loop.

Use Case Example
While Arootz claims that its service only uses off-peak capacity, this is a configuration option that can easily be changed. The idea is that you watch live TV via the live multicast feed. If you are not watching (or are watching and have some spare network capacity), other programmes are sent down to you and stored on your machine. You pull these up on demand.

Of course you can't download the entire programme catalogue. Lets say there's 10 channels that make up your regular viewing, you can't even download everything on each of those unless you have a very very very fast connection. Choosing which programme to download (because you might want to watch it) is the job of the M2S AI agent.

The question then becomes whether the AI is good enough to make sure that the file you want is already on your hard drive when you come to watch it. Backing that up, there's the fall-back unicast option in the event that you are feeling a bit wacky today. It looks like it might hold together.

You might even find that the model allows you to escape some of the shackles of the local loop speed as it allows you to watch delayed feeds at 720p (6.4Mbps) even though your line may only just be good enough for 480p (2.5Mbps). A 2.5Mbps connection maxed out enables you to receive something like 800GB per month. For 720p content you need the AI to give you a 40% hit rate (you watch 25 hours a week, it downloads 65 hours that you "might" be interested in).

So Far, So Good
Arootz links multicast with storage and adds personalised RSS subscription with targeted advertising. Sounds good so far doesn't it? The software assets they have are clearly well thought out and fill a growing need. But what about the issues?

The weakness of the Arootz model is that it requires each link in the chain to be working in harmony. The content distributor must plant the content on the CDN, the ISP needs to multicast the channels and the PC or STB hardware requires the M2S software to take advantage of the storage and run the channel selection process.

Conflicts in the Supply Chain
These three parties are not exactly in cahoots. The interests of content and network are juxtaposed and that led to the Network Neutrality issues of 2006. Sitting uncomfortably with a foot in each camp are the hardware companies. Only Sky, with assets in each area following their acquisition of Amstrad last week, seem remotely aware of the need to align the interests of the players in the supply chain.

Although Arootz has an elegant solution to the video unicast problem, they need all elements in the chain to see it and play along to make it work. Without any one element, it breaks down. If they work together, everyone wins. So who is pulling it through so that the vision becomes a reality? As with other efforts to bridge these gaps, is it a question of chicken or egg?

"Look at it differently – if you believe (and I do) that most of video is going to be consumed off IP networks then there is a scaling problem with the current technologies. This scaling is quality, cost and technical. The main bottleneck is the network and our solution is the only cost effective way for this to happen. It may not be us but it will be multicast based. Just like internet advertising was dead in 2001, premium content would never go online in 2005 – Multicast will have to rebound because unicast cannot scale to deliver the cost/quality we expect." Noam Bardin again.

I agree with everything he says there, but it doesn't really answer the question. What is the incentive for each party to play ball? I think the answer is actually much more simple.

Cash. Cold, Hard Cash.
The commercial model is that content owners pay Arootz either as a straight arrangement or as an advertising revenue share. Simple enough so far, but in parallel, they are selling to ISPs.

"Our offer to them is 'let us accelerate your content on your network such as VOD, Internet TV and other components'. We will then wholesale the access to 3rd party content owners and provide them with a revenue share back so that they get more content distributed on their networks, more efficient distribution (less load), they get a slice of the action and thus are part of the value chain, unlike P2P where they carry the cost but are not part of the upside."

Aha! Someone is taking the bull by the horns and putting in place a way to route the money so that the networks open up and get paid for carrying content. It would be easy to think that the netcos should be happy with cost savings, and try and keep the distribution fees to themselves, but this statement above all the others shows that Arootz is pragmatic and understands that a virtuous circle needs to start somewhere. And the hardware?

"It can be embedded in software or hardware, it provides distribution and targeted advertising capabilities" and "we are not the brand"

Where Next?
As with every small company, there are a million things that can go wrong as larger and better funded alternatives try and achieve the same thing. That said, the technology that Arootz has and the pragmatic approach shown by their commercial model is an excellent starting point.

Channels to markets (they are in many) still threaten to derail the company as putting together the video supply chain involves dealing with some very heavy hitters. It may require the sponsorship of one of these big players to get the ball rolling, but this is a solution where without compromises, everyone wins. Worth keeping an eye on...

Labels: Arootz, catch-up TV, IPTV advertising, ISP Products, next generation networks, targeted ads, timeshift TV, video on demand

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This is part 6 in the Leeds Unbundled ISP (LUI) series that Keith McMahon and I are producing. The aim is to deliver a view on the commercial prospects of a hypothetical ISP, serving a niche community (Leeds in our example).

Before we can properly present the numbers though, we need to describe what those numbers are modelling. We have already looked at backhaul, staffing and our short and medium term product set. Today we look at the biggest variable in the future of our made up ISP: video.

IPTV is better for viewers than broadcast because it is truly on-demand. It gives viewers timeshift capabilities for BBC, ITV, C4, Five and Sky so that they can watch what they want on TV around the rest of their lives. So what is the variable?

While we are confident that video services like YouTube will continue to grow, we are not sure whether mainstream TV will successfully move online because of economic, marketing and technology challenges. IPTV is competing with established digital platforms (satellite, cable and freeview) that already penetrate 18m homes (more than have broadband). Getting mainstream TV online means replacing these distribution networks with the internet.

Consider the scale difference between the two extremes of service adoption: YouTube consumption is a few minutes at a time, a few times a week. TV is 25 hours per household per week. YouTube is currently 200kbps, IPTV as a vehicle of HD means 10Mbps.

There is very little that LUI can do to make any money from YouTube, but conversely, once we have our gigabit backhaul links in place, we are not too concerned about the cost of carrying its traffic. If they cranked up the resolution to the levels used by Veoh (700kbps), we might be a bit more concerned but as it stands, we are happy enough to carry the traffic.

What cannot be allowed to happen is for us to end up in a situation where we are a simple transport network for everyone else's broadcast-replacement services. Our commercial model, and that of every other ISP in the world, is based on carrying relatively small files (peak traffic over total users equals around 35kbps). TV viewing moving over to the internet and adopting HD resolutions will make this closer to 5.5Mbps (159 x the current dimensioning).

This needs to be paid for and the value is in the content: people buy music, video and TV. They don't buy bits and bytes. This means that we need payment for our bits and bytes bundled with the payment for the music, video and TV services. This means adopting a Fed-Ex model for superfast delivery of premium, newly released content and ad supported models for the rest.

Will this happen? Maybe, but only if the economics are right - we know that IPTV offers better functionality than broadcast because the internet uplink opens new doors for interactivity. With the public becoming disillusioned with telephone based interactivity on TV we think that the internet can rescue what had until recently been a popular genre of content.

Furthermore local loop speeds of 20M or so means HD at 1080p is practical and can be made available on demand. It's all technically possible but all these developments will only be attractive at a price point that is competitive with broadcast.

So where does that leave LUI?

Nowhere, right now at least. We just have a basic access service with some customers on CPS. Next up dev wise is the photo blog (due Q4 2007) and starting work on the softswitch (due 2008 perhaps). Enhancements to the photo blog and community stuff are mid 2008 launches.

We looked at buying in a wholesale IPTV service, even before we unbundled the access service. When Tiscali bought HomeChoice, we heard some suggestions that the HomeChoice platform would be wholesaled alongside Tiscali's LLU platform. While the attractions were obvious, the differential advantage was not, so we rejected that option.

More recently, we have looked at Iliad's platform and the service that Fastweb offers with a view to buying that in lock, stock and barrel. These are not currently deployed in the UK and although we could overcome the competitive issue to some degree, we just felt a little underwhelmed by the idea of taking something that had been done before.

LUI wants to do something a little differently and has to exploit our core concept: our localness. For LUI, IPTV has to be build around the community, but we also have to remember that it is still essentially a distribution network for mainstream TV that replaces the satellite dish, cable or freeview aerial in the home.

LUI's problem is that our customers can get all that from other operators, notably Sky & HomeChoice, so where we need to be different is in the EPG. We need to offer social networking in the EPG that exploits our localness and the social groupings within our customer base.

We are a network company and a small one at that, we need someone bigger to bring us the content. That means the content won't be exclusive so we have to add value to it another way. Hence the EPG and social network mashup.

That means things like the ability to recommend a programme to your circle of friends and comment on what you have seen, perhaps with an SMS gateway tacked on for alerts. When you turn on your EPG you see the linear TV option and the timeshift scroll back for the mainstream channels plus a Friends Recommend Channel.

We also have the Leeds Community Channel which will be developed before our IPTV service, but which needs evolve onto the TV when IPTV does arrive. The Community Channel is where local interest groupings (schools, community education, sports teams etc) can post virtual private videos to their members - much like the Iliad offer. All this is built on top of a core of content based on today's free local press.

We are already lobbying to force the publicly funded BBC content to be made available via public API so that anyone with a delivery solution can use it to deliver BBC content. The others are different because they are commercial entities, so why will ITV, C4, Five and Sky let us carry their stuff, sometimes in direct competition with their offerings?

Money. Pure and simple. They can get more from our subscribers if they deliver content via our network than they can via other means.

How? Because we know the customer's postcode and we can deliver that when we place the request for content. We also deliver the ip address of course, but they would get that anyway. With the postcode, they can then use Geo Mapping databases to paint a very good picture of who the consumer is, so they can use a) demographic and b) personalised advertising. They can't get this postcode without the ISP.

We could also consider sharing any special interest profiles that the user may create on our social network but this raises some ethical issues I suspect, not to mention the technical challenges.

But all of this needs to be pulled together: content, advertisers, client software, DRM and CDN. We are looking for one party to bring this to us. LUI's plan is to work with them and vice versa to prototype the future of IPTV.

The prototype is based on Joost, or Babelgum or Veoh (we haven't stitched it all together yet, it's just a plan). Something that runs on either an AppleTV-like STB or on the TV itself. Their job is to aggregate the content and provide us with an efficient distribution using P2P and local caching. They also handle all the advertising including the targeting and pay us a revenue share.

In order for this to work, Joost (or whoever our chosen partner is) must bring a deal with the major broadcasters. Joost does the deals with the content owners for us because they can and we can't.

Our BBC, ITV, C4, Five and Sky content comes through the deals that Joost has with them. Joost can pay better ad revenue than the producer can get by themselves from broadcast because we give them the postcode. As a result, they can target ads much more effectively. We get a rev share because we are adding value to their proposition.

Furthermore, we are solving one of Joost's problems - the EPG and social networking, which are currently lacking in their product - and we are leaving them to concentrate on their role as the IP TV operating system. We carry Joost's traffic and help them develop their intelligent localised P2P routing.

We provide the EPG (or at least our software partner behind the photo blog / community web stuff do that for us) and that has a two way API into Joost (or whoever). The EPG is our value add, our brand, our directory of content and the portal through which users can get to the array of services that we offer. Of course, they can go onto the open internet but with our gateway offering them RSS-based access to the world, we reckon that we can hold a fair proportion of the screen-time on our own services. Which is great for our ad revenues.

Of course this is all made up. LUI doesn't exist and there are holes in the plan and some very rough edges. With any luck though, this might give you a few ideas...

Part 7, back on Telebusillis is going to look at Hardware, which Keith will publish later this week!

Labels: Babelgum, catch-up TV, IPTV advertising, ISP Products, Joost, LUI, next generation networks, timeshift TV, video on demand

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We are now onto part 4 in our little mini series. In part 3, Keith described our Technical Operations and Engineering set up. Seeing as we are making this up, I could ensure this is staffed with enough resources to enable me to develop what until now, has been a very meet-too product set.

LUI tries to be very simple for its customers. We don't differentiate on speed - we just give everyone as much capacity as their line can handle - and we bundle together all the components that we provide into one of two (soon to be three packages). We are planning a fourth bundle including IPTV for "early 2008" - which as you know is industry code for August.

So what we have at the moment (Bundle 1 and Bundle 2) are pretty basic. The bundles include components which I will describe below, but in essence, Bundle 1 is our basic internet access service, while bundle 2 includes our voice services alongside that connectivity.

Bundle 3 is where we are trying to stand out. It wraps in some basic social networking components because as a local ISP, with all the associated scale disadvantages that Keith talks about, we need to exploit what is otherwise a weakness. We are going to be pivoting our future development around this community philosophy.

Being small means we can be local and we can be a part of the community. Until we launched Bundle 3, that just meant that our customer normally had a friend of a friend working here - and most of our signups have been via our rewards scheme. Now we are going to try and exploit that local community feel that we have that our larger, national competitors cannot hope to match.

In fact, Bundle 3 in many ways replaces Bundle 2. Bundle 3 customers must have the voice services and they don't have to pay any extra to get Bundle 3 in place of Bundle 2 because we make our money in other ways. Bundle 3 is where we start to make money from revenue share and advertising deals, which although they won't allow us to offer a free access product for the forseeable future, certainly looks necessary to mitigate the scale disadvantages we face.

The added components in Bundle 3 give us something "rich" to give away for free to encourage people to take up our boring old voice products. In summary the Bundles consist of the following components, which are defined in detail below:

Bundle 1 = components 1 + 2 + 4
Bundle 2 = components 1 + 2 + 3 + 4
Bundle 3 = components 1 + 2 + 3 + 4 + 5

Bundle 3 will also include components 6 or 7 (depending on customer niche) and bundle 8 when these components are ready. Our IPTV Bundle 4 is still in the planning stages and will be the subject of article 6, back here on ipdev.net, next week.

Unconstrained by the dramas involved in actually delivering all this, we can be highly idealistic in our product set. Having been there on the inside doing product development, you don't know how good it feels knowing that all the resources you need will be there at the meetings and will deliver on their commitments ;-)

Component 1 - Secure, Managed Internet Access
LUI is an internet access provider. Without that element of its product the service is nothing, so we have to get that right. Getting it right means no hidden charges or reduced quality if the customer actually uses the connection. We don't want to stop that because it is the future, so there are no caps, fair use policies or traffic management.

Getting it right also means that our services get delivered to customers through a managed gateway router. In theory, we hand off to the customer via eithernet or wifi, although of course things are never as simple as that - we know that you often need to help customers connect their equipment to the network if they are ever to use either the equipment or the network.

That managed router that we ship to the customer site provides full wireless, firewall and parental control functionality which we manage for them based on templates in our configuration database. The customer thinks that they are getting a specialised service because it is managed but in fact they are getting the same as everyone else. It's an old trick that has worked in the business market for years now and consumers are ready for it. Plus TR069 has made it all affordable to implement.

Component 2 - Content Filtering
There is a lot of bad stuff on the internet. Rather than hiding from that fact and hoping that the mud doesn't stick when politicians raise the subject, LUI is being proactive. We automatically block the IWF's watch list.

We are not judge and jury, but we accept our role policing the "rules" laid out by those in authority because to not do so would destroy our ethical, community based business philosophy. This is over and above a strong adherence to industry standard "notice and takedown" procedures. This means that when content deemed illegal by the authorities and residing on our network is notified to us, we take it down or block it immediately.

There is also a lot of stuff that although not illegal, many would prefer to avoid. For them we offer a service on the managed gateway router that filters content as determined by the customer's profile settings. Our customers have found this to be a better way of dealing with the problem than client software based services as the main offenders are teenagers with far more technical ability to bypass controls than most parents have to implement them.

All the parent needs to do is call us and we will (upon verification of their identity) implement controls on the router for them that their not-so-angelic offspring cannot touch. We also offer browser plugins for younger internet users and training materials for parents that create age-appropriate walled gardens for them to use safely.

Component 3 - Voice
Because we offer internet access, we decided a while back to bundle CPS voice and in 2006 also added Line Rental as an option for customers taking broadband. That was very successful on the revenue front, but caused us no end of headaches on the cost side of the equation especially with regard to Billing something that we never had a problem with before as our data bundles were simple fixed monthly prices.

When we unbundled, we were forced to keep the voice on CPS and use Shared MPF instead of full unbundling because we did not want to deal with rolling out a softswitch at the same time as everything else.

Keith is going to go into much more detail on the voice network and its commercials in part 5 back on Telebusillis...

Component 4 - Core Second Level Services
No self respecting ISP goes to market without the basic second level services: mail and web space. Rather than build these from scratch, we chose to outsource these from day 1 of our existence, which has given us a huge boost in terms of ever more advanced features coming out in quarterly releases from our supplier. These started off with basic AS/AV facilities but quickly grew with the addition of web mail, SMS alerts and more recently hosted exchange.

Where the internally developed versions of our competitors may have been easier to get up and running (and no doubt are much cheaper to run), our managed mail service has been getting better and better while theirs looks ever more tired.

The same is true on the web space side. That too was outsourced which meant that our customers now have had ever-growing space allowances and the ability to purchase and simply integrate domain names with their FTP space. Where some of our competitors are stuck in time, our outsource partners are helping us to develop a range of Web 2.0 services for our customers. If we'd had to develop all this internally, it would never have reached the top of the priority list and we would be stuck in the 1990s.

Component 5 - Web 2.0 Photo Services
We launched this not long ago. Well... to be fair, we "announced the intention to launch" these not long ago, but that seems to be the way the game is played. The city certainly liked it anyway, but then they don't have time to figure out that actually what we said is that we are taking pre-registrations for the next wave of products. They will surely ask how we are doing next time, but we can always give them a "too soon to tell" response if we aren't quite there yet. The Chairman was happy anyway, so that's all that counts.

Anyway, what we announced was that we were going to bundle in a Photo Blogging upgrade that our hosting partner is developing. The Photo Blog comes with a full online backup solution that will allow our customers the peace of mind that their treasured pictures are safe from the dreaded PC crash. They can also create public and virtual private albums allowing them to share their snaps with others.

One of the most exciting elements of this component is that our partners have bundled in Microsoft's Photosyth application into their service. This means that our customers public photos will be stitched together to build a tapestry of Leeds that will grow as more and more photos are posted. We think that this will really encourage our users to post their shots of Leeds onto our service and get them coming back for more, as the community builds a 21st century photographic record of the city in our time.

Another neat extra feature around the Photo Blog is the Photo Printing service. Again, our partner is doing this for us but we are set to get a 25% cut of any printing fees that they charge to our users and it will all be billed through our systems boosting total revenue growth numbers which should be nice.

Component 6 - Web 2.0 Social Networking Services (Locals)
Here we plan a big push in 2008. We are preparing to launch a set of partner delivered services that build upon the local communities in our catchment.

For Leeds residents we offer a set of social networking services, on the Leeds Community Channel. We are partnering with local media to deliver news, sport and current affairs bulletins that users can take part in to through the next generation of the Photo Blogging service, due out in Q2 2008. The local media is embracing user generated content and mashing itself up with local community and social services to provide a wide array of localised information and entertainment for Leeds residents.

Leeds businesses will be able to target their services at the Leeds Community Channel through BT Tradespace. Here, consumers will be able to find merchants, tradesmen or special interest groups that are local to them, visit their blog, read reviews by other customers and find recommended suppliers.

We considered launching our own copy-cat service in place of BT's Tradespace, but realised that we would be diluting our marketing by addressing consumers and businesses. Furthermore, businesses have requirements that could quickly escalate beyond what we are able to provide on a production basis.

All this is ad-funded and LUI is set to receive a 15% share of ad revenues on the community channels whether these ads are placed via the traditional media, via online agencies or through Tradespace. This is all gravy for us as all we need to do is provide access to our customer's internet usage data to allow advertisers to build and target specific profiles that improve their click through rates. Our privacy policy says we can, unless the customer checks the box when they sign up and agrees to pay higher access charges instead.

Component 7 - Web 2.0 Social Networking Services (Students)
For university students, we have struck a deal with Facebook to create every subscriber to the student package an account on that network. Facebook liked the way that we were able to bulk pre-provision the sign up and initial data entry of the customer's basic information (name, address, email, student ID etc) from our billing records.

We are working with the Universities in Leeds to align with their social and sporting groups, which they love because provides each interest group with their own site for their members. In exchange for all this free stuff that the Student Union gets, we get a very high profile during freshers week and mitigation against payment default by SU members. We are planning a beta launch of this when term starts in September for a small number of computer oriented societies - let's see how this goes...

Of course, we appreciate that these students are transient, so we have had to think hard about contracts, payment terms and guarantees. Most of them have 12 month lets on their houses or residencies which we are aligning with by working with the letting agents. In many cases, the default is that the rented property already has our service installed and the agents actually collect the money on our behalf as part of the rental fees. Every time a new resident moves in, the agent notifies us and they get paid a commission.

For the individuals themselves, their facebook profile needs to be detachable from our service when the individuals move onwards and upwards and leave Leeds at the end of their studies. We are laughing however, having agreed a 5% share of ad revenues, not just in year 1, but as long as the user has the facebook account that we created for them.

Component 8 - User Generated Video
We are going to keep this discrete from Video on Demand or IPTV. The difference being mainly that User Generated Video runs on a flash enabled web browser, while IPTV runs on the family room television set. VoD sits somewhere in the middle across both PC and TV platforms as a jack of all trades.

Once we have the Photo Blog services established we will build around that Video Blogging capabilities. This is likely to take us in two directions - mobile phone footage and video camera productions.

Mobile phone footage is a simple step up from the Photo Blog, quick and easy to post and share. This is great for contributions to news and sport media as well as within closed user groups. We should have this up at the same time as the Social Network upgrades in Q2 2008.

Video Camera Productions are much more complex as they require significant editing and we are looking for tools to help our customers process and create professional looking media and integrating that with the network and the private sharing facilities. We are preparing an RFP from various industry leaders to start the development of this, although it means that we may not go to market until the end of 2008 or even the beginning of 2009.

We strongly believe that there is a future here to be considered. Many people make film of their children that they would like to share with relatives but would be terrified of falling into the wrong hands. Our service will implement digital fingerprints onto user generated media so that only people that the user says can view their films, can see what they have produced.

On the other hand, these films may offer an alternative to mainstream media. DIY Productions Ltd might have a talent, but no route to market. We will provide one because they can upload their work for viewing on an unrestricted basis, potentially supported by advertising that we broker for them.

In order to prevent this sharing capability being abused for copyright infringement, the service will build in copyright detection software. We have to do this or we are toast...

Component 9 - IPTV
Don't look for this on the web site today. This is another project that won't be available, even on private beta until 2009, but IPTV offers us a huge opportunity. We are going to be well placed to promote, sell and install (remotely) the glue that holds the internet and the TV together: the IPTV network operating system and the set top box.

IPTV is also a major threat to us from a networking perspective because if we don't do it we won't be able to control traffic costs, so we are prioritising this for two reasons: to add value and to mitigate costs. Right now we are evaluating the best way forward. Part 6 of the series, which will be back here, will look at our considerations in this area.

Labels: ISP Products, LUI, Photosynth, targeted ads

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