The IP Development Network Blog

Premium Product

2007-11-05T17:17:00.000Z

O2 is predicting that they will sell up to 200,000 iPhones over Christmas and the New Year here in the UK. On the face of it, that is quite an astonishing claim, but please folks, bear in mind this is telecoms where the words "up to" are very, very important.

Let me also make a prediction
Prices will fall after Christmas.

You would have to be a millionaire to afford the launch prices! There are approximately 450,000 millionaires in this country, and that may be where the 200,000 sales number is driven from? Perhaps that many people are insensitive to price and just want an iPhone to brag about? I don't know...

Chrsitmas is of course a big factor in all this. Apple have historically sold 45% to 55% of a year's total iPods (by volume) in the October to December quarter and Christmas is when people are most prone to irrational exuberance. Of course, skimming the market is a standard entry strategy which Apple used it in the US iPhone launch where they cut the price after just two months.

£900
But you have to wonder how many people are going to treat themselves (or someone else) with a present worth upwards of £899 over 18 months. Let me simplify that - £50 a month, for a phone and a contract giving you 200 mins and 200 texts.

If you get an iPhone for Christmas, smile sweetly and say thank you, but do please ask whether the £35+ a month bill is also covered. It may not be very diplomatic but it's kinda' important so as not to wake up with a big hangover on New Year's Day.

For £30 a month you can get a FREE Nokia N95 with 400 mins and 500 texts, although whether the shop would open specially for you to get one on a Friday evening is debatable. Perhaps the iPhone is marketed to the strong silent type? Or to Billy-No-Mates with no-one to call?

Now, the N95 may not be "The iPhone", but it is £359 cheaper, and gives you twice as much talktime and up to 5,400 more texts included in the price. Ladies and gentlemen, Friday truly sees the launch of a premium product.

Are we going to buy it?
I know all the sceptics in the US had their words forced straight back down their throats and those same people have had to endure an even smugger than usual Steve Jobs announcing stupendous financial results for the Apple group. It would be a fool who says that it won't happen here...

It won't happen here.

Is that the headstrong non-conformist in me? Or even the intractable recalcitrant? (Don't worry, my mother called me worse...) Maybe it is. After all, I am not putting any money on my views. I can write what I like and the worst that can happen is that I get tagged as yet another false prophet of doom predicting the premature death of the next big thing.

Perhaps I had better explain myself
Firstly, and by way of qualification, I am not saying that the iPhone will never catch on. I am saying that it won't catch on at these prices. The iPhone is going to be able to carry a price premium over the competition, and a substantial one at that, but maybe 15-25% is what I have in mind. I'm going to play a little game here:

Let's just say a minute has a nominal value of 1 groat and a text the same. On that basis, the above N95 package is worth 900 groats a month, the iPhone contract 400 groats. Over the course of an 18 month contract, the N95 costs £540, the iPhone £899. Correcting for price and minutes/texts the iPhone carries an astonishing 275% premium over the Nokia N95. Ok, so I haven't taken into account the WiFi and Unlimited Data or any under usage of the fatter N95 plans, but this is a blog and not an analyst's research note so you get the picture.

Money Up Front
Factor number 2 in my sceptical forecast is the £269 up front charge. Without any real evidence to back this up, I believe there is a cultural ocean between American consumers and Brits when it comes to paying up front. Even discounting the Scots among us, we are a tight fisted bunch - witness how popular Free Internet has been here. It might look nice and have a fancy touch screen, but TWO HUNDRED AND SEVENTY QUID? You're having a laugh, mate. We like to spread the cost, hence the mountain of credit card and mortgage debt here...

Finally, factor number three (again it is price based like the first two). We don't like a superiority complex, and although we may secretly covet premium brands, if they are out of reach - particularly because of perceived greed - social envy can quickly turn "yuppie" into an insult. There is a delicate balancing act here for Apple to create aspiration and not kill it by stretching it too far.

So what is the conclusion?
Firstly, if you want an iPhone and don't want to look like a yuppie, wait until the prices come down. Secondly, don't bet on anything like the success in America being repeated here but thirdly, don't think that an inability to hit volume targets is necessarily a bad thing for Apple.

The iPhone is not a volume play and it's value is at least in part attributable to it's niche positioning. This will change in time as it becomes more affordable but by then the value will have been enhanced by the period during which the majority could only enviously disparage the lucky few.

Jobs and co know what they are doing. They have their partners where they want them to the point that you have to wonder whether it will really be Apple that funds the price cuts when they do come. You see, their interests are not necessarily in line...

Apple makes more selling 250 thousand iPhones at 4 times cost (250 x 3C) than they do by selling half a million at twice cost (500 x C). On the other side O2 make more simply by pumping more units because their costs are largely sunk in the network.

200,000 units would be an almighty achievement for O2 over the seven and a bit weeks between launch and New Year's Day. It took 10 weeks to sell 1 million in the US, a country with a GDP 5.6 times greater than the UK. Two hundred thousand does sound a bit like wishful thinking, particularly with the added uncertainty in the market of the Google (Software Stack on a) Phone... My guess? 65,242, but what do I know.

A False Sense of Certainty

2007-10-30T16:29:00.000Z

Uncertainty is the biggest barrier to investment.

Of course, we cannot eliminate uncertainty altogether, so we rely on "experts" to help us measure it - is a risk really a RISK or is it just a risk? When experts agree, we start to relax because we compound the weight of their opinion - that many experts cannot be wrong!

Furthermore, we assign greater weight to those that agree with us than we do to those who don't... It is human nature - the herd mentality that you see so much of in today's social networks - the result is that you get a WikiMyth or even an urban legend.

The Thought Process
The problem with our method is that we don't know whether experts are primary or secondary sources. Are they truly original thinkers who have put all the pieces together themselves, considered diverse views with an open mind and arrived at a point of view? Are they still open to alternative views, even after they have built a position and presented it to the world as their truth? Or are they people who have picked up a theme and then massaged all the evidence to fit what they are comfortable with and conveniently ignore the stuff that doesn't fit?

Both types can be horribly wrong in their conclusions, but when primary sources are debunked, they have nowhere to hide. For every Nostradamus there are probably a hundred David Ickes. History reflects very differently on those two "prophets".

When it all goes wrong for secondary sources, they can often be found comforting themselves with the blanket that they were (after all) just following the crowd. Where do you see yourself?

The more time you give yourself for the uncertainty to fade, the better your conclusions. The flip side of this in business is of course that the more time you give yourself, the more time you give your competitors. If you want the first mover advantage, you need to evaluate the risks and take a position. You have to be prepared to be wrong.

So what on earth does this have to do with Telco...?
I am of course referring to the bombshell that was delivered about a week ago by Dr John Papandriopoulos, where he claims a solution that will deliver 250Mbps over copper wires. If this is true, it puts a whole new perspective on the need to lay fibre to the home. Why would you, if you can get the same speeds on existing copper?

Just as we were beginning to believe that FTTH was the only way to give homes 100Mbps access - the consensus of the herd - some bright spark comes along and delivers a whopping great "what-if?" Hold your horses...?

Uncertainty is the biggest barrier to investment, and this new dynamic adds a whole new wave of it to the investment case. Is this real? Does it work? What does it really mean...?

What is this all about?
Let me try and pick this apart a little. Is it real? In theory, I think we can be pretty sure that it is. Firstly, VDSL2 is theoretically capable of 250Mbps already.

Source - Infineon

Secondly, Dr John is/was a student at a well respected university, who awarded him the Chancellor's Prize for his work and whose own venture fund is funding the turning of theory into reality.

It is worth noting that the thesis containing the theory was published in 2006, over a year ago, so they have time to scratch the surface. The fact that the uni itself is backing it to the hilt - there are no other venture partners - is a sure sign that this is real.

What happens next?
The question of who owns the Intellectual Property is very interesting; it seems that Melbourne Ventures are the contacts for now and that might suggest that the University owns the rights to the invention, particularly given the contribution of tutors who are paid employees of the organisation.

The University has an IP policy which deals with this issue up front, which John will have known about but I hope he got a good deal on royalties as the inventor... It could be the copper equivalent of finding the cure for cancer and even if it did get him a job at ASSIA where no doubt he will be highly valued, he may never come close to another breakthrough like this. Let's hope this doesn't leave a bitter taste.

Does it work?
Here we can be a little less certain. Yes, the formulas certainly work and yes, it almost certainly works in the lab - that is what unis do best. Will it work in the wild? Maybe? Probably? Almost certainly...? I don't think we will know for sure until the patent is awarded, the theory is embedded in equipment and users trials in significant volumes start.

This all needs time and depending on who you are, this delay will play very differently. If you are an incumbent that owns the copper, then it might make sense to wait and see a little. If you are a competitive carrier considering a fibre build, then perhaps it gives you a window of opportunity while the incumbent you are competing with is wracked by uncertainty. Uncertainty is an opportunity as well of course...

One situation it doesn't change is new builds, where there is a choice that must be made between laying new fibre or new copper. There, the only decision is to go with new fibre a) because its performance is known and b) because it doesn't cost you more (and some argue costs you a lot less to maintain).

But what does it all really mean?
Dr John is moving to the US now and leaving his beloved Australia behind. Quite what his role at ASSIA Inc will be, is unknown, but the company's chairman is Stanford Professor John Cioffi who said last year in an article for The Online Reporter "The main obstacle for the advancement of DSL technology is the interference ('crosstalk') generated from different DSL lines that share the same telephone cable binder," This was published just over a year ago - long before last week's developments.

Looking underneath the headlines, the claim is as follows:

"Two main factors limit DSL speed: long line lengths and crosstalk interference ... Our technology ... aims to manage this crosstalk interference, consequently allowing telecommunication providers to maximize the data-rates of their networks. We can do this dynamically, and adaptively, to try and get the "best compromise" of interference between neighboring lines to maximize performance."

It manages crosstalk. It does not eliminate crosstalk, although it is dynamic meaning that it copes on the fly with variations. What does this mean in reality? I am uncertain.

Is this what we have been waiting for? It maximises the data rates of their networks... at least until an even brighter spark comes along and increases the maximum theoretical speed of copper beyond VDSL2's 250Mbps. Impossible? How can you be so certain...? What about IPSL from Rim Semiconductor's 384Mbps over copper (field trials coming shortly) or further developments from Cioffi's group that could deliver 1-2Gbps on copper. Is it real? Does it work? What does it mean...?

Is copper a bottomless pit?
The steps being claimed are still very large and that leads me to believe that actually, it may be while before we reach the point of technology delivering diminishing returns. Of course your fibre investment is future proof to some degree, but as sure as eggs are eggs, rolling it out will get cheaper the longer you wait.

"According to Japan’s incumbent, NTT East industrial FTTH deployment costs have come down from USD 5,400 per subscriber (including construction and equipment) in 2002 to just under USD 900 in 2006. It is forecasted that costs could fall to USD 650 in 2009." according to Finnie, G. (2007), FTTH Worldwide Market & Technology Forecast, 2006-2011, sourced via Katja Mueller's report on FTTH in the UK.

Getting more out of copper gives the bridge that you need to wait. Of course, you cannot wait indefinitely though - unless of course you are a monopoly that is immune to political pressure. If I had to take a position now, it would be to roll fibre to the cabinet but not to the home. Why?

It seems that in spite of all the advances, there is one constant. Speed over copper degrades with distance. That is true of VDSL2 and even IPSL, and of course we know it is true of ADSL and ADSL2+. I have written to both Melbourne Ventures and Rim Semiconductor asking them what their inventions deliver over longer lines which I will update you with when I hear more, but at the moment we are where we were - shorter lines = faster speeds. And, we have a lot of long lines in the UK.

Going the whole hog
There is another viewpoint though. I have heard it claimed (for example by Angus Flett, Director of Product Management at BT Wholesale) that "If you do VDSL2 ... then you have to do fibre to the cabinet, and if you do that then the economics mean you might as well do fibre to the home."

Intuitively, I'm not sure I buy that and I have seen data comparing the two that doesn't back that statement up either, with an order of magnitude of around 1.75 to 2 x differentiating the cheaper option of stopping at the cabinet and using xDSL from there.

But there are other factors like maintenance cost. I heard an eminent technologist say recently that if BT ditched its copper and went for an all fibre network, it could also ditch around 100,000 staff which would deliver the ROI in a flash - even with BT's very generous redundancy packages.

There have been some very well researched studies by thought leaders who also argue that FTTH is a commercial slam dunk. Perhaps all that BT is waiting for is for Ofcom to give them a greater return guarantee before they take the plunge?

Honestly though, have we really thought this through?
There seems to be a heightened sense of certainty that FTTH is the answer, to the point that some people have actually forgotten what the question is. If the question is "how do we spend £25bn", then yes it probably is the right answer.

One of the most admirable statements I heard at Telco 2.0 recently was Steve Robertson, CEO Openreach stating that they will only do FTTH if and when they can do so ubiquitously and still make money. No digital divide, not £10bn for 90% coverage, not $10bn for 75% coverage. 100%? Probably not in reality, but 99.6%?

But even so, what is the question? Are we trying to deliver more gigabytes? Or gigabits per second? We use around 1% of the installed local loop's gigabyte capacity and yet we demand upgrades. For sure gigabit per second capacity is subject to congestion, but there are different ways to address that. One is of course to build faster pipes, the other is to spread the usage better on existing pipes. Which would be cheaper...?

So, what if...?
What if Dr John Papandriopoulos' invention, or Rim Semiconductor's IPSL, or ASSIA's future wave of Cioffi inspired technologies really can deliver what they promise? Does the fibre case still stack up? Especially if we can buy time by learning to use the 1% of capacity we use today more efficiently by looking again at the relative importance of speed versus storage.

The more I look at this issue, the more I see false certainty in the conclusion that the FTTH lobby has reached. Is is not the only answer to the demands of 21st century computing, even when that phrase is taken in its widest possible context to also include the complete replacement of 20th century broadcast networks which is another case that for me is not proven.

But, as I said earlier, business cannot wait for certainty. All it can do is take the best advice on board and judge the relative value of doing something against doing nothing. Doing nothing is a valid strategic move, remember, especially for monopolies.

One final what if for you to consider... Copper is not dead, that we can be certain of. What if the regulator made the following offer to BT: you can build fibre and charge what you like for it, but in return you must divest the copper network including IRUs on the physical premises and backhaul.

If you were BT, what would you do? If you were Virgin Media would you buy it? Sky, Carphone Warehouse...? What does that tell you about your real position on FTTH?

The Two Headed Beast

2007-10-22T14:40:00.000+01:00

It is strange to see an industry worth $1.3 trillion a year feeling powerless. Perhaps Canadians can understand it - they have a GDP of $1.3 trillion too - but the powerlessness in telecoms doesn't come from having a behemoth on the doorstep. It appears to me that telecoms operators are more like heroin addicts, powerless to prevent their dealer being sent down by the authorities who have finally caught up with them.

The drug is recurring subscription and minutes revenue. I would say that the industry has grown fat on it over the last few decades, but that would be suggesting that the income had been reinvested to bulk up the body of assets that they own. While some may be able to live off their reserves during the approaching famine, many will not - in particular new entrants - who have seen their share of the income passed upstream to wholesale providers and downstream to customers in the form of lower prices.

Taking from Both Sides
The need to create a two sided business model was one of the key messages from Telco 2.0 last week. Each side - consumers and business partners - must pay some because neither party is going to contribute the whole. Sounds good, but the practicality of the theory depends greatly on where you start.

Fixed and Mobile are different. They are very, very, very different. This was another of my takeaways from last week. For all the talk of convergence, actually what we may now be seeing are two rapidly diverging markets.

Fixed Operators - Out of Control
Fixed operators have very little control over what runs over their networks and that gives them very little leverage with business partners as they seek to develop that side of their business model. They are providing the bit-pipe commodity, which is fine for the internet evangelists, but terrible for the shareholders.

Consumers cannot differentiate one branded bit-pipe reseller from another, so the commodities are locked in a price war leading to MAD. The only winner may be the structurally separated monopoly wholesaler for whom the infrastructure guarantees a 10% or so ROI.

Where there is infrastructure competition, there is oversupply, and that is now being exploited. David Goldie of the CPW talked proudly of having built his NGN for just £200m, comparing it to BTs 21CN investment in the billions. Indeed, the CPW and Free in France have clearly made the investments of others work to their advantage, buying unused dark fibre or core network routes and leasing backhaul circuits to exchanges.

It is worth considering how little actual value this adds though - this is not infrastructure competition. It is buying distressed assets that has been built by over optimistic competitors. These like the CPW who buy are the winners of infrastructure competition, not the ones like BT or Virgin Media who are taking the risk.

But, for all CPW success, they are vulnerable to the next wave of oversupply. Having led the market lower and strategically decided to avoid adding value (it is an option...), they might find it tricky should someone else steal their clothes and take the lead on price. Orange indeed may have to, because their Freeserve market leading legacy has worn away through confusing rebrandings and over-complicated service wraps. What would CPW do if you got free broadband and voice with your mobile contract...? Just a thought.

I had to laugh when Dave Burnstein talked of how to make the open network model work. It begins with using distressed assets and ends with government money as far as I could tell. While it is good to hear controversial opinions like this aired, I had more sympathy with Openreach's Steve Robertson who argued that the case for fibre in the US is made by allowing telcos to monopolise the whole value chain - somewhere we don't want to go in Europe.

Mobile Operators - Quite the Opposite...
On the other hand, mobile operators have it all. They have an oligopoly, sympathy from the regulators (guilty at the 3G taxes), pricing power, huge cashflows and a valuable product (in the consumer's eyes). In one word, they have control.

Furthermore, their customers expect walled gardens. Mobile network neutrality? Is that perhaps the first time anyone uttered those words? But think for a minute, why is that a strange concept whereas fixed network neutrality is a religion for some?

The upshot is that mobos can evolve a two sided business model because on the consumer side, there is a lot of control and little in the way of choice, while on the application side there is control and... yes, that's right... little in the way of choice. Something that cannot be said of fixed networks.

There were regular pleas last week for mobile to go the way of fixed operators. The reason the mobile internet is so crap is because the networks are closed to innovative applications going over the top.

Those in the mobile industry delighted in this - why do Facebook, Bebo et al do deals with mobile operators? Because they have to to deliver a decent service. Why don't they do deals with ISPs? Because they don't have to. Who makes money and who doesn't? You don't need to know a lot about telecoms to answer that one...

Value in a market is usually defined by its desirability combined with its scarcity. There is scarcity on the mobile side, there is abundance on the fixed alternative. The scarcity comes back to that one word - control. Why don't they open up their networks? Go figure.

Two Very Different Ways Forward
There are so many differences emerging between fixed and mobile that they might have to start splitting conferences like Telco 2.0 up into one where the addicts can wallow in their own pit of despair and another where they can scheme and plan how to combine to squeeze control back from upstarts like Google. Divergence for me really was that clear.

The two sided business model has a lot of promise for the mobile guys because the hydra is under control - tamed by it's master's control over its environment. For fixed operators, it might just be back to chasing the dragon.

Luddites

2007-10-19T14:53:00.000+01:00

It has been decided. Your use of telco services can be tracked, built into a profile and used to advertise to you. Everywhere you go on the internet and everywhere you take your mobile phone is data that operators can use to make money from you. It has been decided...

Sorry?

I am not a fundamentalist!
Regular readers will know that I am not a privacy nut. I don't believe in the stupid network, although I met its author David Isenberg over lunch on Tuesday at Telco 2.0 and found him to be a thoroughly absorbing, intelligent and genuinely nice fellow.

I was telling David how I think telcos can justifiably help the modern applications like Facebook, MySpace and WorldPay police the use of their services. My goal in such a theory is to protect legitimate users from sex pests, fraudsters and impostors - as outlined in my article on The Big Stick that telcos could use to "encourage" the adoption of their platform models.

Careering Down the Slippery Slope
Of course the problem is that with great power comes great responsibility. Little did I know that less than 3 hours after David and I parted, I would hear a presentation where this great responsibility has been totally ignored. This was not quite quite a slippery slope - it was more a slippery cliff edge.

The presenter detailed how his DPI equipment has been installed by a client for whom they log 36,000 events per second - today. They log everything that you do... I was left speechless, which was nothing compared to how I felt when another panelist brazenly stated that the privacy debate had happened already and that we had moved on.

By this point I was angry: this debate may have happened in a room full of personalised marketing specialists, but it has not involved Joe Public. To dismiss my concerns on the basis that I'm too late to have an opinion fundamentally misses the point that the user has been kept in the dark and the goalposts are moving rapidly as the capacity of technology to inspect, store and process increases.

It is like saying "it's rained enough", we'll have no more rain ever again on earth because Bangladesh is flooded.

False Justification
Apparently eight paedophiles in Italy have been arrested because of this vendor's DPI - tracked for sending MMS of abuse. No complaints here on that: this comes into the acceptable area as far as I am concerned, but the implication was that because the technology could do this amount of good, everything else they do was also permissible.

Sorry?

There is an ethical chasm between using DPI to address the evils that the internet has made possible, and using it to make money. For sure, there will always be a grey area, but what I heard was so dark that if right minded individuals heard it, they would recognise this as black.

Fobbing You Off
The data is not personally identifiable was another riposte. I disagree. There has to be a primary key and if all the data is being collected to develop adverts targeted at me, I don't think it matters whether they know me as Jeremy Penston, jpenston at ipdev dot net, 07733101607 or 82.69.75.210. The chances are that the database contains the lot anyway because most of it is in my email signature which will be read by the DPI every time I send and receive. If they couldn't identify me in some way, they couldn't target me - it doesn't matter what they call me, I'm still me.

My problem is not the targeting of adverts, it is the collection, storage and unknown manipulation of my profile in secret. Anyone who believes this is ok, I challenge you to go and talk to five of your friends (who don't work in telco) and tell them exactly how much is collected and why. If you can do so without feeling ashamed of what you believe in, then so be it, but I guarantee that most people in the street think that this only goes on in the NSA, MI5, Mossad and the FSB.

Perhaps your more clued up friends will know that Google could also be included in the above list but what the Big G sees of your usage is trivial compared to what your phone company does. At least until Google becomes a phone company...

Playing the Game the Right Way
Let me be practical. If you want to target adverts at me, then tell me what you are doing. Ask me permission at the time of use and give me something in return. Do not assume that because I told you where I live so that you can bill me, you can sell that same data to direct marketeers. Do not assume that because you know I just landed at Malaga airport on holiday, that you can send me an advert for a hire car. And, do not assume that because I gave you permission to use that data once, that I will always give you that permission. Does that sound fair?

I may sound like a Luddite, but the vast majority of the population knows nothing of what goes on inside the network. All I ask is that we be told what you know about me, how you would like to use it and what I will get in return so that I can decide whether to let you, ask you to delete it or change the bits that I feel are wrong.

We may not be as consumed by the need to remain anonymous as we were when Orwell wrote his stroll in the park. Social networks are proof that people want to share their lives with each other, but it is very dangerous to assume that because I share my life with my friends, that strangers can eavesdrop and use what they pick up to get inside my head. Do not assume that this debate has happened because Joe Public really has no idea of what is going on. Remember, the longest drought often ends with the mother of all thunderstorms.

The Big Stick

2007-10-11T13:20:00.000+01:00

In my final post ahead of Telco 2.0 next week, I would like to outline the key questions that I will be looking for answers to next week.

It is important for me to stress up front that the opinions expressed in this and all other articles on this blog (excluding the comments) are my own and do not in any way express the views of Telco 2.0 or STL Partners either directly or by association.

The background to this article can be found in two previous articles. The first piece looked sceptically at whether platforms are really in the telco domain when internet applications like Facebook, Joost and others are able to deliver much of the value with one global development. The second looked more optimistically at how a telco platform may be able to bring the safety and cost effectiveness which those applications need but cannot replicate.

Why would a consumer choose Telco 2 and not Telco 1?
Telco 1 is (for me) characterised by price competition and attempts to somehow project the image of superior quality. The problems with both are fairly clear - price competition is a race to the bottom, while quality of service is highly subjective. Anyone can claim to be cheaper and better - is your service even cheaper and even better...? Neither are sustainable.

A platform based Telco 2 has to put extra resources into exposing that platform to developers and developers need to jump through many hundreds of hoops to reach the same global audience. What benefit is that going to deliver to the developer and to Telco 2's customers?

It is stating the bleedin' obvious, but Telco 2 has to offer their suppliers and their customers something that they can't get from a Telco 1. That something, or that collection of somethings, has to be big and it has to be tangible to get developers to jump through those hoops and to get customers to think about something other than price.

The result is consolidation, meaning that there are fewer Telco 2s with more customers, more pricing power and hence more revenue each than there are Telco 1s. Why, because customers have chosen to drop Telco 1 in favour of those that have become Telco 2. In the end, only the customer's choice can determine the success of the Telco 2 platform, but that choice may be easier if there are no alternatives...

What is the value of the platform?
What can a telco platform based application do that cannot be achieved without the platform? What does the customer get from choosing a Telco 2 based service?

In the second piece I suggested ways in which applications can effectively be blocked from Telco 1 customers. This falls into two camps: applications which Telco 1 blocks because it cannot afford to deliver (like HD video perhaps?), and applications which block themselves (or pieces of themselves) from reaching Telco 1 customers.

The first of these is relatively simple to understand because it falls into something that is close to core telco business today - making networks more efficient. I won't labour that point because I have discussed it elsewhere ad-nauseum.

The Locked Gate
The more interesting area that I want to get you to think about is the second. Why would an application developer significantly disadvantage its customers that use a Telco 1 network?

Of course, Telco 2 throwing money at them for exclusivity is one way, but I suspect that this would not work with the bigger and better services that consumers are most interested in. Perhaps this Telco 2 ends up with a suite of niche aps but it will be a hard sell to make them into something that customers pay more for. Am I wrong? If I am, what is that suite and what is the differential advantage and price premium that can be extracted?

Giving the Application the Keys to the Gate
Something far more sustainable for the Telco 2, might be to have the application block itself. Why would a developer do this? I suggest that one reason may be to protect itself from legal issues. This may be the verification of age and/or identity that I mentioned in an earlier piece, another may be meet interception and other policing obligations that the law may impose now and in the future.

In fact, anything that you do in real life that requires an ID card might only be possible online if the consumer is using an application based on a Telco 2 platform that helps validate the user's identity. What are these? Banking may be one, pornography another. These two ends of the spectrum highlight the range that this may include.

But, I hear you cry, you can already bank or watch porn online today! Don't worry, I know... I will come back to this point at the end of the piece. Keep reading and it may start to make sense.

Eliminating Online Credit Card Fraud
A related area is payment fraud. If by using a Telco 2 platform, a service like WorldPay (or the credit cards that are used on such a service) can be insulated against fraud, significant sums might be saved. Hey, if WorldPay detects an attempt to pay with a stolen card, they could alert the Telco 2 who alerts the police immediately, giving precise location details...

If banks can eliminate this fraud exposure, might they offer a cheaper service to a Telco 2's customers? Might they even decline to service Telco 1's customers, perhaps after a tipping point has been reached?

Ok, so the above deals with mitigating the developer's legal and financial exposure and catching crooks, but there are upsides too. A Telco 2 platform may also be integral in delivering what has been termed the Holy Grail of advertising - personalisation. I wrote about this at length a while back, so I won't repeat that here but this is a different example of how identity, geography and location can deliver huge financial upsides to the applications.

Do Users Have to be Protected from Themselves?
Since I wrote that piece though, I have been made aware of many ways in which users have already given this data away. Some have freely and openly shared it with aps like Facebook, others have sold it for a song (or worse) while in other cases this has been quietly and much more secretively compiled by stitching together services like search, news readers and payment gateways.

A huge privacy issue facing the internet is "how I can make sure that data I provide today doesn't come back to haunt me in 10 years time". If I was 18 now and using Facebook to boast of my drunken exploits and womanising prowess, would I want my wife or my future employer reading about it, seeing pictures and watching videos of it all ten years later? Umm... no.

Would I want my kids reading about it all 25 years on? Photos of me at 18 are safely locked away (apart from the of me with back-combed hair that my mother-in-law is holding hostage): "what goes on tour, stays on tour" we used to say, but Facebook didn't exist when I was 18 - thank goodness.

These days, some muppet with a keyboard and a camera phone could seriously damage either their own (or worse someone else's) future. Can a Telco 2 platform help correct the mistakes we made when we were young? The demand for such a service may be practically infinite.

Growing Up
I suspect that at some point in the future, the data collection and storage on social utilities, search engines and payment gateways may come under intense legal scrutiny. Can this data, collected once, be used for eternity? Can it be used without explicit consent given at the time of use, rather that at the time of collection? I doubt it, but this has never been properly tested.

Can a Telco 2's platform help a) keep this data up to date, b) obtain consent at the time of use and c) create a chinese wall between your identity and the use of your identity? Yes is probably the answer, but how? That might take a little more thought.

Can a Telco 2 platform also help expand notice and takedown beyond the current copyright boundaries and into the social sphere? A key part of making such a process work would be clear identification of the user making the request, and validation of their right to request that content relating to them be removed. And of course, making the whole thing slick.

While the site in question may also have to act, such a validated request may shortcut much of the process and perhaps even remove the need for lawyers. Could the Telco 2 take responsibility for blocking content that has been requested removed but is not?

Telco 2 as The Big Brother
No doubt, there will be many readers hearing alarming implications for privacy. Indeed, the potential for abuse is clearly evident, but telcos are not applications - they have their assets fixed in place and cannot move their whole operation to escape legal obligations as an application conceivably could.

The Chinese Walls are vital. For sure, the Telco 2 holds a huge amount of customer data, but they do not benefit from its use so there is no incentive for its abuse. Much as is the case with old world telephony, the Telco 1 knows who you have called but they have no reason to use that for their own gain.

Locking the Gate
I said I would come back to this point and I have left it until last because it is unquestionnably the most difficult to conceive. What does the Telco 2 need to do to get the developers to play ball? It certainly won't be easy, but at its heart, the above relies on the Telco 2 making it impossible for the application to deliver its service without hooking into the Telco 2 platform.

I suggest that this is a three stage process.

The first stage is to develop the data sharing interfaces and to make them available voluntarily. This takes technical skills and is something that actually is not that hard for the Telco 1 to do. Telco 1 has, in all likelihood, not done so because they cannot see past this stage.

Stage 2 is to show the people with the real power - governments, lawyers and bankers - the dangers of the massively open model (child abuse, law breaking and fraud risks respectively) and how Telco 2 has the solution. Once there is a platform with the answers, some solutions might be legislated directly, others might arise because of the threat of legal action (getting jailed or getting sued) and others because liability insurance premiums skyrocket.

By the end of stage 2, it is likely that the biggest and the best aps are only available from Telco 2, so the final stage is easy. "Come and get it, Mr. Customer", Telco 1 cannot deliver.

Summary
I simply don't believe that a Telco 2 platform brings enough as a standalone entity, and there are potentially too many of them with too few customers each for the big global aps to work with. There has to be a big stick if the ap refuses the juicy carrot.

Fortunately, telcos are well practised at playing complicated games of legal chess because of all the regulation they have worked with for the past 25 years or so. There are some who can take your watch while shaking your hand!

The end result though is a place where I think we all want to be. Where the internet is a safer place for children and adults alike, where you have control over what people know about you, where you have control over how they use what they know about you, where you can remove content that you regret producing or that you regret someone else producing about you.

Some may find the approach a little underhand... But is there an alternative? If you skip stage 2, why would a developer jump through the hoops? If developers don't differentiate between Telco 1 and Telco 2, there will be no features to promote in stage 3, so your stage 1 investment would have been wasted. Does anyone have a better suggestion?

Cheaper, Safer - not Richer

2007-10-05T10:56:00.000+01:00

Am I looking in the wrong place? I wrote earlier this week that although telco platforms might make 3rd party services richer, there is a problem because every feature that a telco might enable is already being copied by application platforms that run over the top. On reflection, I wonder if what telcos really bring to the party is not actually richer functionality but is in fact cheaper and/or safer functionality.

The Telco Platform
The initial piece was a lead up to the Telco 2.0 conference on 16th - 18th October in London. Telco 2.0 is based around the principle of the telco as a platform and although the idea was well ahead of its time when it was conceived a few years back, much of that advantage has been lost as internet applications have evolved. Meanwhile, telcos have done what telcos do best - delayed.

As much as I agree with the ideals of connectivity being supported by a sustainable economic model, I can be practical verging on cynical sometimes. I have asked myself on numerous occasions what exactly telco platforms bring to the party? Why would an application developer want to wade through treacle to integrate their applications with one, let alone several hundred slightly different telco platforms?

Facebook didn't need to.

I just don't see any functionality gains that make it worthwhile for an application developer to go through this pain - go on, prove me wrong (you know you want to). The only reason for working with the telco would be to get around obstacles that might be in the way.

What might these obstacles be?
These obstacles fall into two camps: economic and ethical/legal. Economic obstacles are simple to understand - the application is too expensive (across the entire delivery chain) when delivered over an open network. What I have termed ethical/legal is much more complex but essentially can be boiled down to what is right or wrong and the obligation of the delivery chain to minimise the latter.

Economic Obstacles
IPTV has economic obstacles. It needs to work inside telco platforms because the cost of internet distribution is forcing telcos to impede the open network model through traffic shaping. A painful death is waiting for the telco that doesn't manage traffic or reduce the cost of delivery by integrating the application into its platform.

Such integration is a win/win - although for the application provider it might also look like blackmail. The telco wins because it can eliminate its transit, core network and big chunks of backhaul cost making the delivery cost effective and the service performance excellent. The IPTV application provider wins because it can deliver its service; should they try without working inside the telco platform, they will be on the last train to nowhere. The alternative is MAD.

But perhaps proper IPTV (as distinct from internet video) is a special economic case because the file sizes are so far in excess of what other applications generate? That might be the only example where there is an economic imperative for the telco to build obstacles to traffic delivery from the open network and where the threat of losing customers to other telcos using the open model can be ignored.

Ethical/Legal Obstacles
The internet's biggest strength (its openness) is also its biggest weakness. Whether we as industry insiders like it or not, there is a dark side to our creation that allows people to do unspeakable things because they can do so without being traced.

For many years, telcos have fine tuned a position which says that they are not the police and that they have no responsibility for the traffic carried on their network. For hosting companies with servers that store such data, this position has always been sailing close to the wind, but in most jurisdictions the principle that the ISPs responsibility ends with notice and takedown has been accepted. Again, this position is based on the principle that the bits and bytes are the customer's responsibility in the same way as the road network and the vehicle rental company are not responsible for truck bombs.

The problem is that once an application platform is provided that facilitates the building of networks whose purpose is evil, or where activities are only legal at a certain age limit, a far greater degree of responsibility is imposed on the platform provider. The obligation becomes proactive - instead of waiting for notification by the authorities before executing a takedown, the platform provider's responsibility also includes to police the use of its service.

I would liken running a platform to running a hardware store. In this case the owners have a responsibility to ensure that the sale of explosive chemicals is closely monitored and that their customers are of a certain age that legally allows them to buy certain products. If they do not make the necessary efforts to prevent such things, then they can be held liable if someone uses their products to build a truck bomb.

A real problem
Legitimate businesses like MySpace and Facebook face the biggest threats because their platforms are being used (by a minority) for evil and where another (much larger) set of content might be deemed to be inappropriate for minors. Om has written recently about how Facebook faces significant difficulties with law enforcement because their platform is being used in such a way. Let's be clear, it is not Facebook committing unspeakable crimes - they are not the ones doing the deeds - but they are held partially accountable because it is happening on their platform.

There is little policing and no audit trail for a platform sitting on the internet. The identity of the miscreant is hidden by the layers between the platform and the IP address allocation and there is no horizontal record of the user's activity. This can usually be patched together after the event, but this is shutting the door after the horse has bolted isn't it? Like having no coppers, just lawyers...

A real solution?
There is a liability because the application is providing a platform for the activity. I wonder if this is not a key area where the telco platform has a role to play? Without the telco's cooperation, the application provider has no clue whether John Smith really is who he says he is or whether he is a convicted paedophile using an assumed name.

Such a person may be allowed to walk the street, but may not be allowed within 250 yards of a school. Put that into an internet context he may be allowed to use the internet but he may not be allowed to use MySpace. But how on earth does MySpace know this? It may be that it needs to talk to the telco platform before allowing the user in.

Similarly, the telco platform could conceivably take responsibility for providing the digital proof of age card for the much less serious but much more common problem of under-age access to adult content. Parents can then be much more certain that their technically adept children are not going to be able to override their parental controls quite so easily.

What's in it for me?
What's in it for the application provider? This one is pretty simple - they get proof that they have made the necessary checks on their customers' right to use their service. With this should come immunity from liability when laws are broken, which should make sure that such a solution is popular among legitimate businesses.

What's in it for the telco? This might also be simple - if applications can remove legal liabilities by these checks, they may well quickly conclude that they can only work with providers who allow them to make such checks. If a telco doesn't provide the data, the customer is locked out.

Telcos are pretty good at record keeping - they have had to be throughout history because CDRs are a big part of their business. They know where a connection originates and who is using that connection. They bill the customer and already credit check - adding a proof of age and checking whether the user is a registered sex offender is not a big leap.

Privacy need not be an issue
What about privacy? It should be noted that such a model has a clear Chinese wall between the telco who has the data and the application who has the user. The only data that needs to be passed is two yes/no flags saying whether the user is allowed to access a given service. No names or otherwise need change hands unless the application also needs to positively identify, for example in a banking environment.

Summary
In the end this is just a couple of examples. But, it deals with real issues - a commercial one and one that every right minded person wants solved - and issues that can only be solved with links between various platforms.

There are many ways which I have not considered where the telco platform with its knowledge of exactly who and where the user is (as opposed to who and where they say they are) can be used to benefit the application and the industry as a whole. Until now I have been looking for new features or better features and I have ignored the much more basic elements - perhaps I have been looking in the wrong place? It may well be the boring stuff, the stuff that makes using an application cheaper and safer, where the telco platform is needed?

Joost: Does Anyone Care Anymore?

2007-10-03T11:43:00.000+01:00

Joost went to full beta this week, something that was met with barely concealed scorn by the majority of commentators for whom the service is now very much yesterday's next big thing. Reading the 30 or so comments on TechCrunch is a window on how people perceive the initiative.

Arrington: "They really milked the notion of a “private beta” to the extreme. To the point where I sort of lost respect for them, actually."

Comment #3: "There’s no Joost buzz/hype left anymore. They’re old news"

Comment #8: "I was an early beta tester … well … sort of … played with the app for about 30 minutes three times and did not like it. Removed it from my laptop and never looked back."

Comment #9:"I tried to use this thing a few times and it never really grabbed my attention. I have not removed it but have not used it for months"

To be fair, these are balanced by the odd positive response, but nearly two thirds are saying that they tried it, didn't like it and won't be going back. This is a sample and a very unscientific one at that, but what is clear is that after the Peak of Inflated Expectation earlier this year, Joost is now sliding rapidly down the Trough of Disillusionment. Can they rise up the Slope of Enlightenment to the Plateau of Productivity...? I don't know.

What have they been doing over the summer?
It could be argued that the Joost team have been beavering away, doing the dirty work behind the scenes to lay the foundations for a solid future. Clearly, they have been adding content partners - Major League Baseball stands out as one that offers fresh, niche content (to non-US residents). They have also done a lot of work on the interface making that more attractive and are evolving their ability to add widgets and link with the rest of the web.

All of which is good - if you ignore the expectations that were set earlier this year.

Check off the new content partners with their three month goals laid out in the leaked document earlier this year. Hmm... ITV: no. BBC: no. C4: no. I could go on, but it could be a bit embarrassing. Sure they closed MLB, but they weren't even on the list and if ever there was a sport that the US struggled to export, baseball is it (sorry Cuba). Has Joost become a dumping ground for rights that cannot be sold onto satellite platforms?

For me however, the major disappointment is the continued lack of a linear TV offering. Perhaps I don't get the idea of on-demand and am stuck in a timewarp, but I see on-demand as a catchup service complementing linear TV, not a standalone offering. What do I want to watch today? Do I really need to think about it?

A pregnant pause?
I have not written on Joost since the summer because there has been very little to write about. It has been very, very quiet... Volpi came in as CEO and clearly circled the waggons in preparation for this week's launch. From where they were (open, exciting and fresh) the silence was all the more notable.

It is to be expected when a new person comes into any job that they will want to review where they are and where they are going but this always risks losing momentum. Especially when the new boss has some different ideas of his own. Is what we are seeing a sort of horrible compromise?

As I said at the time, Volpi clearly sees Joost as a platform: "What Joost is, is a ... high quality ad-supported ... secure ... cost-effective delivery platform." Not the TV station that the concept started out as and what consumers have been led to expect. It is this expectation that is now fuelling the disillusionment because you probably cannot have it both ways.

Where to next?
In the platform model, you are not the be all and end all: you are not the end product. What you are is the operating system; something that needs a set of more exciting products that run over your platform. In Joost's case this is content. In Microsoft's case, this is Office and IE.

Joost as a platform offers a bridge between the content community and the networks. We can see where they are with the content community, what we can't see is where they are with the networks. If a bridge is not anchored on both sides, it falls into the river. Is this happening to Joost?

It is too early to say. What we don't know is what they have up their sleeves. If they can get to a point in 6 months time where they have anchored the bridge with a network provider or two - offering much improved performance to an ISPs subscribers (HD perhaps) - then the content side will follow. That is what I am looking for and why I am not yet writing them off.

The unexploited asset
The ad platform offers a huge upside over broadcast if Joost is inside the ISP because the ads can be matched to the subscriber base and deliver much improved hit rates. If they spend the next 6 months incrementally adding content and bug fixing as they have over the summer, they may well fizzle out.

They have to create the virtuous circle or they will be caught in the crossfire between content and networks. They are probably reaching the point on the content side where they cannot go much further without addressing the other side of the loop. They still have time, but they no longer have the time to market advantage that they had a year ago when The Venice Project was initially announced.

In all, it has been a bad week for Niklas Zennstrom and Janus Friis. They may well have $530m more than they had at the start of it, but they have taken a beating on two fronts and their reputations have been damaged. Clearly they now have a bit more time on their hands to work on Joost...

This may be a good thing, it may not. Volpi has started down a path that is different from the one that Zennstrom and Friis foresaw when they came up with Joost as the son-of-Skype. It was expected that the duo would take-on the TV industry, but where they have found themselves is in a position where they have to work on the inside - supporting the needs of both content creator and network distributor. Are they all on the same page or is Volpi out on a limb? Only time will tell...

Platforms, Platforms Everywhere

2007-10-02T12:00:00.000+01:00

With Telco 2.0 fast approaching, it seems appropriate to devote some space to the trend that is sweeping across the internet. Fair play to Simon Torrence, Martin Geddes and co, they have been working on this thesis for a few years now.

My summary of the Telco 2.0 Manifesto goes something like "Telcos need to open their platforms to 3rd party service providers by providing hooks that allow the services to be made richer".

The first problem for me is one of definitions. Richer... I used the word (the Telco 2.0 Manifesto does not, to be fair), but what on earth does it mean? Of course, we all understand "richer" in the Bill Gates sense, but in terms of applications being "richer"? It is important because if the aim is to deliver "richness", we should probably have a clear view of what we mean. Unless it is a cop out - a bit like "added value"? I'll leave that thought hanging.

While the above is my interpretation of the manifesto, this comes directly from it: "There are many “leaks” in the abstraction of Internet Protocol that the operator can exploit: network topology, geography, location, identity, relationships between edge nodes, distribution, billing, and so on. Every one of these gaps between theory and reality is a business opportunity."

These may be areas where the Telco has inherent advantages, but assuming that these advantages are everlasting is a mistake. Already, over the top applications are finding other ways to get the information they need: Facebook for example is an identity application that knows as much about you as you care to tell your closest friends. If you have ever used their checkout service or their autofill toolbar, Google knows your location.

Platforms Everywhere
Facebook, WordPress, Joost... all offer platforms, as do many, many other Web 2.0 companies. Platforms for what, exactly? In these three cases, I think we are clear (social interaction, blogging and IPTV respectively) but every day a new platform is announced. Google is a platform too, but defining it is somewhat more complex. Many of these new platforms are platforms on platforms.

Is this simply a game of Tetris? Are we are building layers where once one is complete, it disappears from our consciousness because we have to focus on the next brick falling from the sky? What about the gaps, where a new platform that comes along that relies on an old platform that is not quite complete (VoIP perhaps)?

What is a Platform Anyway?
Just for fun, I looked up the dictionary definition of platform. The first result is "a horizontal surface ... raised above the level of the surrounding area". The eighth is "a set of principles" and the ninth "a place for public discussion". The last in the list is "a scheme of religious principles or doctrines" - more food for thought.

The Telco is clearly a hardware platform, "a group of compatible computers that can run the same software", in this case IP. The problem is that this row of blocks has been complete for many years now, it is now invisible (until it breaks) and the product is clearly a commodity.

The new platforms are software platforms, "a major piece of software, [such] as an operating system, an operating environment, or a database, under which various smaller application programs can be designed to run". These new platforms are operating systems that run over the top of the telco hardware platform.

A Troubled Legacy
Telcos already have their own software platforms - in fact each one probably has many software platforms. These have been kept away from customers because that is the best way to hide the industry's dirty linen, but if the 1.0 Telco is to evolve beyond the basic commodity hardware platform, these software platforms need to be opened up.

But is it already too late? Have the new software platforms bypassed the need for the Telco's own software, or have they simply given up hope that something ubiquitous will ever exist? Even if it does come to pass, how is a ubiquitous Telco 2.0 platform going to retro-fit below the layers that have been built on top of the gaps? Tetris 1.0 vs Tetris 2.0...?

So what is it that Telco software platforms can offer that make Web 2.0 software application richer? What reason can the telecoms industry give developers to fight through the layers of history and start working backwards rather than forwards? Or, is the Telco platform like witchcraft, an outdated set of doctrines beyond which the world has evolved?

Back to Basics

2007-09-28T12:39:00.000+01:00

One advantage of being your own boss is that you can tell granny how to suck eggs without getting the sack. So at the risk of teaching an old dog old tricks, today's article is going to go back to basics and draw a picture of a baseline network.

Under normal circumstances we might just draw a cloud in place of the detail below because the detail, like the network itself, is only relevant when there are problems that need to be understood. Once those problems are solved, we can all go back to drawing clouds.

The time to examine those problems is now. This week, Ofcom launched its Next Generation Access (NGA) consultation which appears to run alongside the efforts of the Broadband Stakeholder Group (BSG) activities and Stephen Timms (MP)'s efforts to convene a summit. Whether all these acronyms offer parallel efforts or something more in keeping with the market trend for convergence, we shall see.

While the focus is on the local loop and the peak capacity that can deliver, the situation is a lot more complex than simply opening the gates yet further.

Transition
We are in transition from dial up to "true broadband". In fact we may always be in transition because after true broadband we should probably expect the next next-generation lobby to be pushing for something that they might have to call "true true supersuperfast broadband, honest". Drawing lines in the sand though - at say 100Mbps - gives a target that helps us plan for the next stages in the evolution, but it is worthwhile noting that there will never be enough to satisfy the high end users.

We know that video streams are an elephant in the room, which some have estimated will account for 98% of internet traffic within two years. This is a serious problem so that means getting into more detail about the network and the factors that are creating the problems.

The first point to make is that for all the fuss about Fibre to the Home (FTTH), that is only one part of the jigsaw in delivering video to people's homes. The local loop is one of four major choke points on the access network side that need to be considered. Sitting alongside those access issues are considerations of how the internet routes packets and how and where those packets are stored.

In fact, for all the hype, it may be that FTTH is one of the least pressing of the issues that stand in the way of the internet's ability to deliver the larger and much more lumpy video traffic on the horizon. At some point, the last mile will again be the most significant bottleneck - as it was when all we had was dial up - but right now, how many people would be able to use a 100Mbps local loop if it magically turned up on their doorstep?

Would the architecture support it? Would there we enough capacity in the home and on the core network to use it? How many knock-on issues would we need to solve before we spend the money on fibre in the local loop? A chain is only as strong as its weakest link...

The Home Network (x, in the diagram above)
A good place to start: it is undoubtedly the most complex issue because of the anarchy that exists in this space. There is no control over end points and how they are attached to the network, or indeed which network they are attached to. Security? It is best not to ask - denial is a wonderful thing...

Consumers are truly left high and dry to build the wireless / ethernet / homeplug network for themselves. If they are really lucky, they can get a friend / son / daughter to do it for them.

This makes the introduction of new hardware and new services that would use the 100Mbps a significant challenge. The customer may not have a network, or it may be "a bit flaky" such that when they come home with shiny new CE equipment, they are disappointed (or worse) to find that it doesn't work. So they make a call to the ISP but after a long wait, they find that their "service" provider isn't there to help.

Do you phone a friend every time you want to install a new device in your home? How soon before your DIY network starts to creak and your friend's generosity starts to get seriously tested? If everyone suddenly had 100Mbps to the home today, very little of it would be usable because the capacity of the last yard is significantly below that. Before FTTH, we need a solution that simplifies the home network and extends management of that to a real "service provider".

The Local Loop (y)
No-one is happy with the current state of affairs. That is not to say that everyone agrees that access networks are too old and slow and are in dire need of an upgrade - LLU has yet to be fully exploited, so perhaps we should start getting the best out of that? There are two conflicting priorities that need to be managed: ultimate speed is one of them, but at least as important is ultimate reach.

Looking first at speed, there seems to be a clear assumption made by many that we need more than ADSL2+. This point is worth explaining because this is not about headline speeds: 24Mbps for all would be enough for a fair few years. But ADSL 2+, like ADSL 1 speeds degrade with distance, so only anything substantial can only be delivered in real time over relatively short distances.

This table is from the BSG report, Pipe Dreams. Links to articles covering that and other articles can be found on the Digital Divide section of this site.

In summary, only 30-40% of the population are close enough to their exchange to get 8Mbps or more on copper. You can get more on cable but cable also covers less than half the population, similarly concentrated into densely populated areas. For some therefore, there is a vibrant market and the local loop is no barrier at all. Certainly not one requiring life support from a quango or two.

The role of the quango should be to concern itself with the areas where the market does not have an answer. In the local loop, this includes a significant number where there are signs emerging that the market for connectivity beyond LLU will fail. This failure will occur because the market needs huge investments by Openreach to shorten the copper loops but for the monopoly it is hard to see any extra revenue to pay for the new investment.

So 60% of us might be stuck with the speed we have today - it doesn't matter whether we use ADSL1 or 2+, the result is the same because the line length is the problem, not the technology at the exchange. And because the copper replacement case is so weak, you might have to move to a new build estate to get fibre to your home...

BT IPStream and ADSL1 (1)
There are very clear signs here and now of market failure in the provision of basic broadband access. Fortunately this only impacts a very small minority who cannot get 512k or more - a rare enough occurrence that some even appear as "news" these days.

This market failure today is very small indeed, but there is the prospect of many more (perhaps 15-20% of the population) getting left behind in the rollout of LLU. Although there is no doubt that competition here has led to cheaper products for all, those price reductions came at the expense of the digitally divided for whom competition in the local loop is a double whammy.

Competition means that investment from all players, including BT, has focused on the denser locations where the business case is best. For most, that means higher speeds and lower prices but the money taken out of the value chain through price competition, is money that was once used to cross-subsidise services where the business case didn't make sense. For the minority on the other side of the divide, LLU enshrines a two tier system.

Two Tier Pricing
A two tier system means two tier pricing, but it is worthwhile understanding what that two tier system means. It does not mean people miss out on broadband: almost everyone can get affordable broadband connectivity if they want it - 99.x% have access to some form of broadband and prices are universally below £20.

Two tier pricing may mean that the basic product is available for free on LLU exchanges and for £10-£15 more on IPStream, but even that is not the problem. The problem of the two tier pricing system as it is evolving, is the impact that it is having on the affordability of broadband capacity once you have the basic connectivity.

This manifests itself as usage caps and fair use policies because broadband capacity (as distinct from broadband connectivity) is hundreds of times more expensive on IPStream than on LLU. For these consumers on the wrong side of the digital divide, competition in the market means that the cost of actually using the service is prohibitive.

Every action has an equal & opposite reaction
This two tier system is the direct product of "managed competition". IPStream's prices are maintained artificially high to allow room for competitors to build their own infrastructure at a cheaper rate than they can lease capacity from BT.

Solving the two tier pricing problem may distort the competition that has been so carefully created because it means BT selling IPStream at rates comparable to LLU. This would undoubtedly stop future LLU investments and throw into doubt the commercial viability of many existing deployments. It also requires that BT have an incentive to cut prices for the least profitable exchanges in an environment where there is no competitive pressure demanding that they do so.

There is a significant difference between now and 2004 when BT held back enabling the least profitable exchanges with ADSL1 because the promise of returns was non-existent. The difference is that now BT has to compete with LLU; in 2004 they were a monopoly and could cross-subsidise more effectively.

The key question that we need to be clear on is who are we trying to deliver fibre to? Is it the top x% where a little shove makes the business case work? Or are we going to let the market work on that while aligning regulation and politics to deal with the bottom y%?

Backhaul (z)
Backhaul is an issue that is best summarised quickly here. There are more details in a previous series of articles written by Keith McMahon and I a few months back.

Backhaul has been a severe inhibitor to the development of broadband in the UK for the past few years but it appears that BT have been quietly upgrading capacity of even some of the long tail of exchanges to fibre (I have heard anecdotes of exchanges on the 95th percentile being glassed up). This, combined with their new BNS product for LLU operators described by Keith in the above article means that we are much closer to removing capacity constraints in backhaul.

That is not to say that backhaul is universally cheap though, as the model is heavily distance dependent and profitability is reliant on customer density. The pricing scheme is built to deliver service to those with their own core networks close to the exchanges being unbundled. The model is designed to clearly benefit the decreasing number of larger players.

Backhaul competition exists but the BNS introduction certainly took the price floor down a few notches. Additionally, there is a subset of exchanges colocated with the core network itself but these have a much easier life because there, core networks are cheap and plentiful and the backhaul circuits are simply internal wiring.

Would backhaul survive an overnight upgrade of local loops to 100Mbps? For the vast majority of users, the answer would have to be yes but what would break would be the business model because backhaul pricing is based on today's usage and not what you would see with 100Mbps in the last mile.

Backhaul Pricing
This final point deserves explanation because the way that prices are set is a self fulfilling prophesy. In simple terms, there is a "budget" for backhaul - ISPs and even consumers buy as much as they can for that budget. They will expand their usage gradually to fill it and then throttle back use so that they fall within the budget, until the price falls and the cycle starts again.

Dropping prices means more capacity would be available within the budget, but it does not often lead to absolute gains in total revenue because people still spend the budget. Of course it is recurring revenue so you need to keep cutting prices to keep the business - most assets require between 3 (hardware), 5 (system) and 15 (infrastructure) years of use at a recurring fee to pay for itself.

The problem for those selling capacity is that when you drop the price, it takes time to recover the revenues you have given away in the reduction and even when you do, you often find yourself back to square 1 as the throttling caps the upside. So it makes most sense to hold tight and wait for someone else to make the first move.

This point is clearer working through an example... Say you have 100Mbps of used capacity at £5 per Mbps and are charging £10 per Mbps to your customers. Your total cost is £500, your revenue is £1,000. Say that you then upgrade that circuit to 1Gbps at £1.25 per Mbps (total cost £1,250).

At that point in time you are making a £250 loss - what do you do? If the market is saturated you face a problem because you somehow need to be able to get users to pay more than their budget (£1,000). Even if there is still some growth room from new users, do you hold on and sell slowly at £10 per Mbps? Cut the price by the same proportion as the cost to £2.50 per Mbps (total losses now £1,000 and a breakeven point of 5 times your existing sold capacity)? Or something in between? Does this change if I tell you that your competitor is selling at £4 per Mbps...? £3.95, perhaps?

The problem is that prices are increasingly lumpy with ever larger upgrade steps (100Mbps to 1Gbps is 10x as is the next step to 10Gbps). Such steps cause problems because available capacity increases far in excess of demand. Pricing on the basis of availability would leave the owner with pennies in comparison to pricing on the basis of usage, although the latter has the effect of stagnating growth.

Backhaul Competition
Extending the core networks to get increasing numbers of exchanges on-net is the only way to take the recurring cost off your books, if operators want to. Putting their own fibre into exchanges sounds attractive, but it is even more attractive to wait until someone else does and then needs to sell the new capacity. At that point the wholesale customer can start to drive the price down aggressively at the expense of the facilities-based carriers who undercut each other progressively downwards.

There is an incentive problem for operators who may be considering investing in their own backhaul builds. They are better off waiting for some other idiot to make the first move...

If competition is going to stretch into the provision of local loops, it must first address the much simpler issue of backhaul competition. It is simpler because it is a fraction of the cost, but the issues are the same: protection of existing assets, build cost, site access, asset sharing, equivalence, price fixing, price regulation, period of regulation, certainty, etc. Perhaps it is a safer place to experiment with various solutions?

Content Issues
In simple terms, hosting content on your own servers is cheapest, next comes content on peer networks that can be reached through internet exchange points while Transit is the most expensive.

Transit originated as a way to get access to US content, but more and more of the big US properties are now hosted on caches that can be reached through in country peering (from my ISP, you can get to google.com through LINX). Transit still plays a big part because it is the only way to reach everything else (youtube.com goes through transit). The difference between transit and peering is that you can't transit peer networks as a general rule.

Transit networks themselves host a lot of content but their value primarily lies in that you can go over one of these networks to reach something the other side. So instead of maintaining thousands of smaller circuits with everyone else, Transit takes care of that in one interface.

How would content hosting be impacted by 100Mbps in the last mile? It might be ugly for a while as the shock of an overnight upgrade kicks in, but as we are unlikely to wake up tomorrow and find the tooth fairy has given us all fibre, we have some time to consider the impact on the electrical grid.

Space is not a problem: in the late 1990s data centres the size of football pitches were constructed which are still being filled now. Network connections are not the problem as most are on multiple fibre rings.

Power on the other hand is a real concern, particularly given climate concerns and the ever increasing cost of energy. We really do not understand the power consumption increases driven by fibre to the home - this cannot be ignored as delivering new electrical capacity may be even more problematic than laying the fibre.

Bigger Lumps of Data
Video is not necessarily going to be the most popular internet application but it doesn't have to be to cause the predicted impact. It is not where people spend the most time that necessarily drives the traffic: a second of HD video is 65 times as much data as a second of high quality music. Put another way, 1 hour of video is 65 hours of music or 315,000 page views on google.com...

For video files of that size, there are storage implications, but storage capacity is far more advanced than network capacity so it becomes more a question of where do you keep it to minimise the distance travelled and subsequently the cost you incur. If you can control it there are suggestions of charges for premium delivery to help monetise the downstream access network assets.

Whoa! Network Neutrality alert - but looking at how this is being played out, there is a question whether the content applications will cooperate to allow the ISP to exert such control. P2P is an example of how content companies are trying to work their way over the top of ISP platforms.

P2P vs Client Server
The concern with video applications is understanding the direction the market will develop. Will it be the wild west all over again with P2P data everywhere (forcing much of traffic onto transit networks) or will the video market evolve to work with the networks (much of the content locally hosted). At stake is the bill that ISPs pay transit providers for global access.

The choice of application is as much political as it is technical. If P2P wins, it will be increasingly hard for ISPs to do anything about monetising the increasing volumes of content but it may deliver an inferior user experience - something the ISPs can comfort themselves with. ISPs would be much happier with client server as that is something their networks have been built around and something they can control the quality and cost of.

Fibre and 100Mbps access certainly plays into the P2P corner as it blows away one of the fundamental limits of P2P - upstream bandwidth. In a DSL environment there is only the capacity to create perhaps a 10th of the capacity there is the potential to consume. In a fibre environment, it can all be P2P.

I believe that we need to look at how and where the networks route P2P and move routing closer to the edge to reduce tromboning. This is because applications would perform much better and network demands may well be lower, even allowing for the additional Layer 3 technical and operational overhead. Geo-aware P2P might work for everybody, but that is a story I have written up before.

Busy Hour Planning
There is a huge difference between how computers are used on the internet and how TVs are used. Watching television is much more heavily concentrated: peak audience (of all channels) is around 2.8 times the average audience over a 24 hour period, whereas for web surfing this is nearer 2.1. P2P actually generated very good peak load efficiency because the ratios of download applications that use P2P is around 1.4.

What on earth does this mean...? In simple terms, you need to provide 33% more capacity for watching TV as you would for viewing the same volume of data on the web because you have to build for the peak unless you want congestion on the network. Furthermore, congestion for streamed services like TV is far more serious than for web access (where building to the 95th percentitle was commonplace).

The chart shows how the usage of various applications varies and where the peak loads are on the respective networks. There is no weighting for file size - the area under each line has been rebased to 1,000 units. The aim is merely to show the peak to mean traffic profile of video is significantly higher than for web and P2P.

This reiterates the point above that for the same volume of data, you need more network for video than you do for other internet applications.

Which makes a situation which is already very bad, even worse - the capacity that we actually use today is only a fraction of what is available on existing local loops. Average usage of around 5GB per month on a 2Mbps circuit uses 0.8% of the connection's maximum capacity. There are over 8 Exabytes (8,912 Petabytes) per month of unused capacity on existing networks.

A 2Mbps link is enough capacity to deliver 146 hours of 1080p programming per month - the average household watches just over 100 hours per month. What we have today could deliver what we need tomorrow.

It highlights the inefficient use of the total available resource... The problem is "on-demand".

Conclusion
Video is the only application that looks remotely like driving demand for fibre. Assuming for today that we need to move video over from its existing broadcast platform - a case worth exploring in detail in another thread - it is clear that there are a number of key areas where we are not ready for fibre to the home.

We do not have the ability to deliver service because of networking issues in the home and commercial models in backhaul and hosting are going to have to change in light of the new traffic demand. But these are functions of evolution that will follow the technical capability as it grows.

Where there are serious questions to be asked are in the supply of power for the next generation capabilities and in the efficient use of the resource that is in place today. Every routing hop is another drop of oil gone forever and do we need to build nuclear power stations next to data centres to support demand there?

It is also clear to me that we are not using what we have in place today. Perhaps we should stop to think about that too before ploughing huge sums into delivering yet more peak capacity?

The removal of the bottleneck in the backhaul means that it is only the commercial model preventing full-time wirespeed usage of connections. For 70%, this is 2Mbps plus. Even if you need 10Mbps for the video itself, technology is evolving that predicts what a user might want "on-demand" and pre-loads it for viewing at 10Mbps.

This offers the network provider a way of maximising resource usage. If you can fill the unused capacity on the network today instead of pushing the headline speed, you don't need the expensive infrastructure upgrades.

There are clearly areas where there is a vibrant market for connectivity because of recent regulatory efforts to encourage competition. But this risks leaving a subset of the population behind with access speeds below what might be necessary - 30% cannot get 2Mbps. This is the area where lobbying and regulation should concern itself, not with the drive to 100Mbps.

Government won't be paying for FTTH

2007-09-19T15:09:00.000+01:00

I was at The Commonwealth Club last night for the Broadband Stakeholder Group reception with Rt Hon Stephen Timms MP. Another grand sounding venue. Perhaps not on par with Blenheim Palace but it is conference season, and it was a chance to take in another set of views on the future of broadband.

It really was pure politics. Everyone agreed that they agreed. The future is fibre! As I saw it though, the key points were, for me at least, somewhat contradictory when what we really need is certainty.

The Minister
Mr. Timms, the minister for competitiveness, is perhaps bound by his job title to say this, but his clearest statement for me was that "government won't be paying for it" because doing so would deter the private sector and undermine existing investment. That does not mean that the UK government won't intervene - they will tinker with frameworks and facilitate the debate - but BT (or anyone else) is not going to get a big fat cheque from UK Plc to roll out fibre.

Of course, 'government won't be paying for fibre' doesn't mean that government funds can't help make the business case. There are huge contracts to be won providing public bodies with access infrastructure not just for their offices but also for their teleworkers.

As you would expect though, there was a great deal of thought given to Digital Divide issues. Regional Development Agencies (RDAs) were instrumental in getting to 99.6% broadband penetration, even if some of their investment was also stranded when BT's technology improved. Would BT have invested without competition from government subsidised bodies? Who knows...?

The Lobby
Kip Meek, Chair of the BSG, was extremely supportive of the minister and his efforts to push along the debate. "We need timely, efficient and rational investment by the private sector", he said supporting the minister's position. But, the public sector will have a role which may be leadership but "may be something else".

Mr. Meek was at pains to make clear that the lobby has not already concluded that public money is definitely needed. There is "no ideological position", he said, "we have an open mind" but "it may be that more than advice is required".

At least we agree... even if we have different opinions.

The Playing Field
There are of course subtleties in this and that is what made this pure political theatre. Mr. Timms is no doubt aware that had he said anything but what he did, all hell would break loose. The spectre of a massive distortion in the market is already making participants nervous about their investments. And, while the prospect of fibre may placate a few, the taxpayer is sure to wonder why an industry that can apparently afford to give its product away for free, needs a massive public subsidy to keep growing.

Virgin Media, Sky, CPW, Tiscali and Orange have ploughed large sums into network assets that could be stranded should FTTH become a reality. These investments have been made because Ofcom policy has, for the last 2 years in particular, heavily favoured those willing to install their own competitive equipment within the network.

The Problem
But FTTH is a natural monopoly. The best question of the evening was left until last, would the minister for competitiveness accept that a reduction in competition is required to drive Next Generation Access (NGA)? He really couldn't agree, even if most of the delegates did - competition has driven the rollout of Next Generation Networks (NGNs), he said, and he expects it to the same with NGA...

I have to ask though, is he right? Is it competition that has pushed BT to invest in their 21CN project? Or was it something else? Cost savings, the prospect of re-monopolisation of the backbone, a deal with Ofcom that freed BT Retail from regulatory interference... There are many reasons why BT is doing 21CN and competitive pressure is only a part of the story.

And, I have to ask, how much competition is there in the development of NGNs? And, how deep does this competition go? And, why did competition stop there and not keep rolling from the core backbones into the access network? How much new fibre has been laid to deliver LLU broadband? Or is LLU investment mainly in equipment that starts to use all the glass that went into the ground with Fibernet's, C&Ws, and MFS/WorldCom/MCI/Verizon' builds in the late 1990s when we didn't fully appreciate the monopoly problem?

The History
What happened in the 1990s was that multiple commercial entities all came the same conclusion - build fibre along the railway lines because there you have largely resolved the most complex construction issues: rights of way (one entity with whom to negotiate) and construction costs (less concrete to dig up). The underground offers much of the same which facilitated the construction of a pretty impressive metro network in London (and other European cities, notably Paris).

If you want to get a picture of where there is already fibre, have a look at a railway map. Where there are inter-city trains, you have truckloads of fibre.

Furthermore you can see where there are fibre "branch lines" to places like Cambridge and Norwich. On these routes the fibre optic equivalent of Thomas the Tank Engine, ferry passengers to the main stations for Gordon, Henry and James to take them on their longer journeys. Wherever you can get without using a car will probably be commercially viable for fibre rollout because these NGNs are very close to the edge and the NGA requirement is therefore small.

But these fibre networks were a disastrous investment at least in the short and medium term. The effect of competitors having exactly the same routes was not understood by the business planners at the time - I know because I was one of them.

Once completed, the sales teams would go out and find that xyz co was offering exactly the same product - a BT tail to the premises at a regulated cost plus on-net transport using sunk capex on our facility. The BT tail cost was a cash outlay which prevented the price going to zero, but commercial pricing teams found themselves having to bid ever lower, because their competitors were doing the same - you had to make the sale and get something back rather than nothing. Of course, you couldn't ring up xyz co and agree on a "market price" because that would be horribly illegal.

Hindsight
In one sense, Mr. Timms is right, competition did drive NGN builds but I wonder how many would do the same with the benefit of hindsight? The alternative was the virtual network operator model and the likes of VANCO did particularly well arbitraging the various different operator pricing models.

We believed at the time that you could not have enough glass because we didn't bank on DWDM. With that in the picture, the reality is that very little physical capacity is required because optical equipment is so powerful. This is highly relevant when looking at the issues on the capillary networks - the places you need a car to get to.

LLU Competition
Once upon a time there was no broadband. Everyone, but the consumer was happy making money from dial up so it took an almighty regulatory kick to get broadband rolling.

Then for a couple of years we had a duopoly in the provision of networks. BT opened its network to any and every service provider and that got adoption soaring - but it hit a glass ceiling as there was no competitive pressure to invest.

Lets be clear about one thing. LLU primarily introduced competition on the networks at Level 2 and above. Level 1, the physical layer between the core nodes and the exchange, is still provided by BT in many, many cases because they are the only ones with networks extending beyond the 100 or so core nodes (that everyone has) and the 2,000 or so exchanges that warrant unbundling. Of course there are a small number of high density exchanges colocated with these core network nodes, but these are the exception.

LLU was a major strategic shift in Ofcom policy. It delivered tangible benefits to consumers in terms of speed, but it did so by constructing very significant barriers to entry that previously did not exist in the provision of voice (CPS) and internet (IPStream). It was a conscious effort to consolidate the market so that companies had an incentive to invest at level 2 and above knowing that they could make a return if they ran their businesses well.

LLU solved the problem of investment in ADSL 2+ equipment. The investment model is such that you need a reasonable share of the market to be competitive (upwards of 15% on a localised basis).

NGA Competition
NGAs require a further, and much larger step. Investment in the capillaries, which are two steps beyond where those that have built networks decided to stop. Here, you really don't get a lot of bang for your buck - the build cost is more expensive per mile than the core networks because of rights of way are harder to obtain and the cost of digging in residential areas is higher than following the railway line. Furthermore the aggregation of users to pay for it all is much lower.

NGAs only make sense where the market share you get is upwards of 65% - clearly there is room for only 1 player with this in mind.

So what of the "Stockholm Model" where there is a monopoly infrastructure but the full separation of access and services? I was told last night that there are 67 service providers there delivering access-based services (with frills no doubt) and everyone can get fibre access. It guarantees return for the investor by removing the competition and setting a standard price. Bingo?

Back to Square 1
Haven't we seen this movie before? Didn't we have a monopoly broadband access infrastructure as recently as 2005 (at least for the 47% not covered by Virgin)? Why did we break out of that model and do what we did with LLU? Because there was stagnation in further development - firstly, there was no broadband at all and then there was no ADSL 2+.

At some point a monopoly will decide not to invest where a competitive carrier has to. Is fibre the end game or will there be another wave in, say 2020, and will the Stockholm Model still stand up then? Or will that too require "political intervention" be that facilitation or funding?

There are no easy answers, but the biggest problem is history. A shift to the Stockholm Model would be a complete about turn of Ofcom's policies on LLU. That shift was necessary to repair the stagnation caused by a lack of competition in ADSL1, which itself had the benefit of at least getting us on ADSL in the first place - albeit 4 years later than some of our neighbours.

Uncertainty
In the end, it is uncertainty that is killing the evolution of the infrastructure. Uncertainty about returns comes from an unclear position on competition, regulatory and political policy towards fixed and wireless networks. If Mr. Timms really wants to drive the market, what he needs to do is to make difficult and often unpopular decisions that clear up the uncertainty.

For me, he started this last night, but I don't know if everyone in the room heard him because it was not what some people wanted to hear. "Government won't be paying for FTTH" is a clear statement that allows one uncertainty to be removed from one dimension of the investment case.

But as this is politics, full of ambiguity that allows for many different interpretations of what he said. If you don't want to, you don't have to believe that he really means this - how much are the public sector contracts worth for example? How much of the country will the RDAs get involved in? There are many other dimensions where the political problems may be much more acute and make taking an unambiguous position unpalatable - particularly with an election looming.

Conclusion
I hope you are not expecting any answers from me. I still believe that the market needs to be given a chance to work out its own answers but in order to work out how to make a return on such a big investment, you need to know what is in and what is out of the business case. What is clear is that there are a lot of issues, stakeholders, social and political influences that need to be worked through to remove the uncertainty. Until this happens and positions are taken, no one is going to put any money in.

Further Reading
If you still have the energy, I have written a number of previous articles on this subject, the collection of which can be found here.

Over the Top

2007-09-17T12:21:00.000+01:00

The 21st Century Global Summit 2007
Sounds grand doesn't it!

Flattery will get you everywhere my granny used to tell me and she was bang on. "Attendance is via invitation only" it says on the web site. I asked to be invited and I was. There began a truly Over the Top Experience.

Let's start with the venue - Blenheim Palace - birthplace of Sir Winston Churchill among its place in history. A beautiful late summer's day made for such a scenic setting that very few could resist getting their phones out to snap a few quick pics.

We even had a Gala Dinner and a tour of the palace itself to make us feel really important. It really was truly splendid...

So too was the accommodation. Although previous "guests" may not have found it so comfortable, I really had no cause to complain at the standard of the Malmaison Oxford. Perhaps that isn't quite true - the curtain blinds took a while to close - and I did talk to one delegate who made an art form out of critiquing the accommodation but I think that was just because he was hung over.

If you get the chance - and someone else is paying - do spend a night or two in this hotel which has been created in what used to be a prison. I was in solitary confinement, in the wing that used to house the real bad boys.

Then there was the conference bag - a Knomo Logan Briefcase worth nearly £200, especially inscribed for the 21st Century Global Summit. I guess the attendees liked it because, as yet, none have appeared on eBay.

Quite a Facade
None of it was real. Amdocs spent their time talking to us about the gap between the perception that the telecoms industry creates of itself and the reality that it delivers. The conference itself was a fine example of this. After all the glitz and glamour of the palace and the prison, the conference itself was held in the stables.

Once we got down to business, you could see the core theme - Over the Top - emerging. Not just in the mirage that we had been presented with in the form of the venue, but also in the discussion about the telecoms future in the 21st century.

A New Catchphrase
Over the Top is best exhibited by Apple and the iPhone. This poster child for all things good in 21st century telecoms shows how companies that run over the top of operators and use the new infrastructure to deliver their services are the ones that are winning.

Of course the consumer product is a fine piece of engineering, but what is lost on the market is that it would not have happened without some serious effort from AT&T. Apple were clearly wearing the trousers in that relationship, but here are some facts for you on AT&T's contribution.

40,000 development hours
130,000 feature / device eligibility restrictions
25,000 test scenarios
1,029 milestones
136 new activation servers

And yet for all of its success - the iPhone marked the first time the a telco sold and activated a product as an FMCG - AT&T were still portrayed as the evil empire.

Why does this matter?
Everyone wants to be loved, but that is not why this is important. A Harris Interactive Customer Experience study highlights the problem: 40% of telecoms customers are either highly or somewhat dissatisfied.

When they do things well, the best result is that telcos go unnoticed. When they screw up, people lose their internet or their phone - they lose their lifeline. 5 nines is simply not enough. The only way to keep customers happy is 100%. Which is asking a lot, especially when you consider the matrix of vendors and channels that also contribute to things breaking.

But it is vital. Telcos are trying to carve out a role for themselves in the future that depends on them being trusted as the guardians of the platform that ties all the pipes, pods, plexes and panels together. The new 5 Ps.

Trust. How do you build a trusting relationship with your customers when the only time they care about you is when you screw up?

The Platform to the Rescue
The 5 Ps are straight from accenture, but they seemed to be describing a lot of what I have also seen but been unable to turn into such a set of buzzwords. Maybe that's what an MBA will do for you?

The Platform is very Telco 2.0 too, so there is clearly a consensus among advisers to the industry. This consensus says that telcos need to be open to external innovation but need to add value by providing the hooks that allow content to extend beyond the limitation of devices. These same hooks also allow devices to exist outside of the boundaries of the walled gardens in which they are sometimes created.

The platform is also the guardian of the identity in this model, which fits with some of my recently published pieces. It struck me however that it may already be too late. The identity and in fact even the whole platform piece could also be where the likes of Facebook and Google play.

Another Missed Opportunity
I'm afraid my conclusion is that this is a good idea that should have been implemented 5 years ago. Now, there are other players in the space that can replicate the platform's core features without the need for hooks into the network. For sure, the hooks would make the telco version idealistically better, but by the time telcos have all built something consistent, the networks will be redundant because we will all have moved onto other planets in the galaxy.

It is hard to see networks being able to stay open, while closing off the opportunity for software based services in the form of social networks to go over the top and steal this position. Is this yet another example of telcos shutting the door after the horse has bolted?

Is it me or does this happen a lot? It seems that telecoms is forever trying to ride the last wave, rather than looking for the next one. We don't seem to take developments seriously until they are mass market, by which time it is too late. This year it is Facebook, last year it was IPTV. Prior to that we had Google, VoIP, IM, etc...

Innovation - Google Style
It is worthwhile looking at how Google operates and contrast that with how telecoms companies do product innovation. Google bought 77 companies last year. Some, we may never hear of again while others will become features in Google's product set of the future.

There is of course a risk in buying companies before they have proved themselves. There may be no market, their plan may be crap, the technology may be flawed, but if one of these ugly grey creatures does turn out be a beautiful swan, the bad eggs can be forgotten.

Cisco did the same to build itself into the monolith it is now, and in both cases, the act of buying immature entities has meant that monopoly concerns rarely arise. How is a $100m acquisition going to flip Google into a monopoly position? Simple: it isn't - for a few years, until it grows by which time regulators cannot block the purchase.

Innovation - Telco Style
What innovation? Perhaps this is unfair to many of the people who work in R&D and Product Development, but in the big scheme of things, telco innovation happens mainly in the marketing and pricing departments - not in technology. Gone are the days when Bell Labs and Martlesham led the way in device and optics development because those components were parts of the core network. Innovation now occurs over the top of these now mature entities.

I just don't think telco transformation is possible because the telecoms service provision market is so fragmented by artificial competition. This is where there is a huge difference between Google and even an enlightened telco.

Google operates globally, a telco operator has a small market in a restricted geographic niche. Because so much of the new platform requirement centres on ubiquity, telcos are horribly constrained in their ability to provide what developers need.

Which developer is going to build 4 different platform interfaces per country? They aren't are they? So the idea that a standard telco platform can be created is, I'm afraid, fanciful. Some of these companies can't agree on the day of the week, let alone a standard service delivery platform model.

Are Telcos Dead?
This is a bleak picture that I am painting. Telcos can't innovate and they can't consolidate. Other industries can - notably software developers - so it is inevitable that others will win the battle for hearts and minds. Telcos will forever be the bad guys because the only time you care about them is when something breaks or you see a cheaper offer.

Oh dear, time for the last rites... But that is to ignore the simple fact that none of this exists without the network. Can Google exist without networks? Can Facebook? No, of course not - don't be daft, Jeremy - take away the networks and Google would have to build a replacement or they too would be nothing.

A Necessary Evil
There is a stigma associated with becoming a commodity that telecoms has been fighting ever since the industry was born. This is propagated by the people inside who think something along the lines of "there is more to life than bits and bytes. My brain is too big for such mundanities".

Whether it is job protectionism or something more altruistic, I don't know, but it seems to me that perhaps what is required is an acceptance that this is exactly what networks are.

It is not just the networks though. I always find it hard to sit through a Cisco slideshow because I find it very hard to map the presentation to the reality.

Really, Cisco make routers. I'm sure they do: every time I have bought one, it has been because they are cheaper and offer better throughput that Juniper or someone else. And yet the slides talk of management, features and service layers and blah blah blah. I know price and performance are boring - but cut the crap and cut the cost.

I'm not picking on Cisco. Sun are the same and soon enough even the Web 2.0 application providers will fall into the same camp. We all grow old, but it seems that telcos are increasingly like some 1970s refugee that cannot shrug off the effects of Woodstock.

Conclusion
We are all a means to an end and that end is getting ever further away. My clearest conclusion from such an over the top experience was that the value from our efforts is being created at least one and increasingly two steps beyond the traditional broadband value chain.

Once upon a time, getting onto the internet was value in and of itself because of the new things that you could do with email. Telcos could realise that by charging for access to email. Job done.

Now though, the value comes in being able to choose which car to buy without having to leave your house. It comes in being able to live in a beautiful and yet cheap setting and work from home instead of commuting. How does the monetary value of that flow back through the broadband value chain to pay for the networks that make it all possible?

It needs to - somehow - because the networks need to be paid for or they won't get built. We tried that once before and have used the get out of jail free card already.

But is there light in this very dark picture. Telecoms companies offer interconnection and routing. These skills are needed - on the networks of course - but also to manage the flow of money through the value chain. Route the packets, route the money. Result?

Personalised Advertising and Google's Spectrum Bid

2007-09-14T09:35:00.000+01:00

Following the recent two part series on personalised adverts, I thought it worthwhile grounding this into some sort of real life scenario. In spite of the references to Facebook, what I have written so far is pretty theoretical - networks could conspire with advertisers leaving you with little choice but to comply. Without grounding, you could be forgiven for thinking I'm off on one again.

The Birth of The Empire
As regular readers will know, I have occasionally highlighted Google's dark side. This is not because they have done anything to me personally - this is no vendetta. In fact, every time I have had cause to deal with them, they have done the job required quickly and more efficiently than any other product alternative. I almost exclusively use Google search and I am writing this on Google's Blogger service, after all!

My concern with Google surrounds how on the one hand they paint themselves as the white knight, defending the principles of the internet - freedom of speech, openness, ubiquity and so on - while on the other they continue to gather vast quantities of data about who I am and what I am interested in. There is a disconnect here for me between the PR values and the actions, primarily because the data is collected "secretly" and I have no clear way of reviewing it's accuracy or authorising its use.

Misdirection: The Access Network Wars
Perhaps I have just watched too much Star Wars, but I worry that we may wake up and realise that the battle we have been led into is part of a very different war from the one we thought we were fighting. It is a lot easier to think of Big Telco as the bad-guy because they are the ones that send you a bill every month and when things break, theirs is the more physical presence that is easier to see and therefore blame.

I just wonder whether this is actually the other way around. A desperate man can look like a mad man to most who see him... Of course I am biased towards Telco, that is where my history lies, so you should definitely apply a filter to what you read from me. Everyone has their own bias that they need to be aware of - including you.

Emergency Powers to Save the Internet
If Google wins the auction battle for 700MHz spectrum in January, they will be lauded by internet fundamentalists as the saviour of the net. They will undoubtedly deliver on their promises of a more open network for application innovation. This is not in dispute.

But saving the American dream? "This network will be a servant of America and not a master of our country's future". No, Google didn't say this, Frontline Wireless did. Frontline Wireless are nothing but a Lobbying Firm. They also added, "this election will determine is whether the wire-based internet remains open".

Please stop treating me like an idiot. Google are investing in a license for the same reason as anyone else would - to make money from it. Telcos have traditionally had different models, but Google's is that what they will receive in return for the license is a wealth of additional customer data that can improve their ad efficiency and hence what they can charge advertisers.

With Great Power Comes a Wealth of Data
Currently, Google does not know who I am. They just know me by my IP address and the profile they have of me is that I like to search for telecoms and internet news. If I was using Google Reader, they would be able to add a fair bit more - I am an Arsenal fan and I like cricket. I subscribe to BBC and Yahoo! news feeds, but I don't read them very regularly.

Consider then the additional information they would gather if they also provided my access. My IP address would be linked to my postcode, so they would have the full range of geo-demographics at their disposal.

They would know that I live in a five bed house in a village with two pubs and one curry restaurant. They would know that Tesco's and Waitrose are my supermarket choices and that I am more likely to be a Times reader than someone who reads The Sun. In fact, they would know an awful lot more than this, but I am not going to go into any further details because I don't know who is reading this. I don't want everyone to know who I am...

It was pointed out to me this week that if I have ever used Google Checkout (which I have, once), they may actually have this link already, but if they also provided my access there would be ever more about me that they could see.

A Very Slippery Slope
Because they would be providing my access, there would be nothing stopping them from collecting and analysing all my internet page requests - not just the search results and RSS feeds - but everything from my banking provider, who provides my electricity and so on and so on.

Where are the limits to what they can collect and what they can do? More to the point, who knows what they are collecting and what they are doing with it? Today there are clear lines demarcating access (with all the subscriber info coming from the address) and content.

Privacy Firewalls
Telcos already have access to the data described above, but this is not being collected, analysed and used for marketing purposes because that is not the Telco business model (today). The link between your IP address and your physical address currently held in trust by your service provider. This is a very important fact protecting your privacy.

It may well be that telcos decide to try and monetise this data too. If they did so, I would also expect them to be up front with their plans and what this means for your privacy. In fact I would expect this to be an opt-in model where you received a discount on service fees in exchange for agreeing to share your information.

Google's Business Case Needs Your Private Data
It is clear to me why Google are prepared to pay $4.6bn for the spectrum, but this is not to foster innovation on the internet. Google are not a charity and they can clearly see that personalisation of their ad model needs information that can only be determined from knowing who I am as a physical being. $4.6bn (plus another chunk for the network equipment) gives them this information.

The business case is simple: advertisers pay more to reach the people they want and only the people they want. Google's revenue grows so Google get the $4.6bn back with interest over the long term. My issue is that Google are not saying "we want the spectrum so we can find out who you are". If they were, would there still be so many avid supporters of a Google network?

Selling Yourself

2007-09-10T10:34:00.000+01:00

People don't like adverts. Ofcom's Communications Market Report states that 28% of people who record a programme on their DVR do so, at least in part, to fast forward through the adverts. Meanwhile YouTube adverts have been highly unpopular and have been pulled because users found a way to disable them.

This is a problem because the content needs to be funded. It is better because of technology, but that same technology can and is being used to find ways around the things that users don't like about a service - like paying for it.

Advertising can be very intrusive, but if it is to be a viable source of funding for networks, as described in the previous article in this series, we need to get over that problem. The solution, it is argued, is to make adverts personal to you and entertaining to you but in order to achieve this they need to know who you are.

Understanding the Audience
Knowing who you are and where you live will tell advertisers what products to pitch to you because your demographics tell them a lot about what you will and won't buy. Geo-demographics is already a highly refined part of the retail business. Technology offers people who want to sell to you the opportunity to reach out to you through your TV and internet experience.

The benefits to the retailer are clear - reach the customers you want, with a message that talks to them. Eliminate wastage by avoiding customers you can't reach with your stores and fill that airtime with stuff that is of interest to them. Not just brands, but products within brands - the A4, not the A8.

Let’s look briefly at geo-demographics. With data from one of the geo-demographic specialists, anyone can make a very good guess at what the visitor might want from them. How old? Status? Kids? House price? Finance? Loans? Newspapers? Mail order? Attitude to technology

Beyond Basic Demographics
Consider also the loyalty schemes like Clubcard and Nectar. These build up an incredible record of your buying habits and are already used by their owners in product promotions, but consider the opportunity to tie this in too.

Not just refined targeting of the brand, the opportunity is also there to target different products within the brand. Just like the vouchers you get today, consider the opportunity for Clubcard based ads on IPTV.

They will know that my family shop is normally on a Tuesday, so Monday night they can slot in a Tesco advert talking about Finest yogurts or some other luxury that we sometimes afford ourselves. A little gentle persuasion at the right time and bingo! Everyone is happy.

If their records show that we didn't shop today, they can quickly launch into a customer save by reminding me of how good their offer is and what we'd be missing if we went to Waitrose - you see, they also know that my options are limited by geography.

Full Data Sharing
Last week's article argued that by selling your identity and allowing advertisers to know who you are, you can pay, indirectly, for the networks needed to carry the next generation of content. Wastage can be eliminated and a share of the gains could go towards funding the construction of fibre.

Mobile operators are in even better shape when it comes to Mobile TV. They know the user within that household and can therefore be even more specific with what they promote - if we let them.

There is a slightly precarious changeover period as contracts would need to be redesigned and prices remodelled, but leaving that aside for the minute - could we triple revenue per viewer per hour and pay for Fibre to the Home for everyone?

A Controversial Conclusion
This subject has been in the back of my mind since the Telco 2.0 event in March. I was speaking to Chris Barraclough who had just completed his 'Telcos Role in the Advertising Value Chain' report. I was struck by slide 9 which showed the telecoms market to be worth more than 4 times as much as the Global Ad market.

The clear message was that operators should not bet on ads substituting their core revenues from voice, messaging and ringtones. Yes, online advertising will more than double between 2006 and 2010 but so what?

Consider it another way: online advertising will grow by $31bn in that time while core services will grow by $490bn. Even if the entire global ad market went online before 2010, it would only account for 18% of the total market at that point. The danger of dealing in percentages...

Based on these numbers, Chris' conclusion is the only sound one to draw. Even so, ever since then I have mentally challenged the conclusion on the basis that it does not feel right. It feels to me like it should be more equal than that and my perception has been enforced by the number of times I have read of Google's success.

The Danger of Thinking Too Big
I wonder whether or not we lose the trees for the wood in Chris' conclusion. "All" we need it to find £25bn or so of new money to fund the next generation network build. That's certainly more than most of us have in savings, but in comparison to the UK advertising market as a whole (£19bn in 2005, of which £4.8bn went to TV according to one source, although Ofcom's Communications Market Report says this is only £3.5bn) perhaps £25bn is not so frightening.

My thesis in a nutshell is as follows: targeting adverts means that less airtime is wasted and so advertisers will be prepared to pay more. I believe that properly used, we could see TV advertising revenue triple in an undefined period of time. Half of the benefit will go back to advertisers, the TV content producers and the rest, while the other half will generate the new revenue to back up the new investment in fibre to every home. There will be a 7 year ROI.

So we need £10bn a year of new ad revenues and we are there. Fibre for everyone! If we are prepared to sell our privacy...

The Heart of the Problem
I fear that the problem will come from the same people who believe that networks should be open and that content should be freely able to use them as they wish. I fear that the same lobby groups that do not want ISPs to charge extra for premium capacity, will similarly baulk at the prostitution of our identities.

There needs to be a logical debate about how to pay for networks. So far, it seems that people are still on whether to pay for them. It still amazes me that both industry propagates the unlimited* broadband myth. New money is required to pay for new consumption - it is as simple as that - and yet we still see the launch of video ads spun as a value added feature. One of the comments on YouTube's launch summed it up for me.

"To me this is more about honesty and fairness. It would have been fairer if you had said, 'we are doing this because we are in it to make money'. Or not done it at all."

Ethical Concerns
Ethically, the advertising solution is nowhere near as simple as I describe because in it I make no mention of protection against abuse of the data. Maybe this is 1984 after all, for we would be followed everywhere we went online and would have retailers peering through our virtual windows at the first opportunity. It might be happening anyway through the back door as applications like Facebook brazenly use your profile to target you.

At least today we are cloaked by our IP address or can choose not to use an application that may use "private information". We have to have a choice in this because we are selling who we are in the process.

Perhaps tying the IP address to our physical life is such a risk that the concept is a non-starter, but my guess is that if you offer people a discount if they opt-in, cash will win over ethics for most. I wonder though whether privacy can be effectively protected.

It is also possible of course that the bogeyman mentality will take over this argument as it did in debates over Network Neutrality.

Wrap Up
Somehow, we need to pay for the next generation network. Advertising is one option and it comes with the benefit that it can create genuinely new economic value. There is no substitution in anything I have described - the value comes from making markets more efficient and eliminating advertising waste.

But, and it is a very big but, we need to make sacrifices in order to realise the benefits. This is true in any model, but here the sacrifices are very much more complicated than simply paying more for the service.

By revealing who we are and allowing people who want to sell to us to reach us on a one to one basis, we are paying in kind for the services that we are consuming. This means you have to sell your identity. Are you prepared to do that?

How Much is Your Identity Worth?

2007-09-06T09:35:00.000+01:00

Would you sell your identity? Probably not if that meant people peering through your windows or being followed by CCTV everywhere you went, but I am not talking about Orwell's 1984...

I am interested in your identity because it is a hugely valuable reference point for advertisers that want to talk to you. The more they know about you, the more refined they can make their message to match your requirements, the more likely you are to buy their goods. Facebook for one, are already trying to exploit the opportunity.

Splattercast Advertising
In traditional media marketeers simply do not know who they are talking to or whether the intended audience is even tuned in to the adverts they place. This is particularly a problem for TV where the demographic refinement is severely limited. At best, they know the TV region and the programme playing at a given time, so they have to be general in their messaging and hope that the right people tune in to the show.

Some programmes are targeted at niches broad enough to help advertisers - football and beer immediately spring to mind - so Carlsberg for example, can talk to its potential audience in quite a specific way already.

It gets better in this example because the customer can actually be encouraged to consume the product there and then. Of course this works for other brands too whose products may also be in the fridge, but the bet is that next time you buy beer, you think Carlsberg.

Advertising Wastage
But even in this example, there is wastage - and I'm not referring to the dregs that some people always seem to leave in the can. There is a subset of the market that Boddingtons would like to reach and would be prepared to spend more to do so than Carlsberg. Carlsberg could get more bang for their buck too by being more specific with who they talk to. Shandy drinking southerners probably.

There are many sub niches within a broad market as this example shows, however badly. Targeting each of these niches individually, it is likely the sum of the parts is will be much greater than the whole. If brokers can break down the audience into its constituent niches and manage the growth in scope, they can charge advertisers more per viewer per hour.

IPTV Business Model Required
IPTV is the perfect platform for targeted advertising because of the ability to individually target consumption, but there is a business model problem facing the internet. Whichever way you look at it, there is investment required to grow the networks to cope with online entertainment and revenues are not growing to pay the bill.

This new money has to come from you - in the end only the consumer can pay. But this new money need not come directly in the form of a bigger broadband bill: advertising is one of a few examples of alternative approaches. This one needs your consent, but if it saved you £30 a month would you sell your identity to your ISP?

Why the ISP? Because they are the guardians of your internet identity. They have the missing link - they know both the postcode and the IP address of an individual user.

The Missing Link
When an internet content request is received, the website owner knows your IP address, can tell which pages you visited, links you clicked, how long you spent on a page but in terms of who you are, they can determine the network you are on and the country you are in but very little else. MaxMind for example, specialise in the geo-IP field and I use them some of my P2P geo-location analysis. The best they can do though when given my IP address is to say that I am a Zen Internet customer somewhere in the UK.

Of course Google add to this by building up a profile of you through your browsing history, search data and RSS feeds (if you use Google Reader). The problem here is that your internet habits often miss where you spend the majority of your money - on FMCG commodities - where brand and perception are the only real differentiators and where advertising plays the biggest role.

Hands up if you have seen a TV advert suggesting where to buy groceries. Keep your hands up if you have done a Google search for the best grocery store near you. My point is that internet searches are for unusual products, whereas advertising deals most with commodities.

If the advertiser can interrogate the ISP to determine the postcode to match a user's IP address they suddenly have the opportunity to really target adverts for these FMCG goods. They could serve back a set of adverts, specifically to that user for brands and products that are most likely to appeal. You win because you get the ads and the products you want. The advertiser wins for the same reason and the ad broker wins because he can charge more.

The Value of TV Ads
ITV in 2006 reported £1.28bn in advertising revenues. BARB viewing stats can be worked backwards to arrive at approximately 6.5bn viewer hours per year on ITV. Divide one by the other and you can see that ITV gets 20p per viewer per hour in ad revenues.

In the same period, Sky reported £342m ad revenues for approximately 2.1bn viewer hours. This gives a slightly lower figure for Sky of 16p per viewer per hour. Sky gets subscriptions on top of that of course. These are ballpark figures but it is a benchmark nonetheless.

Per household and excluding the BBC, you have around 17 hours of TV viewing per week. At 20p per hour that works out at around £14.50 per household per month.

New Advertising Revenues to Build Networks?
Just supposing that this works and targeting doubles the advertising spend by a given point in time. Assume the ISPs keep half the benefit for their contribution (£7.25 per month) and within 18 years you have more than £25bn NPV of accumulated value to the network industry. Enough to fibre every home in the UK, not just 90% of them...

In all likelihood, investors will look for a much faster return. At £14.50 per month extra to the networks, the £25bn NPV figure is hit in seven years. This is probably acceptable for an asset with an expected 10 year shelf-life before it too will require a further, if perhaps slightly less costly upgrade. To generate £14.50 extra per month for the networks, the effectiveness of adverts needs to triple as a result of the new capabilities. Is this possible?

The opportunity for advertisers increases dramatically because of the interactive rich media capabilities but in order to exploit the opportunity to target you, they need to know who you are. The technology is probably well capable of delivering on this promise, but are we prepared as individuals to sell our identities?

In Part II, we will be looking in more detail at what personalised adverts mean and some of the arguments against this as a means to fund the underlying networks.

Zattoo - Missing Something

2007-08-30T09:47:00.000+01:00

The number of IPTV operators knows no boundaries. There is a significant amount of activity, a lot of which is starting to focus on live (linear) TV relay. The model is of a P2P based application that rebroadcasts existing TV signals to subscribers on the internet. "The Slingbox without the box" isthe analogy most often used and it sums it up well. The target market is the expatriate community first and foremost - in particular sports fans who live or work abroad.

The legality is still questionnable but the demand is not. Now is the time to throw all the applications into the mix because sooner or later the market is going to start whittling down their numbers. Some will fall foul of licensing restrictions but it is likely that some will emerge to offer an alternative to Joost - assuming of course that Joost doesn't also move into the live TV market itself.

The launch of Microsoft's Livestation this autumn will up the stakes and raise public awareness but there is still time to make a play because expectations are not yet set - if you make a mess of it now, you are likely to be forgiven on the basis that it is still an early stage development. Do the same in a year's time and you'll be history.

It seems that anything and everything is being released for invite only beta now. A lot of money has gone into a number of different startups in this space over the last year or so since Joost gave the IPTV concept credibility with its cleverly executed, high profile and yet gradual release. Zattoo is another in a long line of wanabees.

What did I Miss?
If I was Simon Cowell and Zattoo came to audition for the X-Factor, I would tear them to pieces. They might even leave in tears with their dreams of stardom shattered. But hey, Mr Nasty I am not so a bad review from me may not be the end of the world for them - they have certainly received some good press elsewhere. I just can't help wondering though, what do others see that I missed?

You see, if you have a TV in your house already - and many households have at least one TV per inhabitant - I cannot see why you would choose to watch something on the PC that you can watch in significantly better quality on the TV. Zattoo is not catchup TV and you can't even record from it. All it allows you to do is to watch what is on the much bigger box sitting in a much more comfortable room in your house.

I suppose if all the TVs are in use there might be a small niche but the video quality in my test was poor: jerky, blocky and stuttery. Some have reported that the experience is good in a small window - and yes it is ok, but why do you want to watch on a window a quarter the size of even the most basic TV?

Abroad on Business?
Perhaps if you are abroad on business and can't get the Beeb on your hotel room telly you might use Zattoo, but if that's you, then a) you are part of a very small niche and b) you probably also know about the Slingbox.

The "Slingbox without the box" and to a point I can see that analogy. Again though, I am missing something - this time the wealth of channels that we have on our regular platforms. You see, there is no ITV1, let alone ITV2/3/4 and there is no Channel4 or Five. Sky? No chance.

If I was using a Slingbox, I would have the lot, but with Zattoo I have the BBC's catalogue and a few foreign channels. Perhaps I will reserve final judgment until a later date but if a system launched like this in a year's time, it would quickly be toast.

An Alternative Niche
Perhaps this is just SkiverTV. In the office and can't be bothered to work...?

No, I can't see it - there is nothing good on BBC daytimethat would appeal even to the most workshy. It is possible that come Wimbledon or the Open golf that some people may tune if briefly, but the resolution is nowhere near clear enough to see a tennis ball let alone a golf ball so it doesn't offer much hope. Note, that is a criticism of all IPTV I have seen so far - watching sport is pointless because you can't see the ball.

Oh yes, and your IT administrator is going to see the media stream pretty clearly and know what's been going on. Unlike radio, where you can argue that you can work while listening to the cricket, if anyone can convince the boss that they can work while watching TV on their computer screen they should apply for an award.

P2P TV?!?
There was also no evidence in my tests of any P2P in spite of the fact that this has been trailed as P2P TV. All the content came from Zattoo's network in Zurich even though it was being aired live on terrestrial BBC here in the UK. Perhaps this is because I have one of the first test accounts, so I shall be a little cautious in my judgment but it certainly seems to be missing that aspect.

Perhaps because there is no P2P network established in the UK and perhaps because I tried it as soon as I got it, at peak internet time (between 8pm and 9pm on Sunday/Monday evenings), the picture quality was rubbish.

Poor Quality Pictures
Other applications that I benchmarked at the same time like VeohTV, Joost and iPlayer downloads performed much better.

This was not a bandwidth issue, at least not one on my broadband network, although perhaps there was some congestion on the London to Zurich routes. Wherever the problem was, it did not affect anything else I tried - there was a significant amount more capacity available than was used by the Zattoo application. It averaged just under 550kbps, although it varied between 1.3Mbps and 400kbps. My line can do 2Mbps comfortably and has been known (again with Veoh) to get up to 3.2Mbps.

So here we have a TV station offering lower quality pictures and less choice than regular TV, with no on demand features. Do I think it's going to fly? I've been wrong before, and I will be wrong again but no - I don't see this as a survivor, nor even as a buyout target. A waste of money? Perhaps.

Damning Conclusion
So Zattoo in my eyes at least, is missing something. Missing a lot of somethings in fact, but perhaps they still have time to fix the issues before the market starts whittling down the candidates. If Zattoo are making a list, they should start with the picture quality and make sure this is 100%, add in something that makes the experience better than a simple free to air TV service (on demand / PVR perhaps?) and make sure that all the channels that I can get via the alternative are included in their offer.

I am not writing off live TV entirely with this conclusion. The major player in the niche is Microsoft's LiveStation which I would very much like to test. If anyone can help me get past the gatekeeper on that trial, please get in touch as I have applied twice and been ignored twice. Maybe they don't want to run the risk that I won't like it? That's certainly one way to protect your brand and if you are Microsoft you might even get away with it.

Zattoo however are not Microsoft and they really do have a long way to go in my view - and not much time in which to execute. I just can't see it working for them.

Veoh: Different Approach, Same Goal

2007-08-28T09:54:00.000+01:00

Joost and the BBC's iPlayer have hogged many of the headlines around IPTV in recent months. These two high profile IPTV platforms work in markedly different ways to the point where they are almost mutually exclusive. I was critical of the iPlayer's lack of streaming functionality while Joost is also struggling for content because of its ring-fenced system design.

It is worth looking at Veoh, not because they are set to take on the world, although they might just get lucky. The reason is that there are bits of their service which others could learn from and if nothing else the Veoh model challenges the establishment in a number of ways.

Veoh Today: Cheap Thrills
Veoh have an existing YouTube clone that seems to be finding its niche in 18+ rated content. Of the most popular 20 videos yesterday, 13 were rated 18+. I could go on to explain the inadequacies of the family filter, but that is not the point of this article.

Perhaps Veoh's new service, VeohTV, is an attempt to move out of the gutter - it is certainly has a lot more respectable content - with its new interface that challenges some of the boundaries of existing services. If it can make its recommendations engine work as promised and if its open network philosophy wins, it could indeed justify it's own hype of being a Joost Killer. There is a game going on between the content owners too, you know...

Very Limited Success
Everyone has heard of YouTube and Joost. Even Babelgum has managed to get itself on the radar by virtue of its "alternative" approach to content. Many people outside the US won't have heard of Veoh though, because it is so small. Alexa ranks their web site as the 27th most popular in the US, in the UK it is number 67. Globally they are down at number 107.

Data from Nielsen/NetRatings shows that there are now nearly 140m viewers of online video, up from just under 60m a year ago. YouTube has managed to grow its share of the market (37% up from 33%) in spite of advances by Yahoo! (11% up from 5%) and AOL (11% share in 2007).

Veoh's share is only 1.8%, up from 1.2% last year. Yes, they are growing but where Google has 69m viewers, Veoh has 2.5m so why am I bothering to write about them? It's not like they are a new company, but there is something about the brashness of it all that is worth noting. VeohTV is an interesting evolution.

A History of Disruption
Currently, veoh.com is a YouTube like service for a combination of user and professionally created content. It has two advantages over YouTube, although on the face of it, these have not been particularly effective.

For viewers, they offer download and store PVR functionality (like iPlayer) as well as streaming of videos (like YouTube & Joost). Publishers in veoh.com have their content automatically added to YouTube and Google Video as well behind the scenes. Publish through Veoh and you get Veoh + YouTube. Publish on YouTube and you just appear on YouTube. Clever, if sneaky.

VeohTV: Rising Above
VeohTV is a very different service - although the philosophy is the same. The VeohTV play is to rise above the content owners and emerge as Your Online Video EPG. VeohTV is a Video Browser - users are presented with a consolidated list of hundreds of web sites in a wide range of categories that already host free video on the internet.

The VeohTV Video Browser is a step up, tailored to improve video playback over standard web browser capabilities that power veoh.com and YouTube. Veoh's value add is the personalisation that its overall set of services learn from the users behaviour. This means that in the long run, the service increasingly recommends content to you that you are likely to enjoy.

On VeohTV you have channel lists by name, category, favourites etc so you can make it work for you. On the standard lists, ABC News right next to the link for CBS News and CNBC. It's an EPG where you can drill down and see a further list of programmes on that channel to watch either streamed live or for download and store.

Controversy Lingers
Users browse videos that are posted anywhere on the web through VeohTV's EPG which has VeohTV adverts on it. Veoh claims not to require partnerships with content owners before they can include the videos in their EPG, but this is controversial. Users do not see the ads on the content owners site - which VeohTV has disintermediated from the delivery chain.

This costs the content owner site traffic, which may be an important source of revenue and branding. It may even be why the video exists - to generate and maintain site traffic. Although the content owner can still embed ads within the video, any branding on their original web site is lost and replaced with the Veoh branding (sponsored by Verizon) on the customer's interface.

See the two different interfaces to the same content firstly an ABC.com and secondly the same programme on VeohTV. On their own version, ABC is getting paid by QuietAgent for the ad-link directly beneath the webcast link. On the VeohTV version, this revenue opportunity is lost.

AI on the EPG
VeohTV's value add is the AI that they are building to help you navigate the huge volume of available content on the open network. There is a recommendations engine bolt on coming. This delay is pending the patent of the AI that supports this feature. If they can make this work to predict what people want to watch, they will be extremely well placed to take on the role as the IPTV EPG.

This is where what VeohTV offers touches Arootz because both claim to be able to proactively download what you are going to want to watch so that it is there when you need it. Unlike Arootz, VeohTV is not at present designed for multicast so the implications on the networks could be very different. Where Arootz uses Multicast, VeohTV is a unicast service and this proactive ability in VeohTV promises to increase the burden significantly.

When combined with the recommendations engine, this PVR capability means that VeohTV can download a whole bunch of stuff on the off-chance that you might be interested - using your network resources to their maximum potential. With enough hard disk space and a fat pipe, you could have the whole schedule punted to you every day.

Standards War
There is a standards war being played out for what I have previously termed the IPTV operating system. Specifically these are the components that deal with content upload, EPG, hosting, distribution, caching and the client video player and DRM. Most of the recent developments like Joost have offered this whole set as their core service to the content community.

VeohTV is different because it is just an EPG & video player. It simply directs the user to the content owners own CDN - my stream from ABC news on VeohTV came from a server within my ISPs network, the same source as when I viewed the same file on ABC.com. When a user downloads a file for later viewing, the application has a P2P option although in the ABC news example exclusively preferred the download server within my ISP again.

This isn't some specialised VeohTV caching, it just happens that my ISP has a cache with ABC content on it. A YouTube clip downloaded through VeohTV came from Google servers on the internet, so VeohTV clearly leaves the hosting and distribution costs with the content owners.

The Battle for Eyeballs
The winner of the standards war will be where a significant chunk of advertising revenues land. Joost are aiming for the same pot but offers the whole OS in its value proposition. Perhaps in doing so, Joost gains a little more control than the media moguls want to give up yet. There is definitely some hedging of bets going on, with VeohTV as one of the disruptive forces, but this is a battle where inb the end "there can be only one" (or two perhaps).

Consumers are not going to runs lots of different software applications to watch different channels - there is an aggregator role to be filled. In spite of the technical and philosophical differences, VeohTV is fighting Joost, YouTube, Babelgum and even Kontiki for this role.

VeohTV's stance as a light touch aggregator rather than a value added network provider is interesting as it gives content owners the choice between open and closed networks at a time when the right way to distribute video is still unclear. There are elements of closed networks like DRM which weigh heavily in its favour, but VeohTV effectively deals with other features like specialisation and video playback quality that were also thought to favour closed network applications.

On the other hand, open networks have often won internet standards battles - or at least held onto a position in the face of a proprietary goliath - because no managed service can properly scale to deal with the breadth of the opportunity in an open system. Veoh's model has a chance of survival, even if it may not dominate.

More Than Meets The Eye
While there has been aggressive posturing and threats of legal action from those who want us to believe that VeohTV's approach amounts to piracy, Veoh is not entirely alone out there - Michael Eisner, formerly CEO of Disney sits on the Veoh board and Time Warner are also investors. Disney own the ABC service I tested - oh, what a tangled web we weave...

Many might not notice the time-lag between a video appearing on ABC.com and on Veoh's ABC channel, but it is there if you are interested in the above screenshots. Old news anyone? These snaps were taken at 2.45pm on the 17th August, before the webcast from that day was released so ABC.com is current. Veoh still has the video from the 15th August as its most recent - a day out of date. How does this happen...? Does the day's webcast need to be uploaded into the directory after all, or do Veoh and Disney's owners ABC have a delayed publication deal?

The delay is enough to make me wonder whether VeohTV really is an open network after all or whether it just another publishing platform with gatekeepers at the door. Perhaps given the nature of the content on their first generation service, we should be glad that they are managing content more closely this time.

Is there a Wizard at Ofcom?

2007-08-23T15:32:00.000+01:00

Or is that a dunce's hat they are wearing?

Do Ofcom Have a Clue?
The most subjective point that I made in my recent iPlayer series, and in particular in my article on The Regsiter, was that Ofcom know what they are doing. I have had a fair amount of feedback along the lines of the following:

"Ofcom really don't have a clue about anything and just are pushed from pillar to post by the amount of lobbying going on. You are really naive if you think that someone in Ofcom is really the Wizard pulling all the levers in the background."

Is BT the Power Behind the Scenes?
This thesis holds that actually, it is BT that holds power. The theory goes that BT are able to make a weak minded Ofcom accede to their every wish through their use of Jedi mind tricks.

I agree that the Force is strong with BT. Their Regulatory department is staffed by the brightest people in Telecoms, whose role it is to confuse the heck out of the rest of us. Furthermore, there is evidence that BT seems able to pull victory from the jaws of defeat when it seems that they have been beaten into submission - but does this mean that we are under the spell of a great magician? Or is it just that (unlike everyone else), they just get on with it when decisions go against them?

In the late 1990s, it is certainly true that Oftel were pulled from pillar to post. They were naive and believed Mercury every time a grievance was raised. Similarly, they fell under the spell of MFS magicians who worked tirelessly for changes to the market that altered the telecoms landscape in the UK and throughout Europe.

Many of those same people who fought BT in the 90s have now found themselves at BT since the company's renaissance in the 00s. Another example of poacher turned gamekeeper in telecoms...

BT has Good Reason to Like the iPlayer
It is certainly true that BT wins from the iPlayer's launch. Their wholesale product still covers 34% of the market (excluding Retail) and the Capacity Based Charging scheme means that any extra iPlayer driven usage within this base just adds to BT's profits. The price of the BT Central product is worth noting - £155 per mbps per month.

In the long term, the iPlayer driven LLU may cost BT subscribers but certainly within the short term, the additional usage will drive wholesale revenues that more than fill any gap. Over the long term, the iPlayer is likely to drive backhaul circuit investments from LLU operators, which is revenue to BT too.

A Strategic Decision to Go Ahead
Of course the BBC Trust made the final decision to go ahead - but if Ofcom had turned to them and said, "look, there's an £831m bill, the ISPs don't have that kind of money", the Trust's hand would have been forced.

But Ofcom did not say that - the discussion probably went more along the lines of "look, there's a £831m bill, the ISPs will grumble but the investment is for their own good". In fact when the MIA was announced to the world, the press release made no note of the cost whatsoever and you have to work down to page 103 before you get to the detailed assessment! So did BT persuade Ofcom that the bill was an acceptable cost and not to make a fuss about it, or did Ofcom make its own mind up about that?

I see no evidence of BT being more prepared than the other players which is often a dead giveway that a decision has gone their way. In fact the initial suggestion that they too were fighting the launch, however off-the-record and however quickly retracted, suggests that there was no grand plan behind this. BT executive were clearly not all quite on-message.

My view is that Ofcom are now pulling the levers. More specifically, it seems that the levers are being jerked around violently as Ofcom battles to reign in the huge range of stakeholders over whom it has an influence. My conclusion is based on the fact that it seems that they can do no right by anyone which suggests to me that they are trying hard to balance opposing interests.

Equality of Hardship
Let's look at who Ofcom have upset recently... First came structural separation - it cannot be argued that this has helped BT because of the amount of work involved to demerge Openreach and create a set of systems and processes that could support the new design of wholesale market. It might be in the group's long term interests, but that is more due to the quid-pro-quo that saw the chains removed from BT Retail.

Then Ofcom upset the Broadband Stakeholder Group and a previous Ofcom boss, Kip Meek who feel that we are not doing enough to prevent Britain becoming a digital backwater. Next Ofcom upset customers and the market with their tacit acceptance of two tier pricing, before they upset the politicians who questioned whether the organisation was too big for its boots and was making political decisions.

Just when I was beginning to think that the interests of investors in LLU broadband were the only ones that had not been targeted, came the iPlayer. Having had a good run of it for a couple of years, the iPlayer brings down the hammer to signal the start of a new and much bigger wave of investment for those players.

Ofcom Understand the Dynamics
Ofcom clearly understand the market - assuming they they are unique in reading their entire Communications Market Report. Their 2007 version was published today and is a veritable goliath as research pieces go. I have printed it double sided on A4 paper and even without the Radio sections, the report sits over an inch high on my desk. I am sorry for the tree, but this is the only way to digest so much information. I am assuming that Ofcom have digested it...

So is it a wizard at Ofcom or a Jedi at BT? It may well be both - but it does not appear to me that BT is being favoured by the regime. Where BT wins is that it plays the regulatory game where ISPs do not.

The Regulatory Game
The game consists of huge volumes of data and documentation being passed backwards and forwards. What tends to happen is that the crucial part is in a footnote on page 142 where one sentence changes the market. BT will take time to read this and reply in kind, whereas the ISPs just don't put enough effort into unravelling the mysteries that BT and Ofcom conjure up until it is too late - and the iPlayer launches.

Is it Ofcom's fault that the game is played this way? Should they be made to stand in the corner and be subjected to ridicule for allowing BT to run rings around them? In my view, the answer is no - detail is a feature of regulatory policy making or there will be loopholes. Every player in the market knows this and has used it to their advantage in the past. If some players in the market believe that there are higher priorities at a given moment than responding to consultation, then that is their decision.

Trying to play the victim when the result doesn't go your way just strikes me as bad sportsmanship.

Did Burch Jump?

2007-08-22T12:14:00.000+01:00

"He's leaving for family and personal reasons" - really? With immediate effect?

I suppose it is just possible that a close family relative has suddenly been taken very ill and needs the now former Virgin Media CEO Steve Burch at their bedside for a prolonged period of recovery. I suppose that it is just possible, but surely that would be preceded by some form of compassionate leave before it was clear that this was the only sensible solution.

What a Load of Tosh
No, I don't buy it and neither does anyone else. We all know that these words are often trotted out when face needs to be saved. In reality there are one of two possible scenarios:

Scenario 1: The board have decided to sell Virgin Media and Burch disagrees with that decision because he thinks that he can still turn the company around. The company needs him out of the way to go ahead so Burch's contract was bought out.

Scenario 2: The board have decided not to sell Virgin Media because of the volatile debt markets and Burch disagrees because that was his exit strategy. Plan B was to throw his toys out of the pram until a compromise agreement was the only option.

It could be because of poor results, but even when that happens there is normally a gradual easing out of day to day duties, staying on as a Strategic Advisor of sorts while someone else is sought. Not this time - Burch is gone with immediate effect - which can only mean a pretty sizeable bust up has occurred, probably between Chairman and CEO. I wonder if there was shouting and even whether objects were thrown?

Either way, it is unlikely that we will ever told - they have obviously agreed some form of exit plan, almost certainly containing a gagging clause on both sides. It's a shame in some ways but all we will know is that there's a cover up going on. [UPDATE: Burch left with a £3.5m payoff. The Times has an inside line on the events that led to his departure]

Steve Burch RIP (2006-07)
Putting Burch's time in context, he joined in January 2006 and is leaving in August 2007. In that time the company spluttered through its NTL/Telewest integration, acquired Virgin Mobile, rebranded as Virgin Media and then Lost all of the relaunch's goodwill practically overnight. [UPDATE: This may not have been Burch's doing]. Oh yes, and they also lost their position as the UK's number one broadband provider.

Burch's major initiative was four-play. Since he joined the company they have done loads with the proposition. 4 for £40 makes for some great marketing. The imagery is attractive as you would expect from Virgin. There is nothing wrong with the presentation.

Furthermore, he reached out to the other 53% not on cable with a hybrid Freeview box making it clear that they were serious about addressing off-net. But they also made clear were not going to roll out any more access network of their own any time soon when they did their LLU deal with C&W.

The sales and marketing department will have been happy as it allows them to sell to the people they already reach with their message but aren't on cable. But commercially does it make sense to spread your resources still further and to compete where you have no advantage?

A Questionable Strategy
Some wondered whether four-play was what the market wanted. Personally, I thought that buying Virgin Mobile was a great move because loose bundles had already been working well for NTL locking in triple play spend and making customers less price sensitive.

My concern was that four-play meant of a round of price cuts and that NTL was shifting to focus on growth because my research showed that NTL's customer simply were not price sensitive. For NTL, cutting prices did not lead to growth and putting them up did not cost market share. It seemed that cable customers wanted something different from TalkTalk and yet the company misjudged this and tried to compete on price.

The end result was a lot of customer who did not need a price cut, got one anyway - taking chunks off the company's bottom line at a time when investors were sweating on a return. Yes, they increased the dividend by 50% earlier this year and last week by a further 33%, but this was to a paltry 4 cents - an annualised ROI of 0.7% on today's share price. They have been trying too hard to grow while their investors have wanted something different.

Virgin's Problems
The problem for Virgin is the basics. Service provision, customer care and billing (all the boring stuff that's so easy to ignore). They need to start being nice to customers - although they are not alone with this problem. BT, Orange, TalkTalk and Tiscali all join Virgin with less than half of their customers satisfied with the service.

What is under the hood at Virgin is probably a mess of diverse networks and systems from countless acquisitions and partially completed integration projects. When this happens in a Telco, random things break, causing customer outages and making staff look stupid because they don't have good information on what is actually wrong. The core network service delivery capability is there; Virgin's problem is making it work.

The Virgin brand was supposed to solve this perception problem, but this was a sticking plaster to deal with the result of a train wreck. The result was that the reverse has happened: "Virgin" now has the same negative vibes as "NTL" once did.

It was not always this way... NTL, if you recall, started as an attractive, cool brand too, with its football shirt sponsorship deals and the rest. Over time, the coolness turned to coldness as NTL became synonymous with poor customer service. NTL + Telewest = Virgin = Chaos.

Virgin Media hasn't helped itself. Its opening gambit, a PR move that was a victim's plea against the dominance of Sky, crippled the company. It might have worked for Virgin Atlantic against BA in the airline industry, but it is worth noting that Virgin Atlantic didn't tell passengers mid-flight that they might get Lost.

What Next?
So now they are back at square 1. They might even be at square -1 after the price cuts, but the rump of the business certainly has a future no matter who owns it. If it can survive bankruptcy, it can survive losing a CEO or two and even another change of ownership.

If they can fix the service issues and rebuild customer confidence, Virgin will need to go through a period of consolidation, much like BT has done since its rights issue in 2001. Virgin need to show that they can operate a cash cow for a few years, rebalancing their finances and rebuilding investor confidence.

Whichever way you look at it, it smells of anger ruling over reason. The value of the company has been diminished by Burch's departure - the share price fell by 1.5% following the announcement on a NASDAQ market which climbed by 0.5%.

Losing their CEO so suddenly is only going to increase the attractiveness of a buyout bid to shareholders, even if the bidders may now feel like reducing the price because of the commotion. If Burch was ousted to oil the mechanics of a sale, it will have been a very poorly calculated move for that reason.

Alternatively, if Burch left because the company wanted to remain independent and he wanted it sold, even now, he may still get his way. Losing another CEO may well be the last straw for some shareholders who may want to bail out now at whatever price they can get.

The problem with digging in is that bringing in a new boss is a long term project. Whoever they bring in will want to bring in their own people and conduct their own strategic review - all of which would burn another 6 months or more. The problem is that I just can't see the shareholders waiting that much longer for an ROI.

Fibre on Hold
Whatever happened over the last few months and whatever happens in the next chapter, the big loser has been the UK market which needs a strong competitor to BT if the market is going to deliver fibre to UK homes. Lets face it, no one else is going to fibre up the UK at any point in the near future. It is BT or Virgin because they are the only ones with anything like the capacity to execute the build.

Clearly, BT aren't going to do so at the moment because there is no competitive pressure. They can fight LLU with 21CN, the only reason to do FTTH would be if someone else was heading in that direction but they are not - certainly now that Virgin is in further turmoil.

For BT, this means that there is nothing to be gained (or losses to stem) from the possible £10bn of incremental investment (to cover 90% of the population) because BTs existing network is good enough to give them control of over 60% of the market. Why spend £10bn when you get the rewards regardless?

The Market Needs a Strong Virgin
Virgin Media are the only other company in the UK competing with BT infrastructure in the last mile, but they are light years behind BT in their preparedness to upgrade their existing facilities. Virgin are not going to do FTTH until they have been through the same rebalancing that BT has been doing this decade. Would you lend Virgin money to do FTTH right now given their history? No, I didn't think so.

In order to rebuild the confidence of investors, they need to return some value to long suffering shareholders for a consistent period before embarking on a further wave of investment. Whether this return comes from ongoing operations or from a buyout doesn't actually matter. If the company is bought out, the new owners will need to get their ROI before embarking on another investment wave.

Hard Work Needed
One way or the other, Virgin needs to spend some time on a get-well plan.

Delivering the ROI from ongoing operations will take a massive effort to properly integrate NTL, Telewest and Virgin Mobile from the bottom up - not just on the company's brochures. Funnily enough, delivering an ROI from a buyout is going to mean the new owners have to do the same. Either way, there is a long term project ahead.

Investment will have to be inward during that time because it will take a huge amount of focus and a ruthless instinct to drive up margins by cutting waste. No-one is going to like working there while this is going on.

A Lost Opportunity
Perhaps it would have been OK had Burch not Lost his way and tried to take on Sky. [UPDATE: The Times suggests that this was not actually Burch's decision, that in fact it was taken by Bill Huff and Jim Mooney]

I think though that there were and still are much deeper issues that have been brushed under the carpet. There has been too much marketing and not enough integration going on in my view.

They cannot hide from the need to do the hard work. Buying companies sounds easy, but combining them effectively is one of the hardest jobs in the telco world. But it needs to happen because sooner or later, cracks will start appearing through the marketing - destroying the perception you are trying to create. If this means that innovation goes on hold until the work is done, then that is a cost of the acquisition.

If Virgin can do the hard work, they will be able to improve returns to shareholders meaning that eventually, there will be another window to invest. This may be five years away or more whichever ownership route they take, although they need not worry too much about their competitive position as no-one else is likely to take the step to fibre before them. BT will just be milking the profits of their broadband and 21CN investments in that time. They don't have to move until Virgin do.

Which is why we should all be sorry at Burch's departure. More specifically, we should be sorry at Burch's failure, because in it we have lost yet another period of at least 18 months and probably a lot more in our race to fibre up the country.

WiTV

2007-08-20T17:17:00.000+01:00

A hat tip to WebTVWire entrepreneur Chris Tew for his exclusive scoop on WiTV that was picked up in a number of places including Mashable and TechDigest. It seems that we have yet another name to add to the growing list of companies trying to become the IPTV Operating System.

What is it that everyone is excited about with WiTV? The service is not yet available, even as a private beta so they surely have a way to go to catch up with Joost and the others they are fighting, including the other system out of Italy, Babelgum.

It is too early to compare the service with its competitors. This is not even a pre-announcement, it is an intentional leak, but for me a lot of the excitement hinges on the screenshots that we have been shown. These crucially show a range of Disney films - does CrossCast System from Lecco near Lake Como have an extraordinary deal with Disney or are these screenshots ripped directly from WebTVWire just mock ups?

Access to Disney's content vault must surely rank as the no. 1 goal of all IPTV distributors. Those of us with children will know how a single one of Disney's products can be viewed repeatedly, unlike almost any other publisher's product. With the possible exception of Dreamworks with the Shrek, Wallace & Gromit and Chicken Run franchises, there is nothing else out there that could remotely fill a rainy day like a Disney catalogue can. Any IPTV network that offers me this is going to get taken very seriously.

There also seems to have been some thought given to user interaction, which although not particularly relevant within the Disney context, could be a very important feature for more grown up broadcasted content. At a time when phone-in shows are attacked for malpractice and termed a rip-off, user interaction may move online more quickly.

The advertising capability of WiTV is also shown on WebTVWire although the commentary is more speculative. It is noticeable that the ads show during the main play-time as a banner on the bottom. Nothing wrong with that of course, as long as the content owner is on board - consider though the Ford branding in recent James Bond films for example. Can BMW sponsor the WiTV copy of such films when they are shown? It won't work if they can...

There are also one or two neat little add-ons like chapter management within the promised content experience, but how these roll out in practice will be interesting to see. Personally, I will reserve judgment until I hear confirmation of otherwise from Disney and until I have tried the service myself. There is no suggestion if / when either of these may happen in anything I have read and as things are changing so quickly in this space I might not start holding my breath quite just yet. We shall see...

Unlimited* Broadband

2007-08-16T18:16:00.000+01:00

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"

Offcuts and Afterthoughts

2007-08-15T11:26:00.000+01:00

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.

Dear Regulars

2007-08-14T14:42:00.000+01:00

I'm not ignoring you, I promise. It was summer last week and it was also my son's birthday so I took him to the Emirates Stadium (it was Arsenal's members day). There are some elements in my children's education that I won't leave to chance and this is one of them ;-)

Then on Thursday I managed to secure a ticket to the Test match (cricket) and decided to make it all into an impromptu week off. It is one of the benefits of being self employed!

I'm preparing a piece on television content popularity based on BARB stats and the Long Tail model, but Andrew Orlowski called me up yesterday out of the blue and offered me a king's ransom to write a piece on the iPlayer for The Register. Well, perhaps not a king's ransom, but enough to pay for the beers I had at the cricket anyway.

So I agreed and you can read the result here. I came to the conclusion that all the fuss directed at the BBC is really a case of shooting the messenger. Ofcom are the ones responsible for the gunboat diplomacy in my view and it made me wonder (again) whose side they are on. Perhaps it is a regulator's job to be dismissive of the interests of all its stakeholders on an equal basis?

If you are not a regular and are here because you read the piece on The Register... welcome! Have a look around (hopefully the iPhone inspired menu will help), put me in your RSS reader (Feedburner link) and come back another day.

Comments, positive or negative are always welcome (unless they are spam, so I do moderate) and if you have a pet topic that you want me to write about, please let me know: jpenston at ipdev dot net. I can't promise to agree with you though!

If you are wondering "who does he think he is writing all this &*%$!", there is a picture of me on the left hand nav linking to the about section of the site. Further feedback can be provided through the questionnaire linked from the right hand nav.

iPlayer Conclusions

2007-08-07T22:24:00.000+01:00

Of course, any conclusions now are based on the current beta so if you are looking back on this article in a year's time, don't be surprised to find that what I say is now horribly out of date.

The BBC's service is very limited. It is riddled with compromises which detract from the end result and it's Kontiki P2P delivery is both a source of inefficiency and controversy.

And yet it is a start. A walk of a thousand miles and all that, but by taking the leap and putting the bulk of its programming on the internet, the BBC has opened a range of opportunities for the development of the service.

Kontiki's P2P is really not very good. It was very disorganised in comparison to Joost, which makes iPlayer and 4oD downloads slow to start and traces look a bit like kids bickering in the playground. I will be keeping an eye on peer hit ratios and will report back periodically on those as it is too early to draw firm conclusions on the amount of traffic that the BBC is offloading onto peers. But for now, talk is of underhand tactics.

Underhand? Yes - absolutely. My iPlayer is closed in the taskbar and yet kservice.exe is still running according to my task manager (Ctr+Alt+Del, Processes). Does it matter? Not to me as I don't pay for my upload but ever since I installed and tested 4oD I have experienced a significant increase in used upload capacity. If I was a cable customer, the extra bandwidth used on the coax might degrade everything for me and for my neighbours.

I deliberately slotted the Arootz article in the middle of this iPlayer articles because in that concept you can see how the BBC may be able to do it differently - multicasting to storage. If the BBC are committed to Kontiki, then they all have their work cut out.

As a user application, the iPlayer is inferior even to its 4oD stablemate because of the strange disconnection between where you select the programme - the web - and the application you actually view it on - the iPlayer itself.

It is all very different from Joost, Babelgum, VeohTV or YouTube. Those services are for live entertainment. The iPlayer is not - it is a catchup download service where you have to wait to watch what you want. The lack of progressive streaming is a big shortfall.

The addition of progressive streaming would make the service feel a lot more like TV. Furthermore, it would open the door to further development of the client software onto set top boxes, freeing the service of the chains that currently attach it to the PC.

I am not saying that the BBC is wrong to offer catchup downloads. It is a part of the product set that they want to end up with. Perhaps it is the low hanging fruit, but the final solution also needs to replicate and add value to the core broadcast model. Here too, there is work to be done.

Catchup Downloads has a number of avenues for development too. The capability will be very important in mobile TV where the cellular networks are simply too immature to offer anything like an acceptable experience for streamed services. Here, latent demand for mobile TV can be met by bridging the mobile handset and the broadband network, sideloading the media onto the device while the user sleeps. The iPlayer's current design provides this as a further development option, if nothing else.

But all is not lost - and that's why I issued the word of caution in the opening paragraph. As a service to me as a license fee payer, it is very good simply because it's got BBC programmes on it and not Channel 4s, Joost's, Babelgum's or Veoh's. It's attractiveness is directly proportional to the BARB figures which show the BBCs average viewing (for June) at 7 hours 24 mins against Channel 4's 2 hours 15 minutes.

In my service review, I wondered whether content was really king, and I think on reflection it is. What I think I've learned is that the application and the distribution network play a vital role in the shadows, they are the king-makers...

The BBCs royal aspirations are still alive and well after this release, but they really need to think about the people they are surrounding themselves with and whether they can get to where they want to be with the baggage they are carrying. I'm not just referring to Kontiki, the BBC is also weighed down by beaurocracy and that too is severely limiting the service.

If the BBC is serious about IP as a distribution technology for TV, and I believe they are, they need to evolve to a point where they simultaneously broadcast and offer up for time-limited storage their entire portfolio of programming. Quite what value they are creating by doing so is an interesting question given their unique commercial status - for competitors, the benefit is targeted adverts - but what does the iPlayer add economically? Something for another day perhaps...

Arootz: One to Watch

2007-08-06T14:30:00.000+01:00

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...

iPlayer Technology Review

2007-08-01T12:20:00.000+01:00

The last article described the iPlayer's service elements. My conclusion was that because it is tied to the PC and yet it lacks social networking, it misses the mark in a number of ways. In its current guise, it will be a niche application in spite of the wealth of content on offer. There is much work to be done on the device and service side to make it consumable - perhaps content isn't king after all...?

Here, I will be detailing my technical conclusions of the service.

File Sizes, Line Speeds & Encoding
As a user... and leaving aside the critical lack of a streaming capability for just a second, on a good quality LLU line, the service delivery is fast. The file(s) will download at close to line rate. If you can get 10Mbps, you will be able to download at just a small amount under that speed.

The Beta Test Blog shows a line trace sustained at around two thirds of the maximum speed on their 10M Be connection. Say 6-7Mbps of download speed in their results, which means that even the largest show, DanceX, a 75 minute 756MB extravaganza (suggesting encoding at 1.3Mbps), would only take 15 minutes to download. Top Gear, which is a more moderate 60 minute show at 387MB (860kbps encoding) would be ready to go in just under 8 minutes.

But, only 30% of the population can get 10Mbps because of line lengths. My downloads also seemed to come down at close to my line speed, which for me was 2Mbps during the test period. The same Top Gear show took me 26 minutes to download but at least and the picture / sound quality are good and I got the same end-product as someone on a faster line.

Twenty six minutes though... it's less time than it takes to play the show, but is enough to make me lose interest and go and do something else. Can you imagine a 26 minute zap time on the Sky EPG...? The iPlayer is not readily consumable.

Perhaps with this in mind, the children's programmes seemed to be encoded at much, much lower rates - as low as 300kbps in some cases - which meant that zap times were almost bearable. I was surprised that this didn't seem to impact picture quality greatly. Iggle Piggle and his friends in The Night Garden were perhaps a touch fuzzy around the edges, but it was still watchable - if you are 3 years old and like that sort of thing.

Below is a table showing the file size, run time and the implied video encoding rate. I have also added a best case estimate of the download zap time at various line speeds.

Download + Store, Zap Times & Progressive Downloads
My belief is that the future of this iteration of the iPlayer is confined to a small niche because it is built without progressive download capabilities. Of course, the download and store is a nice intro to catchup TV, but the PC is not the end-game for VOD so the content is in a holding pattern waiting to be sent in two different directions.

Its current download and store model is suited to mobile TV because it removes the unreliable and costly cellular data network. Mobile phones now specialise as the jack of all trades and they have replaced the PC in that role because they are more portable than a laptop. The mobile is best suited to the iPlayer's brand of personal, download for later viewing application where people who are short of time can snatch a few minutes here and there whilst commuting.

The other direction the iPlayer content needs to go is back onto the TV - but with the added on demand capability not yet in the new service. For this to be successful the zap time issue needs to be resolved and this requires progressive downloads (or Virgin Media's cable network).

This is not a bandwidth problem - at least for the majority of users at current resolutions - it's a service application problem. If I can download something in 26 minutes that takes 60 minutes to play, I have a decent buffer which would allow me to start viewing almost immediately while the rest of the file downloads in the background.

Managing Compromises
For some, progressive downloads would mean lower picture quality and it seems that the BBC is keen to avoid tarnishing it's content with this brush. With progressive streaming, if the line rate is even close to the standard encoding rate, progressive downloads need to re-encode at a lower rate, delivering a lower resolution.

Right now I get the same end product as the other guy on a 10M pipe, I just have to wait longer for it. The compromise is very egalitarian, even if that means that very few will be truly satisfied.

Because the BBC is publicly funded, it has probably had to design for a wide base of users meaning that it has to manage these compromises where Joost, Babelgum & Veoh can simply ignore low speed users as "unsuitable". The flip side of this is that if BBC users expect to wait, then perhaps there is a window of opportunity to crank up the resolutions to true HD for the iPlayer's small niche audience. What is the difference between waiting 26 minutes and 2 hours? The mass market won't go for either.

The BSG report contained data that showed that 20% of UK households will not get more than 1Mbps even with LLU because of long copper loops. Is the BBC brave enough to behave like a business and shrug it's shoulders at the Digital Divide? Can it develop the service knowing that at least 20% of its license fee payers won't be able to get it?

Peer to Peer or Client Server?
It is too early to judge the Peer to Peer network, but we have taken some benchmark readings. These show that on Friday night - before most of the new wave of Betas had been activated - even the headline content (Top Gear) was coming directly from the BBCs servers.

Chart 1 - Top Gear Download, Friday 27th July at 8pm
BBC in Red, Peer on Virgin Cable in Blue

The black total line (total inbound bytes/time) is very close to the red bars (the bytes that came from the BBCs servers). The small blue line about half way through is a peer on Virgin's cable network that for a short period, contributed some data.

Saturday morning's kiddie TV also came directly from the core sites, but by the time Monday morning came along and many of the new Betas appeared online, there was much more interesting stuff to consider.

The red lines are again traffic from the BBC, while the black outline shows the total inbound traffic including the BBCs. The behaviour of the peer to peer network is shown clearly here.

Chart 2 - Mountain Download I, Monday 30th July at 10am. BBC in red

First a small volume arrives, which the application deems to be insufficient so it calls up the BBC to get things going. No sooner does this happen than a peer appears and starts contributing data. This peer can be seen as the blue line on Chart 3 below.

The throughput was low and I was unsatisfied with the speed so after about 500 seconds I paused the download and resumed it a few seconds later to see what would happen. Very interestingly, the BBC almost immediately begins filling my requirement. The lesson? If your download is slow, pause it and resume the transfer - you might get the BBC to notice you - although I'm not sure whether this is an intentional "design feature"...

In this middle period, the end of which is a second experimental pause, there is very little peer to peer traffic. After the second restart, you can see that the download begins to gather traction as the BBC gradually eases out to be replaced by the green line in Chart 3 which is a computer at Edinburgh University. The pink lines shows the aggregate of other peers within the sample.

Chart 3 - Mountain Download I, Monday 30th July at 10am
BBC in red, Loughborough Uni in Blue, Edinburgh Uni in Green, Others in Pink

iPlayer Kontiki P2P picks on key sources
That was the first part of Mountain. Because the wireshark output was getting rather large, I stopped again and started a clean trace. Chart 4 below shows that the Edinburgh peer dominates the traffic sources for the rest of the download. This very much fits with the overall pattern I observed, where the iPlayer seeks out the fastest single connection and tries to get as much as possible from that one source.

Chart 4 - Mountain Download II, Monday 30th July at 10am
Edinburgh Uni in Green, Peer on BT Central Plus in Blue

The final sample of iPlayer data was taken at peak internet viewing time on Monday evening. I downloaded the DanceX file which was by far the largest and longest playing. The first 5 minutes of the download are shown below in Chart 5. Again you can see an attempt to find peers is initiated before the BBC picks up the slack. This time, the release back to peers is supported better until Cambridge University gradually assumes almost the entire load.

Chart 5, DanceX Download, Monday 30th July at 8pm
BBC is red, Cambridge Uni is Blue, Peer on Virgin Cable in Green

My connection as a peer
The other side of the coin is that the application uses my upstream connectivity to share files with other peers. This shows some curious behaviour that is worth looking at.

Chart 6 - Mountain Upload I, Monday 30th July 10am
Peer on PIPEX is Green, Peer on BT is Blue, Peer on Hi Velocity is Pink

It almost looks like the PIPEX and BT peers are fighting over who gets my bandwidth. The PIPEX peer is the first to become established before the BT peer comes along and demands the files. Then, like two children squabbling over a toy they play a game of tug-of-war before the BT peer seems to give up. Having "won" the battle, the PIPEX peer also seems to lose interest and eventually disappears.

Of course, the application may be designed to burst like this, but it does seem to end in a fairly inefficient use of the available resource. In spite of this, the moderately lengthy spikes are not great for aggregation by the ISP - if you think of the space used in a jar of pencils against a jar of marbles and you can probably picture what I mean.

Uploads continue even when off!
I'm not going to make too big a thing of this because my upstream usage is free - I pay for download usage only, but it is an application characteristic that deserves to be noted.

My traces have shown that in each case after the Top Gear and Mountain downloads completed, uploading activity to one peer has continued after you close the library and even after you close the application in the taskbar. The only way to stop this was to power down the PC...

I'll keep an eye on this and report again next time.

Ping & Traceroutes
A significant finding of my Monday downloads was that the majority of peer to peer traffic is coming to me not from within my own ISPs network, but from University networks throughout the UK. These are clearly on very high capacity connections, although their ping times were slower (~40ms) than the BBC sources (~30ms) that they replaced in my delivery chain.

Interestingly, both these are faster than round trip times to other broadband users on Zen's IPStream network (~65ms). Of course, Zen's servers are the first IP layer devices that the traceroute sees, but it seems to be quicker to interconnect with JANET and get to a university campus, than it is to remain on Zen and go back out their BT Centrals. Connecting to other subscribers on BT's Central Plus shows the same phenomenon (~80ms), the extra time being the interconnection time between Zen and BT.

This perhaps explains the fact that there are very few IPStream users acting as peers in my results. The majority of P2P is with users on University LANs and Virgin's Cable network. Pings to cable customers are blocked by Virgin, but up to the point where they are blocked, times are fast (~40ms) suggesting that those users are quicker to get to than other IPStream users on my ISPs network.

The scarcity of IPStream peers is good for BT and their wholesale customers, but Virgin is known to also be short of upstream capacity so the knock on impact my not be good for them. Cable peers are also among the first UK sites to pop up in Joost traces too.

Traceroutes of all the major sources of data show that Zen is taking delivery of the traffic at the LINX or MANAP peering points. LINX is where Zen interconnects with JANET who provide the UK university network backbone, and with BT. Interconnection with Virgin Cable seems to be preferred at MANAP.

The once exception I have noted is that a small amount of traffic was exchanged with a Hi Velocity subscriber - particularly on my upstream. Zen does not seem to peer with them as the traffic traces show these packets going through Cogent's network.

Comparing Kontiki and Joost
Unlike Joost, the iPlayer seems happy with a small number of high speed peers. Joost will try and reach out to as many as 4 sources simultaneously, with each of these responsible for only a small piece of the file. This is a clear advantage also for Joost's DRM because no one peer has enough of the file to make it worthwhile cracking.

Chart 7 - Joost Ferrari 340 Download, 11 July at 11am
Coloured lines show various peers, black is total download.

You can very clearly see how well structured the Joost P2P protocol is from this trace. This contrasts with the somewhat chaotic nature of the iPlayer traces. Each Joost peer seems to have a clearly pre-defined role, while the iPlayer Kontiki equivalent seems to be fighting with its sources as discussed above.

Looking at my connection as a peer on Joost, you can see the other side of the same equation. The green bars are my computer sending to a peer in Canada (via Time Warner Telecom), the red is to a destination in Norway (via Telia).

Chart 8 - Joost Ferrari 340 Upload, 11 July at 11am
Black shows total upload, Peer in Norway is Red, Peer in Canada is Green

By contrast, the iPlayer seems happiest with one very fast peers, such as the one on Edinburgh University's network that sent me 145MB of the total 267MB in the Mountain download.

It is almost certainly an over simplification, but Kontiki seems to be very aggressive at pulling in contributors - like the community do-gooder that we all know and love. As with that example, iPlayer peers seem to be reluctant to contribute and drop off before bouncing back when no-one else takes their place. It is really only the universities that want to share the iPlayer by the looks of things, perhaps because so much is demanded of volunteers who do step up.

Joost peers are much more distributed - everyone does a little bit, rather than one source getting burdened with the majority of the demand. This organisation is good enough to allow the Joost application to pause the download and wait until the buffer has been depleted before initiating further data downloads.

Although it is too early to draw conclusions on the iPlayer based on the first weekend's data set, it would appear that it has a lot to do to develop into a clean, controllable distribution mechanism like Joost clearly is already.

Designed to help ISPs?
In reply to my pre-launch post, Angus suggested that the solution was for ISPs to run the iPlayer on their own high speed servers, so as to serve all the traffic from within their networks.

I wonder whether the application is actually behaving as it is with the university networks because it is designed to work with the ISPs in this way. It may well be that a few fast peers on gigabit links at the ISPs data centre could well take responsibility for serving their user base - saving Peering costs if nothing else.

Zen at least, is not there yet. If / when they are, will the iPlayer prefer their sources ahead of those on JANET? The JANET response times are pretty good, but if anyone knows of ISPs hosting iPlayer servers, let me know and I'll run traces on their links to see...

Serving the traffic from within the network will eliminate the Peering cost, but it still leaves a significant backhaul element on the ISP. I will be looking into the commercial implications of the iPlayer in a final article on Friday, where I will also write up my overall conclusions.