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iPlayer Politics: Behind the ISPs vs BBC row

Investment at gunpoint

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Analysis ISPs including Tiscali and Carphone Warehouse reportedly want the BBC to help pay for bandwidth incurred by usage of its iPlayer. But what's the real power play?

It is no surprise to find these two at the head of the queue to complain about the iPlayer. They have been the most aggressive participants in the broadband price war over the last two years and are now finding that their cost models do not stack up as content volumes grow.

Infrastructure limitations

For all the talk of Local Loop Unbundling (LLU), we must note that 61 per cent of the UK's broadband subscribers are still connected using BT Wholesale product IPStream. Increases in traffic from the iPlayer will have a very serious effect on the ISPs' bottom line because IPStream pricing is so sensitive to usage.

There is a choke point right here, right now because an hour of iPlayer video downloaded at peak times would cost on average 67 pence. This has focused the minds of the people running the UK's ISPs because that 67p is too much to absorb, but also too much for most consumers to pay. The service is just not worth it for all but the most irregular viewing.

Only 16 per cent of the UK's broadband base is on LLU, but this is the only network architecture that can cope with the iPlayer and other internet video services. It would be misleading to come up with a comparable cost per hour for the iPlayer on LLU because it is so sensitive to geography, population density, market share and average utilisation of other services, all on an exchange by exchange basis. It would, however, be true to say that on a reasonable sized network the equivalent cost is many orders of magnitude lower than on IPStream.

There is, of course, a further 22 per cent of broadband connections on Cable, where controlled catchup TV is already available. The issue with the iPlayer on Cable is very different - the application is out "in the wild" and not under the control of the network. The iPlayer uses upstream bandwidth through its Peer-to-Peer (P2P) architecture, which hits Virgin Media's network where it hurts the most. As a result, Virgin is working with the BBC on its own mechanisms to deliver the iPlayer to Cable broadband subscribers.

An intended consequence of regulation

All this was known before the iPlayer was launched - the ISPs were involved in the consultation - and still Ofcom approved the service. Its Market Impact Assessment (MIA) estimated that the cost of the broadband capacity required to support iPlayer services could be up to £831 million. So why did the industry regulator allow the service to launch, knowing the economic cost was so high?

It may well be that Ofcom wants to use the iPlayer as a battering ram, forcing a further wave of investments by ISPs in LLU Networks. On the consumer side, the iPlayer might be seen as a strong incentive to switch to an unbundled service.

ISPs using IPStream are forced to charge their customers extra to use the iPlayer. ISPs who have made their reputations for being cheap do not want to find themselves punishing usage - hence the push to get the BBC to pay. This will not be forthcoming, so there is little alternative but to invest defensively in more LLU to make the iPlayer cost effective.

For the average consumer, there has been little incentive until now to switch to an LLU-based service. For sure, you could save a few quid, but now we are looking at a very different carrot and stick. If you are not on LLU, the iPlayer is barely accessible - priced to be unattractive or throttled to a painfully slow speed. And yet the BBC's content is attractive - if anything is going to get people to switch away from IPStream and onto LLU, the iPlayer is it.

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