Original URL: http://www.theregister.co.uk/2007/08/14/bbc_iplayer_isp_analysis/

iPlayer Politics: Behind the ISPs vs BBC row

Investment at gunpoint

By Jeremy Penston

Posted in Broadband, 14th August 2007 13:10 GMT

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.

Political goals

Is the iPlayer a Trojan horse? This is also taken from the MIA: "The additional capacity would also be available for use by a wide range of other services, including commercial on-demand services, [so] it would not necessarily be appropriate to attribute the associated costs to the BBC services in isolation."

The iPlayer brings a critical mass of IPTV content onto the new medium. It provides a platform for R&D to deliver a technically efficient platform for the delivery of all IPTV but for the industry, the project only makes sense if it leads to a standard way of distributing IPTV.

Whether that is P2P + Caching or Multicast to Storage, the resulting platform would then be in place to also allow commercial television distribution over the internet. Can you imagine each different channel having its own way of doing things? No, technology requires standards because users then have certainty. Once you have users, you have commercial opportunities.

Commercial stations can, of course, generate income from advertising and ITV, for example, is well placed to increase the 20 pence or so it currently receives per broadcast viewer hour through targeting. Because internet TV knows who its customers are, where broadcast does not, it reduces advertising wastage. The ability to target adverts delivers a tangible economic gain and at least some of this gain is then available to the ISP as a revenue share. This helps pay the £831m bill.

The iPlayer could be the platform around which standards are set for efficient IPTV distribution, but this is not how it is playing out. Right now, it's a bit of a mess - the service is below average and the network is worse, although the content is great. Oh yes, and the ISPs are preparing for war because they have been backed into a corner.

If the iPlayer project does not help drive these standards decisions, TV will remain on existing platforms and these economic gains will never be realised. Given the lack of any other economic benefit from the launch by the BBC of a free iPlayer, if standards are not arrived at, the launch will have been a miscalculation. The fault for this would rest with an over-ambitious Ofcom, not the BBC.

Jeremy Penston is managing director of The IP Development Network [blog] founded in 2005. He was previously responsible for the strategic planning and product management of the full range of internet and telco products from dial, through broadband, dedicated access, hosting, security, voice and VoIP services at several companies, including Pipex.