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Thursday, July 06, 2006

Sky Gazing

James Enck is first out of the blocks (again) pointing to a study by the IP Development Network showing the coming download gigabyte crunch and the devasting impact it could have on the UK ISP industry structure.

I’ve been banging on about how much unicasting is costing the BBC and how they will have to move to more efficient multi-casting very soon, because their business model currently sucks and doesn’t scale. Both the BBC and BSkyB have experimented with a P2P product for video download, but unfortunately all this does is push the costs to the ISP or, if they moved to consumption charging, the end-user. The End-User will then start playing the “free rider” game and the p2p architectures has the potential to fail.

The study also shows the disadvantage that BT Wholesale resellers face compared to the LLUers. A 50 Minute Album with MP3 encoding costs the resellers 14p vs 1p for the LLUer. The situation gets dire for fat HD-TV which costs £21.13 for the reseller vs £1.07 for the LLUer.

If I was BT Wholesale, I’d definitely be designing a content caching system for multi-casting video content for each of the main unbundled exchanges and selling it to the resellers & content providers. It would definitely kill the business models of the LLU wholesalers before they get started and improve performance of BT DSL products (most importantly for BT Retail) compared to all the LLU competition. They only have to roll out the product to the main 1000 exchanges or so which have been unbundled. In the rest, BT can just keep the IPstream meter rolling…

Once, the content caching system is up and running and seeded by BBC, YouTube and the rest, Phase II of the scheme would kick-in. I’d then go to all the commercial companies ITV, Channel4, local radio stations and offer the multi-casting service with an added twist - targeted advert insertion based upon the local exchange. Someone has to do it before Google collects all the cash.

The company to watch is the daddy of content, BSkyB, when they launch their broadband product which is rumoured to only be a couple of weeks away. BSkyB understand the video user consumption patterns much better than anyone else and have bought a lot of engineering talent with Easynet. While I believe the architecture that BSkyB will design will be efficient for delivery, the system will also leverage their mega-advantage in content, almost certainly be a loss-leader subsidized by the Sky monthly charges and come with a beautiful (and expensive) home gateway.

I also believe the biggest target on BSkyB’s radar is ntl/telewest: people should look for a BSkyB doing a deal with BT Wholesale which mean people can come off the ntl network and back onto the BT copper network. A loss of around 10% of ntl’s customers would cause ntl the sort of pain that Rupert Murdoch likes to inflict on his opponents.

The cynic in me would say that timing is perfect with Tony Blair due to retire at about the time ntl is going to start screaming foul to all and sundry. It will take another year for OFCOM to dust off their calculators and get a terms of reference. At this time, both of the potential next leaders of the UK will need Murdochs support to get elected ;-)