Friday, February 3, 2017

Line Between Managed Services and OTT is Getting Harder to Define

Managed services  are not the “internet,” a source of some confusion about the proper limits of
policy intended for one or the other domains. Managed services such as business access services are specifically exempted from “net neutrality” regulations. In the consumer arena, subscription video or no-incremental-charge “over the air” services also are managed services.

There are clear business model implications. Consumers who watch “free, over the air TV” do not pay the provider for bandwidth consumed to deliver the services. Neither do buyers of linear subscription TV services.

The situation is a bit less clear for  “over the top” services, where there is no charge levied by the app provider, but the customer “pays” for bandwidth only in an indirect sense, for an internet access connection. But one business model “rule” is clear. Consumers do not expect to pay, and have not in the past, paid for bandwidth used to deliver their subscription TV services.

Debate and confusion are likely to grow, as legacy linear video providers increasingly move into on-demand, over-the-top services themselves. Among the reasons for confusion: the same physical facilities and bandwidth can support internet access and managed services alike. That is virtually always the case for single-fiber access (fiber to the home) using one wavelength and time division. In principle, the services could be logically and physically separated using two or more wavelengths on the same fiber.

In fact, it is clear that the existing TV subscription business model would not work at all, in most cases, if consumers had to pay for bandwidth charges in a direct sense. The implied full cost of a video subscription--assuming half of all account bandwidth is consumed when watching subscription entertainment video--could be higher by about half the cost of the whole internet access subscription.

That might range from a minor annoyance to a bit of a problem on a fixed network, where usage caps are generous and per-gigabyte charges are low. The same cannot be said for mobile consumption.

On a fixed network, a $100 video subscription, consumed on demand, would have to cost about $125, assuming a $50 fixed network subscription and use of half that bandwidth directly by the video subscription.

That might not be a model killer; just a key impediment.

Where the model breaks down almost completely is consumption of that same video on mobile networks, where bandwidth costs as much as an order of magnitude (10 times) more than on a fixed network.

If consumption of a mobile gigabyte represents about an hour to three hours of video, depending on resolution, then watching one hour of video could cost nearly $10 to $30. That is unsustainable.

If you want to know why some mobile video service providers consider  “zero rating”  so important, that is  why: if data consumption charges are required, the entertainment video model collapses.

There are lots of other ways the business model is affected. Bundling policies and access rights, for example, affect the business model, as when access providers require the purchase of one service to use a feature.

Comcast, for example, has released a beta version of the Xfinity TV app for Roku, allowing Xfinity TV customers the ability to watch their TV content on a Roku box. That fundamental principle--granting access to the streaming product when a customer has a linear product account, is fundamental for Comcast: a clear way to protect the legacy product while creating the new product.

Among the implications: access to the streaming product is a feature of the managed service subscription. Think of that as a strategy akin to adding steam engines to a sailing ship, a hybrid stage in the evolution from sail to steam.

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