Low cost bandwidth always has been a prerequisite for commercial video networks, whether of the satellite, over-the-air TV or cable TV variety, and now for any internet service provider or telco (access or connectivity provider) that wishes to sell its own subscription video products.
The reason is simple and straightforward: video is the most bandwidth-intensive consumer application, by far. Text messaging and voice require use of almost no bandwidth, while video consumers nearly two orders of magnitude more capacity, for each minute of use.
H.264 Skype video conferencing, for example, uses four orders of magnitude (10,000 times) more bandwidth than Skype messaging, for example.
So revenue per bit and data consumption are inversely related: video consumes the most bandwidth, and produces the lowest revenue per bit for a connectivity provider, while text messaging and voice use the least bandwidth and produce the highest revenue per consumed bit.
Internet traffic is in between, with some apps consuming little capacity (email), some apps consuming a moderate amount of capacity (web browsing) while others are heavy capacity consumers (video).
Mobile networks have had cost per delivered bit an order of magnitude (10 times) higher than fixed networks, as well.
The point is that, in an era where 70 percent of traffic is video, revenue per bit becomes a major issue. That is especially true when the video is supplied by third parties, generating no direct revenue for the connectivity provider.
There are both supply and demand drivers of lower cost-per-bit performance. On the supply side, there is a tendency for communications cost per bit to fall towards zero, resulting in near-zero pricing.
Over time, better technology has resulted in networks that can deliver far-more bandwidth at far-lower costs. Moore’s Law, optical fiber, satellite and microwave platforms, hybrid fiber coax, digital subscriber line, better codecs and radios, better modulation schemes, radios and compression algorithms are some of the drivers of better performance and lower cost per bit.
But there also are demand issues. In an era where transport and access economics are driven by entertainment video, networks and retail pricing must be optimized for delivery of video, including video that has to be delivered without direct revenue earned by the ISP (third-party video).
And that dictates very-low-cost bandwidth platforms, as consumer propensity to pay is sharply limited. Any given household or any single consumer will only be willing to pay so much on all communications and entertainment services. That figure typically is single digits worth of income.
Developed nation consumers generally pay about 0.7 percent of gross national income per person for mobile internet access. Fixed network internet access, in developed countries, costs less than one percent of GNI per person.
All U.S. household spending on entertainment of any sort represented about five percent of household spending in 2017, according to the U.S. Bureau of Labor Statistics.
If about 37 percent of entertainment spending is for video subscriptions, then perhaps two percent of household spending is devoted to video subscriptions.
The point is that consumer propensity to spend on communications and subscription video is limited to relatively fixed percentages of income that do not change much, year to year. And that puts a cap on potential supplier revenue.
The implications for networks are obvious: platforms can only afford to spend so much on infrastructure, as there are limits to consumer willingness to spend on communications and subscription video.
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