Bandwidth caps a barrier to emerging Internet TV competition

EL SEGUNDO, USA: AT&T Inc.’s recent decision to implement broadband caps and charge extra fees for heavy data usage on wireless devices poses grave implications for potential media substitutes hoping to displace traditional TV, according to iSuppli Corp.

By discontinuing at the end of June its old phone plan allowing subscribers unlimited access, AT&T is seeking to limit the intensive data usage of smart phones such as Apple Inc.’s iPhone, as well as the new Apple iPad tablet. Going forward, however, the caps will make it difficult for any high-quality streaming application hoping to become a true TV substitute to get off the ground without the support of wireless operators.

“iSuppli believes that most of the emerging streaming Internet models are mistaken in postulating that they could displace, over time, traditional television and movie delivery mechanisms without paying for related network costs,” said William Kidd, director and principal analyst for financial services at iSuppli.

Meanwhile, new broadband subscribers worldwide are projected to rise in 2010 by 63.5 million, up 8.4 percent compared to total net additional subscribers of 58.5 million in 2009, affirming the ongoing strength of the broadband access market.

The figure shows the projected number of new broadband subscribers every quarter, spanning the first quarter of 2009 to the fourth quarter of 2010.Source: iSuppli, USA.

Last-mile providers still maintain tight grip on media recovery
Although broadband caps help properly price an access service for the small percentage of subscribers that take up a disproportionate share of network traffic—usually through their heavy use of data—streaming media presents unknown risks.
Such risks, Kidd believes, will compel broadband providers to increasingly implement caps in order to mitigate any long-term gambles that providers might have to take to make streaming media available to home and mobile environments.

At present, content can be streamed over TV from online service offerings such as Hulu and Netflix, or accessed through a device such as the PlayStation from Sony Corp. In addition, new-media business models continue to emerge with the introduction of new platforms that circumvent services currently provided by traditional cable or satellite pay-TV providers.

Kidd said that for the vast majority of data subscribers on a broadband network, caps will only become relevant if users viewed low-quality streaming media—say, a 200-kbps stream—on a wireless device for three hours, or if a standard-definition TV signal on a wired network was streamed for approximately 25 hours. By the same token, streaming a high-definition TV signal could put a user in cap trouble in just 7 hours on the wired network of Comcast Corp., the largest US cable operator and Internet service provider for the home.

Kidd also noted that although emerging new-media business models assume the Internet is changing the way people consume content—and in the process, creating an opening for content to be delivered and sold—all the models suffer from one basic weakness.

“These new-media business models imagine that they don’t have to pay the network through which their data traverse,” he said. “However, such a theory is directly at odds with the ambitions of cable and satellite-TV operators, which increasingly are unwilling to provide heavy data access through their networks for free—especially if a way can be found to monetize ongoing data traffic into viable revenue streams.”

In addition, new Internet-born content providers wrongfully take for granted that the way their largely free content has been consumed now also will apply in the future to premium services.

The assumption is a bad one, Kidd observed, because in order for consumers to consider the Internet as a true substitute for their big-screen TV, content would need to be comparable in both technical quality and entertainment value. And to achieve the same level of value, such content necessarily would be extremely bandwidth intensive.

As a result, for any number of these emerging TV-substitute models to work someday, one has to assume that the picture quality being proffered is acceptable for viewing on large-screen TVs.

“By implementing caps now that don’t impinge on the way subscribers use the Internet today, cable and telco operators are able to create for themselves an advantageous situation,” Kidd said. “Under these circumstances, emerging media competitors must work more directly with the network owners before getting their services off the ground—as opposed to around them, as they may have previously hoped.”

Source: iSuppli, USA.