ISPCON: Taking Advantage of Video

While most network operators are deciding how to allocate scarce bandwidth between customers, Cogent's founder and president, Dave Schaeffer, says that video is an opportunity, not a threat.

by Alex Goldman ISP-Planet Managing Editor [December 8, 2008]

What is video used for on the internet? Schaffer says that video content can be divided into categories. For high value time sensitive material, like the evening news and sporting events, satellite broadcasting works best. Satellite is best at "real time and one to many broadcasting."

The internet serves narrow audiences better. It is best at unicasting. Its use will grow as the price per megabit declines, Schaeffer said. I would add that the internet's will have more video to distribute as the price of digital video cameras declines.

So far, Schaeffer said, "there's no graceful interface between the TV and the internet. I think it's unrealistic to think people will spend 20 hours each week watching video on their monitor. There are proprietary devices (such as Apple's iTV, Slingbox, and others) but none are user friendly.

Business models supporting video content on the internet remain primitive. "The end user pays an access fee for the pipe but does not pay for the content. The content owner can make money based on advertising, but this model may or may not be the future."

The HBO model already works for cable TV. HBO is profitable. On the internet, music services that charge a subscription fee, such as Rhapsody, are not as successful as those such as iTunes that charge per download. "Pay per use could be the future."

The internet, Schaeffer said, is used when it is the lowest cost way to transmit information. "People only have so much time and they use a lot of the 168 hours in each week to eat and sleep."

The internet has already delivered a democratization of production. Anyone can make a video and upload it to YouTube. Schaeffer said that in the future, there might be studios for professional content intended for distribution over the internet, as other distribution methods capture a smaller and smaller amount of user time.

Making money
The global telecom market is worth about $1.1 trillion per year. Barely $1.5 billion of that goes to the upstream, he claimed. The vast majority goes to the local access providers.

Schaeffer said that there are three business models in local access.

• Among monopolies, he said, 27 companies worldwide get about $750 billion (c. 71 percent) of all spending.
  
  
• Facilities-based providers who own fiber get a piece.
  
  
• Rural fixed wireless networks get a piece. "The RLEC has monopoly power, and these rural fixed wireless networks compete with copper, not fiber. This market is not served by the global monopolies. In developing countries such as Vietnam and Ghana, the cellular networks capture this market."

Internet video and regulation
Regulation, Schaeffer pointed out, has distorted the market for voice on the internet and could in the future distort the market for video on the internet.

Regulation makes the following choices for voice services: urban users subsidize rural users, the voice business subsidizes the telcos' data business, business users subsidize residential users.

"These choices were politically expedient at the time," he said. "As a result, voice carriers charge more per bit than any data carrier can."

"If 100 percent of the world's voice traffic were carried over the internet, it would not move the needle on global bandwidth usage."

On the other hand, video could deliver a growth in bandwidth usage of 75 percent per year over the next six years, Schaeffer said.

The ISP business is deflationary. Every ISP has to deliver more to its customers at a lower price every year, while the phone companies charge $25 per month for the use of infrastructure whose costs were paid for 80 years ago under rate of return regulation. "They don't want the world to change," Schaeffer said. "We do."

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