Ofcom report on delivering video online
Ofcom commissioned a report that looked at 'Delivering high-quality video services online' as part of the regulators remit to stay abreast of what is happening in the market areas where it regulates and ensure its regulation will be appropriate.
The report is lengthy and covers a great deal of information that has been said before but brings it all together in one place, and crucially attempts to make projections as to what the various scenario's for growth of online video and the implications of these. The report had a number of recommendations for Ofcom which are:
- Demand for online video is growing and this growth is expected to continue, with streaming becoming the predominant method of video delivery in the future.
- Backhaul in broadband networks is currently a bottleneck, although LLU operators can exploit economies of scale to offer additional capacity at lower cost than bitstream operators.
- The access network may currently be a bottleneck to offering higher-quality videos, although the NGA investments expected from BT and Virgin Media show that the market is beginning to address this bottleneck.
- Technological solutions such as multicasting and caching can limit the impact of increased traffic, although caching solutions that require more intelligent servers closer to the end user face technical challenges.
- Business models are likely to evolve so that service providers can capture additional revenue from video services; at present, there is no clear, favoured model.
The report looks at how usage patterns of broadband users have changed from 2000 to now, and attempts to project them as far forward as 2018. This is where four scenario's are used in an attempt to model what may happen with broadband usage growth.
- First scenario predicts a gradual increase in online video content, i.e. a natural evolution of what is going on today.
- Secondly a large increase in online and on-demand TV with the bulk of users on a couple of providers, thought to be likely.
- Third scenario is as per the second, but a much more fragmented number of providers.
- The final and fourth (and perhaps worst case scenario) is that almost all TV is online and on demand.
To assess the usage impact, the most important time to consider is the busiest hour of the day, as this is when users have the least amount of capacity available to them, back in 2000 this amounted to around 5-6Kilo bits per second, and a gradual increase to the current 24Kbps (2008) was seen. Scenario 1 represents an increase to 300Kbps per household in 2018, two and three are 950Kbps and the extreme scenario suggests 2Mbps (2000Kbps) will be required.
Under the current BT Wholesale IPStream product 1Mbps of capacity costs around £80 a month, which is not cheap. In the past this has lowered slightly, but IPStream is slowly being sidelined in favour of 21CN so is now gradually rising in cost. For bitstream providers relying on BT Wholesale the Mbps cost of 21CN products will be critical. While 21CN is being rolled out the cost savings are not massive, mainly incremental, but once 21CN reaches a size where economy of scale comes into play the cost per Mbps may fall to prices closer to what LLU operators pay today.
For those who don't want to get the calculator out, the report estimates that average broadband usage over a month is 5.2GB at the end of 2008, based largely on data from Plusnet (6.75GB per month) and TalkTalk (2.5GB to 3GB), based on the scenarios this will rise to 63GB through to 140GB a month by 2018. The reality we think may be higher, as it is not just video content that is being downloaded, but games consoles are moving at a rapid pace towards downloads being the main delivery method for games which are then stored on local storage, rather than optical media. Game downloads can vary from 0.5GB through to 15GB.
The key to ensuring that video and other broadband based services do not stall, is therefore for Ofcom to ensure that BT based wholesale products have a competitive price per Mbps of backhaul capacity. Without any reductions we are looking at a cost of £100 per month to support what may be the average usage pattern by 2018. History so far has shown that Ofcom walks a tight line between upsetting BT or upsetting its competitors. A too low price from BT leaves the competitors little scope for deploying their own products such as LLU, but a price that is too high for BT means overall take-up of new products will not provide a critical mass for it to be worth competitors investing. With around 70% of the UK having a competition between BT Wholesale and LLU operators, BT is likely to reduce its prices to avoid total removal from the market in that area, but the other 30% of the UK will be reliant on careful and timely regulation from Ofcom to ensure that they not paying unfair prices.