A couple of years ago, I moderated a panel session at a conference on broadband business models and "traffic management". It was one of the many sessions the industry offers about the old cliche of "Telcos vs. OTTs".
(Obviously, we know now that this is an arbitrary, fatuous and meaningless distinction - most telcos are also so-called OTTs, and some OTTs are also telcos)
This panel, however, was a little different, as I had two senior executives participating from very different perspectives. One was from Deutsche Telekom, looking after wholesale. The other was the head of global alliances for YouTube. For once, I thought, we might actually be able to find some common ground, rather than rehashing old arguments. There were also a couple of vendors represented, coming from policy/DPI and charging angles.
This was not to be. The DT guy was the first speaker, and he launched into what could only be described as a lecture entitled Jurassic Telco 101. It was a full-on, dino-tastic tirade about "putting their data on our pipes", referencing what was then an attempt at persuading the EU to levy what was being called a "Google Tax". It pre-dated the more recent and equally-incoherent nonsense from ETNO and ITU WCIT about some proposed "termination fees" for Internet data, amounting to the largely same thing.
I'm pretty sure even the PCRF folk raised an eyebrow or two - they were pushing the more-common (and more reasonable) line about offering paid premium QoS for Internet companies. The DT guy was uncompromising, and was insisting that Internet companies should pay again for what already worked perfectly well - and what already was being paid for by DT's retail customers: best-effort (and capped) Internet access.
Initially, the YouTube speaker's response was what could be expected - a polite reiteration about how the Internet worked, and that part of the value that DT's customers paid for was the ability to access services like YouTube.
In the spirit of reconciliation, I proposed another suggestion - that maybe telcos like DT could help YouTube earn more money, either by QoS encouraging more viewing of content/ads, or by better advert targetting using customer databases, or other mechanisms. And that if they could prove to YouTube that they were responsible for revenue uplift, they deserved a share of the incremental extra.
In other words, a monetisation model could exist - but it would be based on sharing (attributable) revenues rather than ascribing an arbitrary fraction of (shared) costs.
When I floated this idea, the YouTube guy appeared interested. While clearly not jumping into offering money, he certainly didn't dismiss the idea - as makes perfect sense. Which business person would not consider paying a commission or bounty to a third party that can increase revenues without cannibalisation risk? Obviously there is a negotiation to be had, but in this case Google already has a model of affiliates, who get paid a share of revenues linked to click-throughs.
The DT speaker, however, was intransigent, even when it was pointed out that only a fraction of Google's video traffic is actually monetised. (It is very difficult to place adverts in true long-tail content).
But despite that ante-diluvian stance, since then I've firmly believed that many deals between telcos and Internet content/app players would fall into this "distribution" model: operators can help improve reach, billing and uptake of (paid) OTT services, and that they would receive a revenue-share as a result, based around success of that distribution partnership.
Interestingly, DT itself seems to have shifted significantly to that mode of thought as well. It has announced various partnerships to offer paid OTT-style services to its customers as part of its bundles. For example, it is now offering Evernote premium access to its subscribers, as well as Spotify.
In this model, DT is paying Evernote and Spotify, not the other way around. I'm sure it gets a good wholesale price deal compared to users buying "retail Evernote premium" directly, but the net effect is the same. DT will be sending a cheque to Evernote, not the other way around. It is then up to DT as to whether it zero-rates the data traffic for its customers, applies QoS to improve the experience, or otherwise plays around with the delivery approach.
This is the model for "OTT monetisation" that seems to be working, not the "termination fee" or "paid QoS" models, nor the unworkable "1-800" model for apps, that I comprehensively demolished last year. A long list of Internet companies now works with telcos (fixed and mobile) to put their apps or content on-board the operators' platforms or phones: Skype, WhatsApp, Viber, Facebook and many others.
There is no evidence that any of them are paying "cold hard cash" for either access, nor QoS. Instead, they offer the telcos a bulk deal for distribution in-bundle, or a commission on premium-tier incremental sales. The operator either gets a more attractive bundle to win market share, or maintain premium pricing - or else gets a direct revshare on additional sales.
In other words, the balance of payments pretty much goes in one direction only. There may be a few other balancing items such as telcos' on-net CDN delivery of content, or some contentious peering/transit fees, but I have yet to see these at a level to reverse the money flow towards the network owners. Maybe in future, exposure of other - more useful - APIs, or provision of cloud-based enablers might help. But at the moment, telcos appear to be "net importers" with a sizeable trade deficit with the Internet, as I suggested a couple of years ago.
(Obviously, we know now that this is an arbitrary, fatuous and meaningless distinction - most telcos are also so-called OTTs, and some OTTs are also telcos)
This panel, however, was a little different, as I had two senior executives participating from very different perspectives. One was from Deutsche Telekom, looking after wholesale. The other was the head of global alliances for YouTube. For once, I thought, we might actually be able to find some common ground, rather than rehashing old arguments. There were also a couple of vendors represented, coming from policy/DPI and charging angles.
This was not to be. The DT guy was the first speaker, and he launched into what could only be described as a lecture entitled Jurassic Telco 101. It was a full-on, dino-tastic tirade about "putting their data on our pipes", referencing what was then an attempt at persuading the EU to levy what was being called a "Google Tax". It pre-dated the more recent and equally-incoherent nonsense from ETNO and ITU WCIT about some proposed "termination fees" for Internet data, amounting to the largely same thing.
I'm pretty sure even the PCRF folk raised an eyebrow or two - they were pushing the more-common (and more reasonable) line about offering paid premium QoS for Internet companies. The DT guy was uncompromising, and was insisting that Internet companies should pay again for what already worked perfectly well - and what already was being paid for by DT's retail customers: best-effort (and capped) Internet access.
Initially, the YouTube speaker's response was what could be expected - a polite reiteration about how the Internet worked, and that part of the value that DT's customers paid for was the ability to access services like YouTube.
In the spirit of reconciliation, I proposed another suggestion - that maybe telcos like DT could help YouTube earn more money, either by QoS encouraging more viewing of content/ads, or by better advert targetting using customer databases, or other mechanisms. And that if they could prove to YouTube that they were responsible for revenue uplift, they deserved a share of the incremental extra.
In other words, a monetisation model could exist - but it would be based on sharing (attributable) revenues rather than ascribing an arbitrary fraction of (shared) costs.
When I floated this idea, the YouTube guy appeared interested. While clearly not jumping into offering money, he certainly didn't dismiss the idea - as makes perfect sense. Which business person would not consider paying a commission or bounty to a third party that can increase revenues without cannibalisation risk? Obviously there is a negotiation to be had, but in this case Google already has a model of affiliates, who get paid a share of revenues linked to click-throughs.
The DT speaker, however, was intransigent, even when it was pointed out that only a fraction of Google's video traffic is actually monetised. (It is very difficult to place adverts in true long-tail content).
But despite that ante-diluvian stance, since then I've firmly believed that many deals between telcos and Internet content/app players would fall into this "distribution" model: operators can help improve reach, billing and uptake of (paid) OTT services, and that they would receive a revenue-share as a result, based around success of that distribution partnership.
Interestingly, DT itself seems to have shifted significantly to that mode of thought as well. It has announced various partnerships to offer paid OTT-style services to its customers as part of its bundles. For example, it is now offering Evernote premium access to its subscribers, as well as Spotify.
In this model, DT is paying Evernote and Spotify, not the other way around. I'm sure it gets a good wholesale price deal compared to users buying "retail Evernote premium" directly, but the net effect is the same. DT will be sending a cheque to Evernote, not the other way around. It is then up to DT as to whether it zero-rates the data traffic for its customers, applies QoS to improve the experience, or otherwise plays around with the delivery approach.
This is the model for "OTT monetisation" that seems to be working, not the "termination fee" or "paid QoS" models, nor the unworkable "1-800" model for apps, that I comprehensively demolished last year. A long list of Internet companies now works with telcos (fixed and mobile) to put their apps or content on-board the operators' platforms or phones: Skype, WhatsApp, Viber, Facebook and many others.
There is no evidence that any of them are paying "cold hard cash" for either access, nor QoS. Instead, they offer the telcos a bulk deal for distribution in-bundle, or a commission on premium-tier incremental sales. The operator either gets a more attractive bundle to win market share, or maintain premium pricing - or else gets a direct revshare on additional sales.
In other words, the balance of payments pretty much goes in one direction only. There may be a few other balancing items such as telcos' on-net CDN delivery of content, or some contentious peering/transit fees, but I have yet to see these at a level to reverse the money flow towards the network owners. Maybe in future, exposure of other - more useful - APIs, or provision of cloud-based enablers might help. But at the moment, telcos appear to be "net importers" with a sizeable trade deficit with the Internet, as I suggested a couple of years ago.
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