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Wholesale Mobile Data - UK Cross-Carrier Trial

We’re delighted to be welcoming back Andrew Bud to stimulate the 6th Telco 2.0 Executive Brainstorm in May. Andrew is Chairman of a large transaction network (mBlox) - important players in future Telco 2.0 ecosystems - and also Chairman of the Mobile Entertainment Forum.

He is currently in the middle of a cross-carrier trial in the UK on a ‘sender pays data’ concept (you’ll here more about this at Mobile World Congress in a few weeks). In May he’ll be exclusively sharing some of the results, to stimulate the debate on new telco wholesale services, a key plank of the Telco 2.0 growth opportunity.

To understand what ‘sender pays data’ means and why it’s important, here is a video of Andrew’s presentation from the last Telco 2.0 event in November 08, modestly entitled “Saving the Mobile Internet”. Below that a summary:

Sender-Pays Data: Saving the Mobile Internet - Summary of Andrew’s presentation:

We’re looking for the next wave of mobile content; it’s the post-ringtone world.

There’s a world-wide customer dread of data charges - it essentially throttles all forms of content, including advertising. Explaining operator data charges as part of a product promotion is extremely difficult; you have a choice between waffle and dishonesty. The length of the warnings required makes them extremely user-hostile, too.

But this is before we reach the broadband incentive problem; traffic overtaking revenue, with the added twist that the ringtone business, once a $12bn cash cow, is collapsing. Worse still, although some services hit physical limits in terms of consumption quite quickly, Internet access isn’t like that. And mobile networks have fairly hard limits on maximum bandwidth.

Is the answer sender-pays data? This has a long history - Rowland Hill invented it to create the penny post in the nineteenth century in the UK. Before Hill, post was paid for by the recipient, and people hated the uncertainty this created. There were also great opportunities for fraud. Hill’s simple idea was for the sender to pay, with one price, using a stamp on the envelope.

This spread - in 1865, the ITU was created and with it the termination regime, a sender-pays system. Amazon.com has done this twice now - with its products, at launch, and later with the Kindle. In the UK, broadcasting became sender-pays in 1991 with the privatisation of the IBA and in 1997 with the sale of the BBC transmitter network.

Upstream content providers would buy data from the operator for their content, which would then be exempt from charges to the customer. Revenue therefore scales with demand; users are reassured. The iPlayer crisis has awoken us to the problem; in 2009 there’s a major trial of sender pays data with four networks in the UK. Can you afford not to do sender-pays?

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Ok, interesting concept. It is interesting for the ringtone type content. You buy content and for the price you paid, you don't get any extra data charges from your telco.

However contrary to what Andrew tries to make you belief this is not the way to save the telco from the ISP's fate.

First of all it's a misconception that ISP's don't make money. Free in France is an excellent example of how you can become rich and innovate as an ISP.

The big problem with this idea is that it only works for content with a clear revenue model. And only with a clear revenue model that somehow involves the Telco. The webpage you're currently looking at is an example. STL/Telco2 wouldn't like being charged per page by yodafone plc. for the fact that a user of Yodafone looked at the Telco2 blog. And it certainly wouldn't like to pay extra because that user just happened to be using a mobile. It would balk even more if it would be charged extra extra because it is a Yodafone moblile LTE customer in Germany. Just think of the pricing madness that we would see if every network in the world would have the pleasure of setting its own prices for the incoming traffic it receives. Prices that would be paid by someone it doesn't have a contractual relationship with.

Even though the network may think that there are extra costs in delivering data on mobile nets, this doesn't mean that someone that isn't its customer needs to carry this cost. Its the user who has the pleasure of using a mobile connection in Germany. Its the user that will need to carry the cost.

For regulators a model with termination costs will result in yet again a terminating monopoly with associated regulatory costs.

So Telco's, if you want your customers to use mobile data don't expect the youtubes and flickr's of this world to pay whatever arbitrary bill you can think off.

The challenge is simple: A Korean living in London wants to wathc Korean soaps on her mobile while driving the tube from and to work. How can she do that, without Korean TV needing to have a business relationship with the British network provider.

Very well written, Rudolf, but you seem to be displaying the outrage we so often see in the Internet religious zealots, who elide the supposed impracticality of the solution with the negative effect it would have on those who currently free-ride.

I'm afraid you're showing a poor understanding of the business model you are mocking. You say "Just think of the pricing madness that we would see if every network in the world would have the pleasure of setting its own prices for the incoming traffic it receives". But this is exactly how the successful, multi-billion dollar application-to-person bulk SMS business actually works!!!

Whether I'm a zealot or not is up to the reader...

I started off with saying that it's interesting for the ringtone type content. This is content that a consumer knows will cost money. Currently the user doesn't know the so called download charges that may apply when downloading a ringtone. A ringtone being only small, the cost associated is not too heavy. For moving pictures however the charges move up real quickly and become such that the end-user can't oversee them anymore. The solution mBlox is providing will solve this. The consumer will see: House MD Episode for Mobile '$5 (no download charges)'. I do belief this can work and I expect to see much of it. (I also have wondered for ages why operators didn't do something about those pesky download charges as it was only making it more difficult for end-users. However where there is mist there is margin)

I am not mocking Andrew, I am taking issue with some of his statements where he is expanding the applicability of his solution to the ISP world. His concept is very well known and well researched. It is found to be not as applicable to use cases outside the use case mentioned above here. The main reason for this is the existence of a terminating monopoly. Despite the best efforts of some countries in the ITU and GSMA Sending Party Pays is not the norm in the data world. Bill and Keep (Peering and Transit) is the norm and for good reason: It leads to a dynamic market and one where each party can influence its own costs regardless of the opinion of others in the chain.

There are very good reasons why the European Union is taking issue with terminating fees. They are detrimental to competition in the industry. At a recent session on Calling Party Pays organized by Encore in the Netherlands, three economists agreed that CPP is detrimental to the development of competition.

Andrew Bud sent in this comment for Rudolf:

This is a very cogent argument indeed. What I think it neglects is the fact that value, cost and charging are beginning to move badly out of alignment in the ISP world.

As long as consumers were accessing valuable services - such as email, web information and music file sharing - that were effectively free and generated little end-point economic value, they were happy to allow Access to bill as a proxy for the aggregate value consumers were receiving from these services. The access costs were quite low, so the billing/cost relationship worked.

To give a sense of scale, in 2006 consumers spent $100bn on access, but only $34bn was generated by the endpoints through advertising and subscriptions. However as we move towards a world of richer, more valuable content and experience, more and more of the value will be created and realised at the end-point - either through more valuable advertising slots, subscriptions or public service licence fees.

Proportionately far less value will be recognised to the Access provider by the consumer, and this just as all this rich media imposes significantly growing costs on the Access networks.

The problem then becomes, how to transmit enough of the end-point value across the system to the access networks, so as to finance their contribution to the end-to-end delivery requirement?

The current system fails to accomplish this. Sender-pays data is only one of the solutions, and indeed it suffers from exactly the defect described. But it is simple and it works, as has been proven by the global telephone and postal networks which operate on this basis. I think what is key is that not all content should be subject to sender-pays charges: recent work done by Will Page and me on the statistics of the long tail [see article in this blog] suggest that the economic value in the tail is very low, although the consumer perception of value from extensive choice may be much greater. Therefore there is no downside in Access Networks allowing consumers free and unfettered access to about 90% of content on the internet, whilst applying charges - on a transparent and non-discriminatory basis - to the few big generators of traffic, cost and value.

This will create a basis for continued competition for consumers between Access providers. The problem of applying competitive pressure to the termination charges levied is a tough one, but I would argue that in an increasingly multi-channel world, competition arises not between access providers but between alternative means of access.

If the fixed ISPs collectively levy punitively high termination rates, maybe content providers will only deliver via mobile broadband. Even more effectively, the content providers may make explicit the cost levied by the consumer's ISP, either through broken-out delivery charges or reduced quality of service to consumers of certain access networks. Either way, the fact that termination charges impede competition should not prevent the development of a dynamic and successful industry - exactly the same issues and charges have applied to the global credit card system, which has been subject to the same criticisms, yet that has not prevented the rapid creation of a highly effective, global payments mechanism with huge benefits to consumers worldwide.

Small flaws should not be allowed to prevent big steps forward.

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