Report: QOS Fees Could Net Billions
“There is money there for broadband network operators to capture, but they have to follow the right strategy," says Simon Sherrington, author of the report, "The End of Net Neutrality: An Economic Analysis." The right strategy could open up a market worth more than $2 billion per year without causing customer losses.
In charging for what used to be a free ride on broadband networks, carriers can follow two distinct business models. One is to sell higher tiers of service to content owners that need guaranteed fast, high-quality delivery of their packets. Carriers could charge based on the number or size of downloads, or based on the type of content accessed.
The second business model involves allowing content providers to "cache" content within the local access network. In this case, the carrier has end-to-end control over service levels because the packets originate and are delivered within the same network.
In the caching model, the content owner might connect its own caching servers directly to the access network, or it could get a third party like Akamai Technologies Inc. (Nasdaq: AKAM) to host the content on local servers. Either way, the broadband provider gets paid each time the public consumes the content.
But consumers can also be billed for applications that require higher downstream and upstream bandwidth. Gaming and file sharing are two applications that several service providers are looking to tap for more revenue.
Of course, there is a drawback to carriers charging ahead to grab at the billions that QOS fees might bring them: customer churn. "Once you start to question how they might actually try to impose those charges, you realize that it is not a straightforward thing for them to do,” Sherrington says.
If the pricing is too high, bandwidth-dependent Internet companies -- which already buy hosting and network services on an enormous scale -- such as MovieLink LLC, Vonage Holdings Corp. (NYSE: VG) or Yahoo Inc. (Nasdaq: YHOO), might look for alternative ways to reach consumers. (See Google Execs Tentative on Telecom.)
Charging for certain kinds of applications might also cause the broadband provider to look expensive to its consumers, "unless it introduces a clever pricing system encompassing lower subscription fees and volume-based charges," Sherrington writes in his report. “The impact of customer churn is potentially very high in comparison with the revenue that could be generated."
— Mark Sullivan, Reporter, Light Reading
The End of Net Neutrality: An Economic Analysis is available as part of an annual subscription (12 monthly issues) to Light Reading Insider, priced at $1,350. Individual reports are available for $900. To subscribe, please visit: www.lightreading.com/insider.