Friday, September 9, 2011

How to charge for video? part 3 - Pros and Cons

Here are the pros and cons from the methods identified in the previous post.

Unlimited usage
Customer friendly, good for acquisition and churn reduction
Hard to plan network capacity
Will be a real differentiator in the future
Expensive, if data usage continues doubling on a yearly basis
Fair Limit
Provides some capacity planning
The limit tends to change often, as the ratio of abuser vs. Heavy users goes down.
Hard Cap
No revenue leakage
Not customer friendly
Easy network planning (max capacity needed = max number of users x caps)
Does not allow to capture additional revenue
Hard cap with overage fee:
Can be very profitable with a population that has frequent overage
Many customers complain of the bill shock.
Soft cap
Customer friendly, easy to understand
Not as profitable in the short term
Soft cap with throttling
A better alternative to hard cap in markets where video usage is not yet very heavy
Becomes less and less customer friendly as video traffic increases
Speed capping
Very effective for charging per type of usage and educating customers
Requires sophisticated network (DPI + Charging + subscriber management)
Application bundling
Popular in mature market with high competition, where subscribers become expert at shopping and comparing the different offerings.
Complex requires sophisticated network, requires good understanding of subscriber demographics and usage to maximize revenue
Metered Usage
Very effective way to ensure that capacity planning and revenue are tied
Not very popular, as many subscribers do not understand Megabytes and how 2 minutes of video could “cost” from 1 to 10 times .
Content based charging
Allow sophisticated tariffing that maximizes revenue
Complex requires sophisticated network, requires good understanding of subscriber demographics and usage to maximize revenue. Technology not quite ready.
Time of day charging
For operators who have a “prime time” effect with peaks an order of magnitude higher than average traffic, an effective way to monetize the need to size for peak.
Not very popular. The network is still underutilized most of the time.
Location based charging
Will allow operators with “hot spots” to try and mitigate usage in these zones or at least to finance capacity.
Most subscribers wont accept having to carry a map to understand how much their call/video will cost them.

As with many trends in wireless, it will take a while before the market matures enough to elaborate a technology and a business model that is both user-friendly and profitable for the operators. Additionally, the emergence of over-the-t0p traffic, with now content providers and aggregators selling their services directly to customers, forces the industry to examine charging and tariffing models in a more fundamental fashion.
Revenue sharing, network sharing, load sharing require traditional core network technologies to be exposed to external entities for a profitable model where brands, content owners, content providers and operators are not at war. New collaboration models need to be thought of. Additionally, while the technology has made much progress, the next generation of DPI, PCRF, OSS/BSS will need to step up to allow for these sophisticated charging models.


Dean Bubley said...

Hi Patrick

Interesting post & one I'd broadly agree with.

Couple of points - I don't believe that application-bundling is feasible in reality, as the network's view of what an "application" is can be very different to the device-side view, or the user's perception.

For instance, if I view a YouTube video, embedded on a web page with comments & other HTML, rendered wholly inside my Facebook app (with blue banner visible the whole time), then what application is it?

I'm also slightly intrigued by the content-based charging. How would SD vs. HD charging cope with adapted bitrate streaming, where the app can alter the resolution every 5 seconds?

Dean Bubley

Patrick Lopez said...

Hello Dean,

you are absolutely right. browsing the youtube web site, the youtube app or watching a youtube embedded video in a Facebook page can have different implications from a technical standpoint, while the service delivered is essentially the same.
As per one of your posts, using google maps as a subscriber or having an application using google maps for location services is currently largely transparent to the operator today.
This is what I meant by my last comment in this post. To enable sophisticated, intuitive charging models, we will need more intelligent, context-aware engines, that are able to interpret layer 7 traffic.

On your second comment, HD and SD can benefit from adaptive bit rate, while staying within their definition. One has to make sure that the lowest quality HD is still superior to the highest quality SD for an effective model to be implemented. It is a matter of putting the correct boundaries to the adaptive bit rate mechanism.

Christian Gabetta said...

Dear Patrick,

Nice article.
Mobile Operators understand how to sell to the end users but how to sell or partner with content provides has been a challenging experience.
Until now MNOs have been focusing their investments in Core Network products like DPIs, Optimization Platforms, Policy Management Systems, etc to ensure their precious radio access network resources were used efficiently.
Charging models has always remained relatively simple based on volume, time or simple capped bundles.

Mobile Operators will need to examine how to enhance their Charging systems in order to allow content provides to have access to it to purchase capacity/bandwidth that they will bundle with their own content and they will resell directly to the end user.

My observation is that charging models will evolve to allow content provides to purchase bulk of traffic from mobile operators that they will bundle with their content and the network access costs. Content providers will then resell the package to the end user as a single compound.

Let me give you and example: “User A” with a dongle or table with a 3G/4G data plan allows him/her today to gain access to the Internet with a monthly cap of 2 GB.
This user might be willing to rent a movie or his favorite series from the online video portal rental services but today charging models are not aligned with it due to the fact that one or two movies will consume the whole monthly allowance.

The user needs to have ubiquitous access without the need to be worried if the network used is 3G/4G, WiFi or something else.

The price paid by the user to view the episode or the movie should include the rental fee and the network access price. Please note that the viewing of the movie should not be deducted from the 2 GB monthly subscriptions.

The content provider would be charging for the full amount to “User A” and the content provider will pay the Mobile Operator for the use of their network.
Please also note that mobile operators should also provide more relevant information to the content provider like location of the user, access network type, device capabilities, radio environment characteristics, etc.

This kind of charging model is user friendly, allowing the consumer to pay for the content without the need to be worried about the access network or the costs associated to it.

Christian Gabetta

dez said...

Hi Christian. Hope you are well. What evidence do you have that content providers will pay operators for these large chunks of bandwidth out of allowance? It didnt happen in fixed unless you count providers own tv / video services as such. Do you assume ubiquitous LTE as a method of providing such hefty lumps of bandwidth to OTT players in an economical manner? Would be interesting to see the numbers behind this proposition in terms of cost operator needs to sell a HD film at versus price a premium movie provider for example would pay to deliver it OTT. Finally. What tech proof points do you think both parties would use to settle? Sorry, to be more of a questions man than opinions man on this point. interesting debate though.