In Business Model, Internet Access, Mobile, Spectrum

Zero rating probably is going to wind up being necessary, or mobile data tariffs will have to fall precipitously, if video entertainment services move from linear to on-demand mode, and are delivered using mobile networks.

The existing TV subscription business model would not work at all, in most cases, if consumers had to pay for bandwidth charges in a direct sense. Even on fixed networks, which typically can provide internet bandwidth at far lower cost than the mobile network, the implied full cost of a video subscription–assuming half of all account bandwidth is consumed when watching subscription entertainment video–could be higher by about half the cost of the whole internet access subscription. Eventually, entertainment video is likely to represent as much as 80 percent of total consumed bandwidth.

Whatever your assumptions about the cost of fixed network internet access subscriptions, a simple shift of delivery from linear to on-demand, a fundamental change in mobile data charges must happen, as consumption of video on mobile networks costs as much as an order of magnitude (10 times) more than on a fixed network.

If consumption of a an hour of video consumes one to three gigabytes,  depending on video resolution, then the economics of a substantial switch to mobile, on-demand consumption will break the video business model.

If you want to know why some mobile video service providers consider  “zero rating”  so important, that is  why: if data consumption charges are required, the entertainment video model collapses.

There are clear business model implications. Consumers who watch “free, over the air TV” do not pay the provider for bandwidth consumed to deliver the services. Neither do buyers of linear subscription TV services.

The situation is a bit less clear for  “over the top” services, where there is no charge levied by the app provider, but the customer “pays” for bandwidth only in an indirect sense, for an internet access connection. But one business model “rule” is clear. Consumers do not expect to pay, and have not in the past, paid for bandwidth used to deliver their subscription TV services. They are not likely going to change preferences once most video moves to mobile, over the top access, either. 



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