The AT&T recent decision to implement broadband data caps and charge extra fees for heavy data usage on wireless devices poses grave implications for over-the-top (OTT) video service providers, according to the latest market study by iSuppli Corp.
By discontinuing its unlimited access plan, AT&T is now seeking to limit data usage of smart phones. The data caps will make it difficult for any high-quality video streaming application -- without the permission and support of wireless operators.
"iSuppli believes that most of the emerging streaming Internet models are mistaken in postulating that they could displace, over time, traditional television and movie delivery mechanisms without paying for related network costs," said William Kidd, director and principal analyst for financial services at iSuppli.
Meanwhile, new broadband subscribers worldwide are projected to rise in 2010 by 63.5 million -- up 8.4 percent compared to total net additional subscribers of 58.5 million in 2009.
At present, video content can be freely streamed to a TV from online service offerings such as Hulu and Netflix, or accessed through a device such as the PlayStation from Sony Corp.
Kidd said that data caps will become relevant if any user viewed low-quality streaming media -- say, a 200-kbps stream -- on a wireless device for three hours, or if a standard-definition TV signal on a wired network was streamed for approximately 25 hours.
By the same token, streaming a high-definition TV signal could put a user over the data cap in just 7 hours on the wired network of Comcast Corp. -- the largest U.S. cable operator and Internet service provider for the home.
Kidd observed, in order for consumers to consider the Internet as a true substitute for their pay-TV service, content would need to be comparable in both technical quality and entertainment value. Apparently, some broadband service providers may attempt to ensure that this will not be possible, thereby limiting the growth of OTT services.
"By implementing caps now that don't impinge on the way subscribers use the Internet today, cable and telco operators are able to create for themselves an advantageous situation," Kidd said. "Under these circumstances, emerging media competitors must work more directly with the network owners before getting their services off the ground -- as opposed to around them, as they may have previously hoped."
However, does this "operator gatekeeper" scenario add credence to the FCC's previously stated net neutrality concerns? Also, will other parts of government, such as the U.S. Department of Justice, consider these methods as a "restraint of trade" practice -- essentially in violation of American law? We'll have to wait and see.