How Net Discrimination Works (Or Doesn’t Work…)

Dailymotion

I'm increasingly puzzled by the net discrimination stance that a number of European Incumbents have started to push forward in the last few months despite mounting evidence that the "alternative business model for the internet" that they are pushing forward simply cannot work. I summarized my views a few months ago in a piece entitled The Slow Suicide of Net Discrimination. Now I'm looking for evidence that backs or disproves my thesis.

A few weeks ago, one of the players who has been vocal about establishing a Net Discrimination regime for the internet, France Telecom, gave us a wonderful example of this and a fun case study for me. Two things happened on the same week and the confluence of these two events made my cortex tingle:

  • AT Kearney released a study sponsored by European incumbents (including France Telecom) that recommended that a traffic tax be put in place for content and application owners accessing the networks of telecom operators.

AT Kearney released a study sponsored by Telefonica, Deutsche Telekom, Telecom Italia and France Telecom entitled A Viable Future Model for the Internet and subtitled "Investment, innovation andf more efficient use of the Internet for the benefit of all sectors of the value chain". I will probably post a full critical review of the study in a few weeks, but suffice it to say at this stage that the fact that it is sponsored only by telcos may cast doubt on the "all sectors of the value chain" assertion.

One of the key conclusion of this study is that internet traffic passing through telco networks should be taxed for the "model to be viable". The recommended tax is as follows:

  • 0,05 €/GB of fixed termination traffic
  • 3,03 €/GB of mobile termination traffic

Since the model is supposed to be viable and since France Telecom, that very same week, purchased Dailymotion, I thought it would make sense to apply these rates to an estimate of Dailymotion's traffic to see how "viable" the model was. 

First, the hard data:

  • Dailymotion shows roughly 1 billion videos per month (Source Dailymotion 2009)
  • The average video on Youtube was 10MB in 2007 (Source). I couldn't find anything more recent or specific to Dailymotion, but in all likelihood using this figure actually underestimates the size.
  • I couldn't find a source that stated the exact proportion or number of monthly videos served over mobile networks so I assumed 10%. (If anyone has any clear source for this, please share it and I'll run the model again). All the press releases about the 

Based on these numbers, Dailymotion would have to pay roughly €3.5m per month for distribution of its content. That's €41,76m per year.

Dailymotion's 2010 turnover was €18m. In other words, Dailymotion not only wouldn't be able to pay the tax if it was instituted, it would instantly go bankrupt. That's, apparently, what our European Incumbents define as a "viable future model for the Internet".

Additionally, this back of the napkin calculation raises an interesting question about France Telecom's intentions in buying Dailymotion. I can see one of two explanations: 

  • France Telecom doesn't believe that the model it's lobbying for is actually viable
  • France Telecom is trying to kill Dailymotion

Take your pick…