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A man tries to get connected to the youtube web site with his tablet at a cafe in Istanbul March 27, 2014. The Turkish telecoms authority TIB said on Thursday it had taken an "administrative measure" against YouTube, a week after it blocked access to microblogging site Twitter. REUTERS/Osman Orsal (TURKEY - Tags: POLITICS CIVIL UNREST SCIENCE TECHNOLOGY) - RTR3IUSP A man tries to get connected to the youtube web site with his tablet at a cafe in Istanbul March 27, 2014. The Turkish telecoms authority TIB said on Thursday it had taken an "administrative measure" against YouTube, a week after it blocked access to microblogging site Twitter. REUTERS/Osman Orsal (TURKEY - Tags: POLITICS CIVIL UNREST SCIENCE TECHNOLOGY) - RTR3IUSP  

Online video competition’s tipping point just tipped

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Scott Cleland
Chairman, NetCompetition
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      Scott Cleland

      Scott Cleland is Chairman of NetCompetition® a pro-competition e-forum supported by broadband interests and President of Precursor LLC, a research consultancy for Fortune 500 companies. He is author of the book: Search & Destroy Why You Can’t Trust Google Inc.

What do Amazon, Verizon, Apple, Google, Microsoft and Yahoo all have in common?

They’re all actively preparing to enter the over-the-top online video business with their own streaming service or proprietary online programming to compete with Netflix, Hulu, and facilities-based pay-TV providers like Comcast, Time Warner Cable, DirecTV, Dish, AT&T, Verizon, and others.

Why all this new competition now?

Several big recent changes have converged to create a tipping point for new broad scale, over-the-top (OTT) video competition.

The FCC made clear net neutrality does not apply to the Internet backbone market. Broadband providers are fiercely competing to offer plentiful wireless bandwidth for online video streaming. And several companies worth $1.5 trillion collectively have plans to compete as over-the-top online video streamers and programmers. Competition in this space is clearly intensifying.

First, in just the last three months, the U.S. regulatory environment has turned around 180 degrees in terms of facilitating market negotiations, economics and competition in the Internet backbone market. The removal of regulatory uncertainty has jumpstarted market negotiations between ISPs and multiple new competitive entrants seeking necessary quality of services guarantees for their planned OTT offerings.

Specifically, the D.C. Court of Appeals in its January Verizon v. FCC decision outlawed the FCC from regulating unregulated broadband ISPs as regulated common carriers. That means part of the FCC’s 2010 Open Internet order that implicitly set a zero price for downstream Internet backbone traffic (i.e. video streaming) was illegal.

Since then the FCC has decided to not appeal, and hence live with that ruling as law. In addition, FCC Chairman Wheeler and the agency at large have publicly affirmed the FCC would not include new Internet backbone regulation in the FCC’s redo of the partially overturned Open Internet order.

Competitively this is a big deal. The FCC’s old net neutrality rules fostered huge uneconomic arbitrage, where perversely the biggest corporate users of Internet bandwidth contributed the least to the infrastructure upgrade costs necessary to keep pace with exploding bandwidth consumption.

Now market forces can naturally balance costs with prices. And importantly new OTT entrants can negotiate the specialized quality assurance guarantees necessary for a viable competitive offering. That’s why Netflix and Comcast recently completed a multi-year, Internet backbone interconnection deal.

This is a big deal for growth as well. This change enables the creation of an entirely new business-to-business marketplace of specialized services to meet the various and different needs for specialized speed, capacity and quality for OTT video, telemedicine, industrial operations, connected cars, and the Internet of things.