I’m currently drafting a piece of research on the role of network operators in providing content delivery network (CDN) services. Traditionally, CDN has been the purview of third-party players such as Akamai or Limelight, who cache internal enterprise or consumer-directed content at local servers to avoid the latency, speed and quality issues that can arise with content traversing the network backbone. These players in turn lease long-haul capacity from carriers, and these leased capacity costs typically comprise roughly 30% of a CDN’s cost structure.

Increasing, operators are looking at the CDN market and asking why they can’t do this themselves. In an effort to control bandwidth on their own networks, operators such as AT&T, Verizon, Level 3, Tata, Reliance and others have already made movements towards this market, with countless others kicking the tires on CDN in one form or another. It’s mostly a cost and capacity saving proposition for these guys, though there are certainly a few bucks to be made here as well.

The reason I bring it up today is that there was a notable announcement by CDN-provider Velocix to address this trend. Velocix finally debuted its “Metro” offering, which has been known about in some circles (and highly anticipated) for a while but not publicly announced. Essentially, it’s a direct pitch to the ISP community, offering up Velocix as either a provider of CDN services to them or as a partner to use in offering the ISP’s own CDN offering. It’s a fascinating play, though not an entirely unique one, as other CDNs are looking at ways in which they can develop a reseller or white-label model to position themselves as a partner to the encroaching service providers…as opposed to a competitor that is about to see their market turned upside down. I just spoke to a Malaysian-based CDN that is getting ready to launch in January with a business model entirely predicated on attracting mid-tier ISPs.

There is one particular aspect of the Velocix offering that caught my eye though, and that is the different way it is manifesting itself in the US and in the UK. In the US, Velocix has already announced a notable partnership with Verizon, whereby Verizon will resell Velocix’s CDN service to content providers. Essentially, the pitch is, “Dear content provider X. We are using this CDN to handle our own FiOS content. We would be happy to handle your content in this preferred fashion as well…for a nominal fee, of course”. So from Velocix’s point of view, the ISP is the carrot to attract content provider customers.

In the UK, the situation is inverted. Velocix has a strategic relationship with the BBC, whose iPlayer P2P service represents a huge glut of traffic for the operators. Velocix is going out to ISPs like The Carphone Warehouse and Virgin Media with its Metro offering, and the pitch is, “Dear ISP X. We have a relationship with the BBC whereby we can locally cache iPlayer content. We would be happy to do this specifically for your customers that are consuming this BBC content and weighing down your network…for a nominal fee, of course”. So from Velocix’s point of view, the content provider is the carrot to attract ISP customers.

The reasons for this dichotomy have to do with the relative power of ISPs in the US versus the UK due to local-loop unbundling, as well as the sheer volume of traffic that BBC’s iPlayer generates. But the model of some sort of three-pronged relationship between content provider, network operator and CDN is one that is consistent across the regions, and a viable direction for the overall content delivery market moving forward.

Now the question is what does this mean when measured against the specter of net neutrality? Is it legal for a service provider to ask a content provider to pay extra for delivery, and then give that content preferred status over those that won’t pay-to-play? I’ll leave that can of worms for another time…