British Telecom announced today that it is working with rival ISP’s (Internet Service Providers) to provide an open online video delivery network to improve the delivery of video over the network.

Online video growth is by far the leading usage growth of traffic on the Internet today. Sandvine recently reported that peak traffic usage of the internet had increased 60% from a 5 hour spread between 6pm-11pm in 2008 to a 3 hour spread 7-10pm in 2009, it attributed real-time media growth as the cause.

Network service providers have warned us that the demand of this new media delivery channels such as Netflix, Hulu, Vudu and Apple are putting pressure on their networks. The same problems that exist in the terrestrial based broadband networks, only get worse when you move to the wireless world, the floods of complaints from iPhone users regarding AT&T’s 3G network coverage and performance show that the demand of high bandwidth services are out striping supply of bandwidth in certain areas. The ongoing lawsuits between Verizon and ATT show the extent of consumer dissatisfaction with the issue.

Most media companies commonly use content delivery networks (CDN) such as Akamai and CDNetworks to deliver quality streaming and media performance to their end users. Typically a CDN does this by “moving” or “caching” the content closer to the end user location. The theory behind this is, that the closer the content is to the end user, the less of the “backbone” network is used in transmission of the content. Most CDN providers have proprietary Intellectual Property, this enables them to make sure that the most popular content is available as close to the end user as possible, thus reducing the chances of any delays in delivery.

However there are limits to how close you can get to the end user and, as BT contends, these services only go to the edge of the ISP’s network and the final stages or “last mile” of delivery is transmitted “over the top” with no guarantee.

BT Wholesale unit is working on a open platform, which will use the ISP network to reach all the way to viewers and therefore guarantee a good service all the way to the end user.

According to Associated Press “Under BT’s plan, viewers could have uninterrupted access to content, even at peak times, and it could also allow the ISP’s to recoup some of the cost of providing online video from the media groups which have produced it.”

So is BT trying to bypass CDN’s and capture Akamai’s revenue or trying to create an economic ecosystem that is a win/win for both media provider and network operator?

Most network and telecom providers such as Verizon and AT&T have been looking for ways to finance the build of their network expansion projects to keep up with online broadband traffic growth. Whilst it’s hard to feel sorry for the big telco’s there is definitely an issue as to whom should be paying for what proportion of the network deployment bill. Google has for a long time insisted on “network neutrality” and has lobbied and supported user community groups that support the interest. Why? Because its in their fiscal interest.

Google’s business model, of being able to technologically reduce their bandwidth bill and get as much as a free ride as possible has allowed them to capture an economic advantage in the marketplace. For every mile of fiber that Verizon of AT&T lay, it would appear that market cap of Google increases.  If as reports show that Google and YouTube traffic make up 20% of Internet traffic, it would only make sense that their costs be more in line with the usage.

Details have not yet been forthcoming on BT’s new Open Video Delivery network, so only time will tell as to whether “BT Wholesale’s plan … will open up new market opportunities for both content providers and ISPs and enable ISPs to maintain their end user relationships, by addressing the bandwidth issues that will put a strain on any network,” however it would seem that BT at least is attempting to change the dynamics of bandwidth pricing and delivery costs of media delivery.

BT has not announce its other partners at this time.