Internet Tolls And The Case For Strong Net Neutrality
blog.netflix.com
blog.netflix.com
It used to be that the only people who did this we're downloading games or movies off BitTorrrent: when that was the case, it didn't affect the ISP business model that much.
Enter Netflix. It's pretty ubiquitous and even your grandma can use it. Everyone loves it and everything works well. For a while. Then Netflix decides they want to push 1080p videos out to all their users instead of 720p. This doubles or triples the bitrate of the videos overnight. With adaptive bitrate players, the stream will adjust to use all available bandwidth.
Who should bear the cost of technical changes that Netflix makes? Many would say "the ISPs! Stick it to the man!" But at the end of the day, ISPs are a business. If their costs rise, they will raise prices on consumers unless they can cover those costs another way.
In the end, you're gonna pay the ISP one way or another. Which is more fair to you? ISPs raising rates across the board (including some people who aren't netflix users) to cover those costs, or passing the costs on to Netflix, who then pass them to Netflix subscribers only. It's all about who should bear the cost for technical upgrades given the way the ISP business model works today.
Option 1 is unfair to some people, Option 2 puts a huge barrier to entry in place for businesses. Option 3 is the only real solution IMHO.
Ultimately, that may be a threat to network neutrality as the prices are raised on the metered internet in order to shift bandwidth to those siloed TV services, and the public won't care because they're not streaming video over the open internet anymore.
I think a lot of geeks are in love with net neutrality because they see it as a fairness thing and think it will keep the cable companies from gouging them. In reality, it's just about cost allocation. Companies are going to take their profits under net neutrality or not; and the profit margins on cable aren't astronomically high. Netflix would never have gotten off the ground under true network neutrality; the costs have to be allocated somewhere.
If you want pure speed though; metered billing is the way to go. Look at how fast mobile data has become in the US relative to the rest of the world -- a large part of that is because it's profitable for Verizon and AT&T to have customers use more data. Businesses are going to make their profits and regulation isn't going to have much effect on the prices that consumers pay -- but under the right rules, if you create a situation where companies can make more money by providing a better service, everyone wins.
It's an old, antiquated expectation. It needs to die. Ever since the advent of peer to peer technology, there has been a perfect use-case for permanent saturation of available bandwidth.
>But at the end of the day, ISPs are a business.
ISPs are a utility. There's no dancing around it. It doesn't matter what the FCC says or what anyone tries to lobby for or against. They are a utility.
>If their costs rise, they will raise prices on consumers unless they can cover those costs another way.
We did pay for a national broadband network. To the tune of 300 billion dollars at this point. You know what they did? They took the money and pocketed it. We've known about this for more than a decade now, and nothing has come of it.
2002: http://www.governing.com/topics/technology/Great-Broadband-H...
2007: http://www.pbs.org/cringely/pulpit/2007/pulpit_20070810_0026...
2009: (Warning, large PDF): http://www.teletruth.org/docs/broadbandscandalfree.pdf
Seriously. Why does this issue constantly seem to fall down the memory hole?
>In the end, you're gonna pay the ISP one way or another.
We did. With billions and billions of taxpayer dollars.
It's not antiquated; it still applies to the 99% of broadband users who don't use high-bandwidth P2P services on a regular basis. Dedicated connections are available for those who don't fit within this model, but it's a lot more expensive to provide (e.g. a much lower ratio of circuits to switches/concentrators/routers). Burstable connections still exist on the backbone side as well; Netflix may have access to up to 300 mbps burstable from Level3, but they're only guaranteed 50. They make economic sense and they're not going away any time soon.
> ISPs are a utility. There's no dancing around it. It doesn't matter what the FCC says or what anyone tries to lobby for or against. They are a utility.
I disagree, but let's say you're right. Utilities are still businesses and they're not sustainable as a money-losing operation. If the FCC regulates them as a utility, they would likely move to a metered-billing model where you pay for bandwidth in and bandwidth out.
> We did pay for a national broadband network. To the tune of 300 billion dollars at this point. You know what they did? They took the money and pocketed it. We've known about this for more than a decade now, and nothing has come of it.
That $300 billion figure is very suspect if you read your own links. It includes rate increases to customers which would have happened anyway due to inflation, and is a number over roughly 15-20 years. You know that 50 mbit cable modem you like to bitch about how slow it is? In 1994, the best option for most homes was a 56.7kbps dial-up modem. 1.5 mbit ADSL wasn't even widely available until 1998 or so. Cable internet above 10mbps wasn't widely available until 2007. And as part of the tax credits, the FCC required companies to build out broadband infrastructure in a lot of places that were grossly unprofitable: the cable companies basically broke even on the credits they did get. But even if we make a vast assumption that your number is correct, $300 billion across ~5 companies over 20 years is roughly $3 billion per company, per year. The real tax subsidies were closer to $80 billion over 20 years for the entire industry (many of which went to small, rural cable providers and not the big ISPs like Comcast or Verizon.)
But claiming there has been no progress is a flat-out lie. Citing 5-10 year old articles doesn't help your case. The money was spent where it should have been; it just took a while for the build-out to happen because large capital investments move slowly.
> We did. With billions and billions of taxpayer dollars.
And the major telecom companies spend roughly $15 billion per year EACH on infrastructure. Of their own money. On which they make roughly a 10% profit (more in some years, less in others.) Good money, but hardly a windfall by corporate standards.
> high-speed Internet* access and that’s unlikely to change.
> Furthermore, Internet access is often bundled with other services
> making it challenging to switch ISPs. It is this lack of
> consumer choice that leads to the need for strong net neutrality.
Spot on. The reason Comcast and others can play this game is because they're a monopoly at the local level. They've worked with the help of regulation to snuff out all serious competition. Pull back the regulation (at the local, state, and federal levels) and watch the competition spring up, and watch the Comcasts of the world change their practices when they actually have to compete.
Unlikely. The monopolies that the cable and telcos used to have as infrastructure providers were granted because the eminent domain power of government was necessary to get the physical infrastructure, and it was considered a public good to have the infrastructure and better to have one infrastructure provider with "public access" rules (for cable) or "common carrier" rules (for telephone service).
Without government intervention, it would be practically impossible to get the property access necessary to compete, particularly at the last mile, with the vendors with existing infrastructure built with property rights acquired through government action, even if there were no longer protections for the incumbents.
Offering to just accept and blackhole traffic is silly, and everyone involved knows it. I'm really disappointed that Netflix chose to present that argument in their post, because it's deliberately misleading about the nature of settlement-free peering.
Netflix originates a lot of traffic, but it doesn't accept non-Netflix traffic for routing. That is, I can't send a request for gmail.com to my ISP, who then sends it to Netflix, who then sends it to Google. Netflix does not have a neutral network which routes traffic regardless of origin or destination - they just accept requests for Netflix and serve responses from Netflix.
No, because Comcast offers streaming video services to which Netflix is a direct competitor. Comcast would rather Netflix not exist.
How is any company which deals with a residential ISP expected to be a peer?
> imagine the plight of smaller services today and in the future.
This is flat out a lie, smaller services uses CDNs.
Large network owners agree to peer without charges when it is mutually beneficial. That usually boils down to whether the traffic exchanged between the two networks will be roughly balanced and managed reliably.
One of the issue here is that Netflix doesn't operate an Internet backbone. Therefore, ISPs can't use Netflix's network to exchange traffic across the wider Internet. So this leaves the ISPs two choices here:
1) Agree to a free peering agreement with Netflix and build more capacity in their network at the ISP's expense to support Netflix's egress traffic; 2) Request Netflix to sign a paid peering agreement to support the construction and maintenance of the needed extra network capacity.
ISPs who opt for the first choice believe that improving their access to Netflix will make their customers happy and thus allow them grow their business. The other ISPs who opt for the latter choice believe, on the other hands, don't see the free peering as an investment; they want rather to extract more money from their existing customers. So, it is not that surprising to see the incumbent ISPs, who have locked-in their users already and killed-off most of the competition, going against free peering.
That said, I just can't wait to see Google Fiber kick the behinds of these greedy fools.
They have a third choice, which is "not reach Netflix at all". Which, for ISPs that are also selling streaming video services (e.g., pretty much all of the big ISPs, which tend also to be digital cable with "on demand" video streaming providers) with which Netflix competes, is a pretty attractive option.
> That said, I just can't wait to see Google Fiber kick the behinds of these greedy fools.
Hear hear.
Is that a statement that you agree with?
Regardless of whether Netflix is portraying the situation with some bias(on their own blog who would have thought) this is in important issue that should get attention.
> This is flat out a lie, smaller services uses CDNs.
The reason Netflix is targeted here is not because they aren't using CDNs. It's because it's the first popular service that could easily be blackmailed in this way. The end result is that Netflix's cost have gone up in order to get access to the same 10Mbits/sec that their customer has already paid for. Those costs will be borne by Netflix (and its customers) and the ISP has effectively double-charged. Don't kid yourself by thinking the ISP won't turn that into a regular practice for any company that is successfully reaching its customers with a latency/bandwidth-sensitive service.
This is the crux. Remember when ATT started charging for receiving text messages as well as sending them?
My desktop OS example requires some clarification- there were plenty of things Microsoft did in the '80s and '90s where they exploited their position in the market to increase market share. Per-processor licensing fees are a prime example of that- a PC vendor that wanted to license a Microsoft OS would have to pay a licensing fee for every computer they sold, regardless of whether or not that computer had an MS OS on it. However, one could argue that this was a consequence of MS already having a monopoly (50% market share can be considered a monopoly in some markets), and they were exploiting that monopoly to become even more deeply entrenched. I honestly think that the desktop OS market in the pre-web days had very strong tendencies towards a natural monopoly regardless of whether or not any given player in that market was engaging in unfair business practices to achieve that monopoly.
Any time discussion about competing products revolves around which product is ultimately going to "win", there is an implicit assumption that the market those products compete in tends towards natural monopolies. It may not be true, but the people participating in those discussions think so even if they're not fully aware of it.
But even in a market where you can easily switch one supplier for another, there often remains a helpful factor for grouping - everything costs less in large quantities ;) And many administrative costs can be reduced. Not to mention that perfect competition would, strictly mathematically speaking, drive profits towards zero...
It's clear that some markets are like this, and some aren't. It's not at all clear to me that most markets aren't. In fact, i believe the opposite - most markets are like this. I believe that in most markets, economies of scale, cost of entry, and the coercive power of large participants outweigh the incremental efficiencies of new innovators.
If there is any logic or data which supports the contrary position, i would be interested to hear it.
Competition is actually our problem. In countries with only 1 telecom choice, the government regulates it. It often lets ISPs pay to rent the transmission line that the telecom owns.^1 Instead America lets the cable company compete against the telephone company and we get two poor choices.
If you want nationwide fiber? Give ATT and Verizon their monopoly on ISP lastmile networks, but force them to lease your line to indie ISPs.
Just calling for more competition sounds like a good idea, but it won't work.
^1you can actually do this now for DSL in America.
In the case of ISPs, the most pragmatic resolution is not to artificially create a free market but to classify them as utilities. This is an acknowledgement that they exist in a market which tends towards regional natural monopolies, and allows them to enjoy those monopolies, but prevents them from exploiting their status too much (for example, by using their natural monopoly in one market to affect another market).
I don't even know who their hypothetical competition would be- my understanding (which could be wrong) is that there is nothing preventing such competition, it's just very difficult to go up against an entrenched incumbent. Google Fiber is great, but if that was Google's only business they wouldn't last very long.
The only counterexamples I can think of are the legal battles where ISPs have effectively shut down attempts to establish municipal broadband, which is terrible, but I don't think that's the kind of competition you're referring to.
Net neutrality is good for everyone, all links and all bytes should be equal.
If Netflix could implement something like this and charge for it ISP's asking for a kick back would be lost.
Unfortunately the MPAA and RIAA would never go for that since they don't get to put their DRM everywhere.
Atually the MPAA and RIAA should be backing Netflix on this one since if Netflix fails the most likely replacement for it will be popcorn time and then the won't be making any money at all.
Then again Netflix will probably destroy net neutrality by complying with their demands before it fails.
The net neutrality decision not only opens the door to monopolists 'shaping' traffic by peer, but also 'shaping' traffic by protocol. [1]
Even if your data is coming from 'everywhere', they can squeeze it down to almost-nothing. The MPAA is likely popping champagne over the prospect of finally having a tool with which to kill casual bittorrent use. [2]
[1] And shaping traffic by device is also on the table. I hope game console- and platform-makers are preparing for this.
[2] Yes, people could tunnel that traffic through a proxy or VPN. But the ISPs only have to kill casual use to significantly harm the network. And throttling all VPN/SSH traffic and using that as a cudgel to extract fees from more companies is also not only feasible, but perfectly in line with their incentives.
Plus I suspect that if they ever go to such draconian lengths there would just be a lot of random protocols popping up and it will turn into another race of cat and mouse until the filters get so bloated it can't handle the traffic anymore.
Without the Open Internet rules that were struck down, the excuse is "we're a for profit business, and (1) Netflix is a fat stream of revenue that we are enabling and we don't see a reason to do that without getting a big cut, and (2) Anyway, Netflix is competing with our streaming video services which are one of our major sources of revenue, so if our customers have degraded access to Netflix, that just makes our service that Netflix competes with more attractive, and brings us more revenue. So, considering both of those factors, its win-win for us to provide Netflix the choice of (1) give us more of your money, or (2) have your service work less-well, if at all, for our customers."
This is, fairly exactly, the kind of harm that Open Internet order was designed to prevent -- to the extent that broadband providers that are also video (cable TV or internet streaming) providers discriminating against competing video services was one of the things called out to illustrated what was prohibited by the non-discrimination provision.
Maybe not paying money, but if you're running an offsite backup provider (ahem) and you're not getting special cut rates on your all-inbound usage ... you're not going to be in this business very long.