Netflix CEO On Net Neutrality: Large ISPs Are the Problem

KindMind writes: At Wired, Netflix CEO Reed Hastings has posted his take on net neutrality. He lays the problem at the feet of the large ISPs. Hastings says, "Consider this: A single fiber-optic strand the diameter of a human hair can carry 101.7 terabits of data per second, enough to support nearly every Netflix subscriber watching content in HD at the same time. And while technology has improved and capacity has increased, costs have continued to decline. A few more shelves of equipment might be needed in the buildings that house interconnection points, but broadband itself is as limitless as its uses. We'll never realize broadband's potential if large ISPs erect a pay-to-play system that charges both the sender and receiver for the same content. ... It's worth noting that Netflix connects directly with hundreds of ISPs globally, and 99 percent of those agreements don't involve access fees. It is only a handful of the largest U.S. ISPs, which control the majority of consumer connections, demanding this toll. Why would more profitable, larger companies charge for connections and capacity that smaller companies provide for free? Because they can."

Comments

Big Data

[AlecDalek]

It's extortion plain and simple. It's never been about actual capacity. Big Data is trying to squeeze as much revenue out of us as the can.

Re:Big Data

[bistromath007]

"Oh, and it would be nice if the US government would not make it so damned difficult for me to start a proper ISP."

You just mentioned the gun that's being used.

Re:Big Data

[rahvin112]

The lie you have bought into is that destination traffic is the same as transit traffic.

The whole point of peering agreements is to stop one provider from piggybacking on another transit providers network to reduce their costs. The agreements are structured so that to reach various end points they transit the traffic as closely as possible to the destination then hand it off to the hosting network rather than hand it off at the first available point and allow it transit the other networks system.

This whole arrangement falls flat on it's face when one of those transit providers is also the major destination route for millions of customers. ISPs that provide residential service always have unbalanced traffic arrangement because the customer almost always requests more data then they send. As long as L3 and Cogent are handing this destination traffic off to Verizon at the closest possible peering point for their subscribers then Verizon shouldn't be able to request the the traffic be balanced.

The problem is that unregulated market forces have allowed monopoly providers in local markets to combine with the very limited number of Tier 1 network operators resulting in the almost immediate abuse of monopoly by the Tier 1 portion of the network leveraging the monopoly side of the residential ISP business. There is rather simple solution to this problem. Bar any ISP that offers services directly to residential customers from owning or operating long haul national networks. If Verizon was forced to separate their Tier 1 transit business from their Residential ISP business (as in either divesting the assets or separating the company into two distinct companies) the problem would be solved almost immediately.

Businesses with monopolies will abuse them, that's the whole point of regulating free markets, because without that regulation you will end almost immediately with companies abusing market position and breaking the free market. Free markets don't stay free without regulation, particularly businesses with massive capital start up costs such as residential ISPs. Without regulation you end up with Verizon's Tier 1 network business leveraging the monopoly residential ISP traffic to extract rent from competing providers. This is a rent the market would not support without the monopoly or with regulation to prevent it's abuse.

Re:Big Data

[mrcpu2009]

The level of ignorance in the above post pleases me.

Re:Big Data

[Khyber]

"netflix refuses to pay a commercial CDN"

Their contract with movie makers probably stipulates that they maintain full and sole control of the data and allow no other company to touch it.

Re:Big Data

[Anonymous Coward]

Netflix said CDNs were not able to keep up with demand and all those peering issues, so Netflix decided to do it themselves. Commercial CDNs are great for small companies that can't afford to create contracts with every ISP out there. This is how those CDNs make money, by charging lots of relatively small data companies. Since these CDNs have SLAs to up hold, they are willing to pay ISPs to make sure their SLAs are met.

Modern SLAs are more about latency and jitter. Netflix doesn't care about this. Netflix also does not care about up time because their service can simply reroute to other data locations. All Netflix wants is bandwidth, and that's virtually free. No one pays for bandwidth anymore, they pay for SLAs or transit.

Re:Big Data

[AK Marc]

Netflix does not have to pay ATT/Comcast/Verizon a single dime. All it needs to do is [...] buy proper transit

So they don't need to pay those three, but they must pay someone, for what amounts to transit to themselves. Transit was a concept when a small ISP bought from a large ISP to get the small number of users to The Internet across unequal networks. Peers are when the networks were more even.

It was always from the consumer point of view. Only recently did the concept of charging content for content transit. If my ISP is charging for content transit, I want my rebate/discount. They are getting paid twice for the same thing.

Re:Big Data

[DamnOregonian]

An interesting gun... Here in People-Who-Are-Actually-Professional-Network-EngineersVille, we'd simply accept that our current cheapest-available-transit-provider has shitty connectivity (really? Cogent? really really? Well done, Netflix. Not pinching any pennies, at all) and get a provider that didn't offer bargain bin connectivity and shitty routes to just about everyone. But hey. It's entirely the receiving network's fault.

Re:Big Data

[ultranova]

Please show me the gun that's being used.

This delusional refusal to acknowledge that anything but outright violence could ever be coercive is the acid that's quickly dissolving whatever credibility capitalism still has left and exposing the grinning skull of feudalism beneath the mask of prosperity. I wonder what economic system will replace it, once people finally get tired of having structural flaws treated as unchangeable laws of nature or blamed on their victim's personal weaknesses?

The current climate is just like that which preceded the collapse of the Soviet Union: the prevailing myths are so much out of sync with reality people are running out of willing suspension of disbelief and losing their faith. No one believes anymore that hard work will be repaid with anything but layoffs, or that business success comes with a superior product rather than gaming the system, or that the rules are the same for everyone. The system has already lost its beating heart of credible mythology that can organize behaviour, it's just a matter of time before the necrosis of anarchy spreads everywhere.

Re:Big Data

[JWSmythe]

So?

I used to run a big adult site. We wanted servers closer to the customers for speed. We made enough that we didn't really care about the connection costs. We'd put up server farms around the world where it suited our customers best.

We owned every piece of equipment in our cabinet or cage (depending on the location). The provider equipment ended at the fiber they dropped to us, and the power outlets.

Netflix was hosted with Amazon for a while. A couple years ago, they claimed to have started their own CDN.

Their own CDN site talks about putting Netflix gear out for free. So they are basically saying they want the free ride. No one gets rack space, power, and connections for free. The right thing to do would be to lease the space like everyone else does.

But hey, they're loving to cry about being treated unfairly. They are the loudest ones about it. Honestly, other than speed complaints that are usually a fault, not a conspiracy, I don't know of anyone else talking about the same thing.

It is possible that the world is ganging up on Netflix. It happened to Cogent, more than once. That was mostly they refused to pay on their contractual obligations.

Re:Big Data

[Wycliffe]

They don't want to pay for bandwidth anymore.

What's so unreasonable about this? Netflix isn't wanting this for free, they are wanting peering agreements.
Basically, they are saying, let us run fiber directly to you so that:
      1) Our customers get a faster connection
      2) Your customers get a faster connection to us.
      3) Your customers are no longer bogging down your internet connection with traffic to us
      4) Your customers get a faster connections to the rest of the internet
      5) You don't have to buy bigger pipes to the rest of the internet therefore saving money.
etc...

It's a win/win for all involved. There is no reason money needs to be continually exchanged as it's now a private
lan between the two companies and I'm sure Netflix would gladly pay for the hardware.
The only reason they don't want to peer with netflix is because they feel like they own the customers and
are willing to hold their own customers hostage in the hopes that netflix will cave.
Netflix unfortunately is not critical enough to do the opposite. (i.e. peer with us or your customers
can't use netflix) as netflix actually has competition unlike the people they are trying to peer with.

Re:Big Data

[mcrbids]

Their own CDN site talks about putting Netflix gear out for free. So they are basically saying they want the free ride. No one gets rack space, power, and connections for free.

I know a guy who is a network engineer at a regional ISP. They are ecstatic about hosting Netflix gear "for free" because of all the money they save! Despite the consensus here, bandwidth isn't free, it's a huge expense. And their largest use case is Netflix. By hosting the Netflix servers at the data center, they cut their network traffic by something like half.

It's a pretty big deal for them.

Re:Big Data

[Shatrat]

No one gets rack space, power, and connections for free.

It's not for free. The ISP gets a serious reduction in network congestion as a result. I'm a network planner for a national ISP in the US and deploying these caches has seriously cut down on our network load. For the cost of space and power for this cache I regained capacity on the network which would have cost 100s of thousands of dollars to build. You've fundamentally misunderstood the benefit to the ISP of deploying these. The only ISPs that don't deploy these are the ones that also get a lot of revenue from video such as Cable and FTTH providers. They don't WANT to reduce the congestion because it boosts their IPTV revenue.

Re:Big Data

[ArhcAngel]

I'm not sure if you are unfamiliar with the situation or just have a portfolio full of ComCast stock but There is some very insightful material over at Level 3 that paints a clear picture of just who is ganging up on who. And Netflix isn't the only Internet site that suffers from these ISP's greed. They just happen to be the largest. And as far as their CDN how is relieving the congestion on your network not a payment in and of itself? Netflix traffic from the backbone would decrease 90% once they are allowed to put their CDN inside your network leaving you free to use it for other traffic. If Netflix is causing the congestion then allowing them to put their CDN in is a win/win but ISPs want Netflix to lose so their on demand service can pick up those customers. If you truly want the truth then read the articles in the link.

Re:Big Data

[bigpat]

You forgot the most important reason. They are trying to degrade a competitor's service in order to promote their own. Both Comcast and Verizon compete directly with Netflix. Last night I was able to watch Verizon channels on my tablet just fine, but Netflix wasn't working at all.

In Other News

[sexconker]

Cats on Dogs: Dogs are the problem.

I'm shocked!

[Livius]

In the absence of governments preventing them quasi-monopolies will act like quasi-monopolies?

Re:I'm shocked!

[dywolf]

Because this, just like healthcare, gun control, and the environment, is an absolutely unheard of problem that no one else in the world has ever had to confront and solve ever before.

I mean just look at Europe and Australia and Canada and the rest of the developed world... ....shootings all the time cause they still havent solved gun crime yet either. ...And the internet....why they're just as bad off from monopolization sticking them with shoddy customer service, low speeds, high prices, and no consumer choice. ...And let's not forget healthcare...no one anywhere in the developed world can afford to even have children cause they cost an arm and a leg, everywhere.

Yep.
We can't just look to other countries cause there are TOTALLY brand new unheard of problems that no one has ever faced or solved before, ever.

Poor argument

[Anonymous Coward]

While I agree that ISPs are a big part of the problem, the downside isn't that we don't get our utopia, the downside is that other countries are able to provide a more competitive near-utopia, locking us out of a leadership position on development of the Internet. That's the real fail, here. If we fail to lead, there will be others that are all too happy to fill our shoes and take our money to do so.

No, I didn't RTFA.

Re:Poor argument

[StormReaver]

While I agree that ISPs are a big part of the problem, the downside isn't that we don't get our utopia....

A bigger part of the problem lies with people who believe that paying a fair price for service, and then receiving the paid-for service, is some form of utopia rather than a requirement.

No, I didn't RTFA.

That was self-evident.

Re:Netflix should become an ISP and compete with t

[houstonbofh]

they can, just borrow $100 billion to build out a network, negotiate with every redneck and podunk town to get franchise rights to run their cables and spend more money for marketing to get customers

Or, pull a Google, and do one town at a time and watch the incumbents suddenly offer free peerage and lower rates.

Re:Netflix should become an ISP and compete with t

[Obfuscant]

Or, pull a Google, and do one town at a time and watch the incumbents suddenly offer free peerage and lower rates.

"One town at a time" was pretty much how the incumbents got where they are. Yes, they bought out other companies to get to the size they are, but those companies did it one town at a time, for the most part. Nobody fell off the turnip truck with billions of dollars putting cable in a hundred cities at the same time. It's like nobody comes out of the womb weighing 600 pounds, it takes a lot of time to get there, and THEN you get your own TV show.

Anyone who thinks they'll get to be the next Comcast or TWC by a massive multi-city buildout is, well, I'd rather they not clutter up the neighborhood with their poorly planned systems. They'll only be in the way of, and muddy the waters for, the next real competitor.

Play hardball

[felixrising]

John Oliver really said it well, explained the nature of the shake-down... these ISPs are simply being greedy and not realising that providing a quality fast connection to their subscribers is in their own interest, providing poor quality connection to services that other ISPs are providing good quality to only serves to hurt their reputation and good will with their own subscribers. If was Netflix or any of these content providers that are providing great content for the ISPs, I'd play hardball.. it'd hurt their own bottom line for a while, but if they banded together with other content providers to enforce it, they would soon have the ISPs begging.... So what would I do? Notify customers of these big ISPs that within two months they will no longer be providing the full service via that ISP.. sit back and watch the ISPs customers leave in droves.. of course, this is just turning the tables on the ISP net neutrality rules, but when the ISPs are already playing hardball and have their own man in charge of the FCC, then it's time to give them a taste of their own medicine.

Re:Play hardball

[Jason Levine]

In many cases, these big ISPs are also big Cable TV providers. Netflix (and Internet Video in general) threatens their Cable TV model and so must be dealt with. They can't simply block all access to Netflix. The FCC might be weak willed but it still has enough of a spine that it wouldn't ignore this. (Not to mention the lawsuits and bad press that the company would get.) Since they can't block it, they attack it with a two pronged attack:

1) Institute data caps and overage fees. This means there is no a hard limit on how much Internet Video you can watch. They might be forced to set them high at first, but that also means that they can leave them where they are and lock out HD streams. (Note that Time Warner Cable wanted to make a 5GB cap but was forced to back out of that plan due to bad press and customer outcry.) In the case of overage fees, this will direct money to the cable companies' pockets in case users still try to watch Internet TV. It also makes Internet TV more expensive so that Cable TV will look like a better deal by comparison (even though that "more expensive" is the result of the cable companies' overage fees).

2) Make fast-slow lanes. If Netflix doesn't pay up, their site will be slow and nearly unusable. Then the cable companies can tout how you won't need to wait for their video services to buffer. If Netflix does pay up then the cable companies make money off of Netflix. This will also force Netflix to raise their rates (to cover this new cost of doing business) resulting in a more favorable - to the cable companies - Netflix/Cable TV price comparison. (Just like the overage fees.)

So this isn't just the big ISPs not wanting to pay to upgrade their networks. It's also them protecting their old business models against these newfangled competitors.

Re:Play hardball

[Areyoukiddingme]

Notify customers of these big ISPs that within two months they will no longer be providing the full service via that ISP.. sit back and watch the ISPs customers leave in droves.. of course, this is just turning the tables on the ISP net neutrality rules, but when the ISPs are already playing hardball and have their own man in charge of the FCC, then it's time to give them a taste of their own medicine.

You forget who Comcast owns. They wholly own NBC and Universal Studios, two major sources of Netflix content. And they're already screwing with the availability of NBCUniversal content on Netflix. If Netflix tries to play hardball, a whole boatload of shows and movies will just vanish out of their catalog.

A media company that owns the last mile is an abomination, and the FTC should do something about it.

Re:A little naive perhaps?

[Bengie]

Netflix's Beast box full of SSDs that can handle 50k customers streaming HD have a peak load of 150watts and takes up 2Us. 20gb of bandwidth for the cost of $20 of electricity per month is not a bad deal. Maybe the ISP would be more happy paying $40k/month of dedicated bandwidth from Level 3.