The Netflix Conundrum - Bad News for Consumers

POSTED BY Steffen Sorrell
Back when we published our report on Smart Homes in February, we noted that the Smart Home is a high bandwidth home: this is in no small part due to the propensity for consumers connect their media devices to the Internet, most comfortably via the home’s broadband connection. In particular, this means that a vast quantity of bits travelling over the Internet now contain a sliver of Michael Fassbender’s appalling German accent or some other piece of an actor/actress’s digital projection. Leaving Fassbender aside for a moment, the era of OTT (Over-The-Top) delivery of video content is upon us, with the likes of Netflix, Amazon and Google capitalising on end-users’ desire for on-demand content. This has been shown in particular to be the case in North America, with Sandvine reporting real-time entertainment accounting for nearly 64% of peak period traffic. In the US market, the networks are struggling to keep up. This has led to a major row between CSP (Communications Service Providers) and most notably, Netflix; indeed, the latter has been made to pay both Comcast, Verizon and now AT&T in order to guarantee a smoother service with less buffering for its consumers, with Netflix and CSPs blaming each other for the poor user experience. The issue of course, is about money and the concept of peering. Settlement-free peering often allows carriers to exchange volumes of data across each other’s networks at no cost, with the understanding that the volume of traffic flowing each way will roughly be equal. Of course, with the likes of Netflix sending vast amounts of data to Level 3, who have a settlement-free peering agreement with Verizon, the amount of data going in each direction is now massively skewed towards Verizon’s network: the latter is not happy given the current agreement, and therefore won’t increase the bandwidth available at the interconnect points. The question is: who is responsible for the payment of this increased traffic? Is it Netflix, who supply the data (and pay Level 3)? Is it Level 3, who have evidently breached the principals of a settlement free peering agreement? Or, has the consumer already paid for the delivery of the data through the broadband subscription plan? The arguments will likely roll on, with the FCC’s decision on net neutrality no doubt having an impact later in the year, although the consumer is unlikely to see a benefit whichever way it goes; paid 'fast lanes' will mean increased costs, while enforced net neutrality may lead to less interest in network investment given less ability to differentiate.