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Netflix Has Woken Up To The Threat Of Metered Billing
Starts Taking On ISPs In The U.S. And Canada
by Karl Bode 02:30PM Wednesday Feb 23 2011
In July of last year Netflix launched a streaming only video option in Canada, which immediately raised the question of how well this service would play with the low bandwidth caps and high per gig overages common to most Canadian ISPs. Given that Netflix HD streaming potentially eats bandwidth like popcorn shrimp and Canadian ISPs like Cogeco and Rogers currently charge up to $5 per extra gigabyte of usage -- it seems inevitable that Netflix users and low caps won't get along as usage ramps up.

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Last December CEO Reed Hastings told attendees of an investor conference that Netflix "wasn't particularly concerned" with the ever-tightening meter noose. However in more recent months, Netflix has made it clear that they've woken up to the threat of an unreasonably-constricted pipe.

In January Netflix declared that pay per byte on ever-cheaper terrestrial connectivity "was not economically necessary," something we've been arguing for several years as North American ISPs have lusted after more punitive pricing models. A shareholder statement goes so far as to suggest that the kind of per gig overages common in Canada are "grossly overpriced":
Wired ISPs have large fixed costs of building and maintaining their last mile network of residential cable and fiber. The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary. Moreover, at $1 per gigabyte over wired networks, it would be grossly overpriced.
Last week, Netflix's annual report touched on the Level 3 and Comcast fight for the first time, the report noting that ISPs have a very clear motivation for making Netflix's life more difficult:
Most network operators that provide consumers with access to the Internet also provide these consumers with multichannel video programming. As such, companies like Comcast, Time Warner Cable and Cablevision have an incentive to use their network infrastructure in a manner adverse to our continued growth and success.
Netflix's sudden call to arms on the metered billing discussion pivots on Canada, where the company offered a streaming-only video service last summer. As users in our Canadian broadband forums note, Netflix is jumping head first into the discussion in Canada surrounding UBB (usage-based billing), a new filing urging regulators to expand their inquiry into the need for UBB. That's in fairly stark contrast to earlier Netflix filings that had a more timid tone. Now Netflix is clearly urging Canadian regulators to dissect unproven talking points -- such as the fact that UBB is a matter of altruism, or that market forces can keep overage prices in check if the market isn't competitive. Netflix has woken from its doe-eyed slumber.

Don't think the ISPs and their literal armies of lobbyists, think tankers, PR firms and other policy vessels haven't noticed Netflix's stronger stance. Groups like Digital Society, funded with AT&T money via the fine fauxcademics at Arts and Labs, has made Netflix an obvious target in recent months, with pieces attacking Netflix for "trying to get broadband customers to subsidize Netflix" or supposedly violating network neutrality by trying to get Netflix buttons on some remote controls. If Netflix wants to play in the DC arena and question some of the sacred incumbent ISP talking points (charging $5 per gigabyte is inevitable and about fairness!), you can expect this entire discussion to get much more entertaining as 2011 moves on.

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Charlotte, NC
·Time Warner Cable

2 recommendations

reply to KnightAR

Re: Maybe

When you upgrade a network you normally double the bandwidth capacity but you do not double the revenue. Most of the bandwidth sits idle. One CEO reported the demand from customers was doubling every year but revenues only increased by 3 to 5 %.
When communication equipment gets close to 100% they have to add equipment which is normally the same piece of equipment. That now means you now are only using 50% but your cost have doubled until you bring in more customers. If the current customers just use up that capacity with more downloads you don't get any more money.
If you started a taxi company and sold a flat rate service to a family but they added enough kids to require a second taxi your expenses have doubled but not your revenue. That is what the ISPs are doing with caps they are charging for the extra kids. Video has changed the equations all on the cost side the internet is no longer e-mail and web pages.
I look for bills to have 3 parts in the future like wireless. One for the connection, one for the speed, and one for the amount of usage in tiers like speed. You may want speed but low usage or low speed but a lot of usage or high speed and high usage. I don't download a lot and I am tired of paying for those that download more then 500 meg every month and pay the same price.

Montreal, QC

2 recommendations

reply to batterup

Re: Cable and satellite companies will fight Netflix...

said by batterup:

Netflix; the interweb is not a truck. It is tubes and my tubes are now sticky during prime time. We pay for gas by the cubic foot, water by the gallon, telephone by how much we talk and electricity by the watt. Why should the interweb be the only thing without a meter?

Because data is not a commodity like gas or water or electricity. When you purchase gas or water or electricity, you *consume* the resource. You're paying by the foot for the resource. When you consume data, something is not created and lost: the only cost is delivery, not production. When the only cost is delivery, you should pay for the size of the pipe, which is how it works now.

Your telephone analogy is also flawed in that it's using one gouge-based business model to justify another. But if you want to go for that analogy, I'd point out that local calling is not based on how much you talk, and long distance calling is only because the concept of "capacity" doesn't make sense when there's a fixed amount of effort required to move the data (you're either making a call or not, there's no variable bandwidth requirement).

As an example, in the telecom world, you buy by the megabit per second (capacity) rather than the gigabyte per month (transfer). It doesn't make sense to bill any other way.
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