Huge ISPs want per-GB payments from Netflix, YouTube

By Nate Anderson January 31, 2011 3:05 PM

http://arstechnica.com/tech-policy/...per-gb-payments-from-netflix-youtube.ars

Poor Internet providers. They have to carry all that horrible, horrible traffic from Netflix and YouTube, and they just can't afford it anymore. Unless they start charging end users 21 percent more for Internet access, or unless they're allowed to bill Internet companies at 3.7¢ per GB, the Internet could "become unusable at peak times" due to congestion.

The huge incumbent ISPs have a fairly obvious agenda for the future of the 'Net, one that involves traffic prioritization, more "managed services," and high prices, but rarely is the wish list on such prominent display as in a recent report from consultancy A.T. Kearney. Four of Europe's biggest ISPs—Deutsche Telekom, France Telecom, Telecom Italia, and Telefónica—commissioned a study from the company on "A Viable Future Model for the Internet" (PDF), which involves giving lots more money to ISPs.

The basic argument is simple and well-known. The ISPs claim that they just can't afford all the investment they've been making, and that's it totally unfair that companies like Netflix get to make nice business on their pipes without paying their fair share. Yes, it's the old, tired claim about "freeriding":

Most Online Service Providers [like Netflix or YouTube] pay a fee to their Connectivity Provider(s) [ISPs like France Telecom] to be connected to the Internet, which is generally based on the bandwidth they require, while the largest ones act as if they were Connectivity Providers in their own right and connect to others via peering agreements. In both cases these charges are generally flat fees, not linked with usage and they form a very small part of their total expenditure/cost structure. In effect, Online Service Providers are paying to connect their services to the network but are not paying for downstream service delivery.

A.T. Kearney has four ways to give ISPs the cash they need to prevent the Internet from grinding to a halt:

* Charge people more for Internet access (an extra €6 per month should do the trick)
* Charge every Internet company €0.05 per gigabyte to deliver traffic (and a staggering €3.03 per GB if delivered to a mobile network)
* Allow paid prioritization, so sites like Netflix could go faster than everyone else if they cough up the cash
* Deploy more "managed services" that operate over the same last-mile IP pipe

That's it. Those four choices are the only way to stave off the coming Internet brownouts—a warning we've been hearing regularly since at least 1995, when Bob Metcalfe warned of the coming "gigalapses." It wasn't true then, and it hasn't been true since (one thinks of the worries about the "exaflood" and "Internet brownouts").

The Kearney report at least takes a slightly better approach to the fear-mongering, at least admitting that Internet backbone traffic is fine—it's those last-mile networks that need all the cash.

The report is worth a read, if only to see how the next ISP push to charge more money will look. Commissioned by big European operators, it's not surprising that the targets are generally content companies—especially American content companies. The whole piece has more than a whiff of the old Ed Whitacre comment about companies using "my pipes free."
"Nobody gets a free ride"

Paul Budde, a longtime telco analyst who heads up his own Australian consultancy, isn't impressed by the complaints.

"When I received research by A.T. Kearney on 'A Viable Future Model for the Internet,' I immediately checked who had paid for that report," he notes. "On seeing the names Telefonica, Deutsche Telekom, Telecom Italia, and France Telecom I could almost predict the viewpoint that the paper would present—that content companies should also start paying the incumbents for the delivery of information over their networks—this despite the fact that the users are already doing that. And, given that it was the European carriers who commissioned the report, the American content providers are, of course, the main target."

As for the freeriding argument…

In the world of the Internet nobody gets a free ride. The only way you can connect is if you pay, and the more you use the network the more you pay. The good thing, however, is that the customer can choose who they spend their money with. In principle, the more customers an ISP has, the lower its costs will be, and the lower its prices will be. So ISPs and content providers alike try to get more customers, and to get global connections at lower prices.

If they can bypass their national incumbent network supplier and get lower costs by connecting directly to other (competitive) networks on a different continent, they will. A good example is Google, which became part of a consortium that is laying a fibre optic cable across the Pacific—in the long run this investment of hundreds of millions of dollars is cheaper than using the networks from the incumbent national telcos.

This puts pressure on the network providers to continue to reduce prices, and to do this they need more customers and lower costs themselves. This is how normal business works. However incumbent telcos are very worried about competition, since in the past they had little or no competition and were able to charge what they liked.

ISPs really do seem to believe that content companies are "dumping" traffic onto their networks, but the "source" of all that traffic isn't the content companies; it's the users who have chosen to access those services. Having popular online services is of course the very reason that people pay for Internet access in the first place.

While usage-based billing has already come to places like Canada, it's clear that ISPs would like to extend it to Internet companies as well as to end users.

200GB to 25GB: Canada gets first, bitter dose of metered Internet

By Matthew Lasar January 31, 2011 8:00 AM

Metered Internet usage (also called "Usage-Based Billing") is coming to Canada, and it's going to cost Internet users. While an advance guard of Canadians are expressing creative outrage at the prospect of having to pay inflated prices for Internet use charged by the gigabyte, the consequences probably haven't set in for most consumers. Now, however, independent Canadian ISPs are publishing their revised data plans, and they aren't pretty.

"Like our customers, and Canadian internet users everywhere, we are not happy with this new development," wrote the Ontario-based indie ISP TekSavvy in a recent e-mail message to its subscribers.

But like it or not, the Canadian Radio-Telecommunications Commission (CRTC) approved UBB for the incumbent carrier Bell Canada in September. Competitive ISPs, which connect to Canada's top telco for last-mile copper connections to customers, will also be metered by Bell. Even though the CRTC gave these ISPs a 15 percent discount this month (TekSavvy asked for 50 percent), it's still going to mean a real adjustment for consumers.
This is going to hurt

Starting on March 1, Ontario TekSavvy members who subscribed to the 5Mbps plan have a new usage cap of 25GB, "substantially down from the 200GB or unlimited deals TekSavvy was able to offer before the CRTC's decision to impose usage based billing," the message added.

By way of comparison, Comcast here in the United States has a 250GB data cap. Looks like lots of Canadians can kiss that kind of high ceiling goodbye. And going over will cost you: according to TekSavvy, the CRTC put data overage rates at CAN $1.90 per gigabyte for most of Canada, and $2.35 for the country's French-speaking region.

Bottom line: no more unlimited buffet. TekSavvy users who bought the "High Speed Internet Premium" plan at $31.95 now get 175GB less per month.

"Extensive web surfing, sharing music, video streaming, downloading and playing games, online shopping and email," could put users over the 25GB cap, TekSavvy warns. Also, watch out "power users that use multiple computers, smartphones, and game consoles at the same time."
You need "protection"

Here's the "good" news: TekSavvy users can now buy "insurance," defined as "a recurring subscription fee that provides you with additional monthly usage." For Ontario it's $4.75 for 40GB of additional data (sorry, but the unused data can't be forwarded to the next month).

There are also "usage vault" plans—payments made in advance for extra data. Consumers can buy vault data for $1.90/GB up to 300GB in any month.

Where once TekSavvy consumers could purchase High Speed Internet Premium at a monthly base usage of 200GB for $31.95 a month, now they can get about half of that data (if they buy two units of insurance) at $41.45 a month.
TekSavvy's DSL rates: now and after March 1
Very questionable

Starting to hate this? TekSavvy hates it, too.

"The ostensible, theoretical reason behind UBB is to conserve capacity, but that issue is very questionable," noted the ISP's CEO Rocky Gaudrault on TekSavvy's news page. "One certain result though, is that Bell will make much more profit on its Internet service, and discourage Canadians from watching TV and movies on the internet instead of CTV, which Bell now owns."

Given these dramatic changes, and the fact that ISPs around the world have made clear they wouldn't mind implementing similar schemes, it's no wonder that high-bandwidth businesses are fighting back. Last week, for instance, Netflix started publishing graphs of ISP performance in both the US and Canada, and it plans to update them monthly.

Netflix is also stepping up the war of words against ISPs who try to implement low caps and high overage fees:

"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."

The big question now is how these kind of billing changes will impact 'Net consumption patterns. Many subscribers use minimal data, but that's changing as Internet video becomes the norm. If these new plans simply discourage data hogs from backing up their 120GB pirated movie collection over the 'Net every night, there's no sleep to be lost. But if they scare consumers away from legitimate non-ISP affiliated movie and content sharing sites, that should be a firebell concern to consumers, entrepreneurs, and regulators.

And not only in Canada.

The internet started out in America as pay per bandwidth. The current trend is more bandwidth lower prices in America. That's a trend the ISP's will continue to push. There is no monopoly on internet in America like there is in Canada. This could change with coming regulations but America will likely collapse before we see pay per bandwidth. There are plans amongst most ISP's to provide 100 megabits per second to metro areas and 50 megabits per second to rural areas. One reason America can do this is all the telecom companies get huge subsidies from the federal government. The feds even have a program that brings cheap high speed internet access to the extremely rural areas through backbone lines leased through the bell carriers.

Canada has always had a less than efficient version of the internet. Their ISP's are union run and very strict about policies. A very small part of Canada uses the majority of the internet.

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