Cheaper mobile phones with access to the web are certainly a part of that demand growth in developing nations, while in more traditional technology markets, hotspots, larger applications and cloud computing are to blame. Whatever the reason for demand, carriers are responding accordingly, with new submarine cables connecting more countries than ever before.

Telegeography tracks bandwidth supply, pricing and data on submarine cables, and the latest data shows how carriers that range from traditional players like Level 3 and Tata to newer investors such as Google are connecting all areas of the world. The firm estimates all regions are getting about 10 to 12 new terabits per second of capacity in the last five years. All in all in the last five years the world has gained 54 Tbps of new capacity.

This is great, because additional cables means more redundancy, so when accidents happen or cables get cut — as happened late last month off the coast of Egypt – traffic can route around the nicks in the system. That redundancy also allows new players into the market and can result in lower bandwidth costs, which is good for businesses buying bandwidth and indirectly for consumers.

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As part of its investigation, the regulator is also probing three other unnamed companies. The perception is that ISPs in France are either under-investing in infrastructure or violating the spirit of network neutrality, the idea that ISPs should not discriminate on traffic traveling over their pipes. Yet, in France, it seems that at least some in the government are willing to make Google pay for the ability to guarantee that ISP customers can receive its bits, turning the internet into Gulliver in the land of the Lilliputians, with ISPs and governments tying it down. The question is, will what happens in France happen elsewhere?

The ARCEP investigation and user complaints

Early this year, communications regulator ARCEP will rule on an investigation it opened on November 22 following complaints that video streaming services including YouTube are often too slow to watch. Now three French senators are also calling on the country’s digital economy minister to take action.

ARCEP stepped up when a survey of over 16,000 ISP customers by French consumer group UFC Que Choisir found 83 percent of Free customers, 47 percent of Orange customers and 46 percent of SFR customers were unable to use YouTube properly.

Since the investigation began, many users have reportedly noted an improvement in connection quality, but connections remain patchy.

And this issue is not limited to Google. “The quality of connection is inadequate in almost all operators,” said UFC Que Choisir’s survey, which found that France’s native Dailymotion, ironically, is slowest to access through France Telecom’s own Orange ISP, which owns almost half of the YouTube rival. And 25 percent of consumers reported slow-downs while watching broadcaster TF1′s MyTF1 catchup service.

Is it under-investment or a desire to make content companies pay?

UFC Que Choisir says these symptoms may be caused by under-investment in infrastructure as well as commercial tensions between ISPs, which deliver web services to the end user but which don’t pay for the infrastructure. It has called on the government to define quality-of-access rules, in part by allowing the competition regulator ARCEP to build a quality-of-service observatory. Similarly, in the U.S., the Federal Communications Commission is also trying to figure out how to measure the quality of a broadband connection beyond just looking at speeds.

Inter-company tensions do appear to be at play. A case before another public agency — France’s competition regulator, the Autorité De La Concurrence — in September illustrates how ISPs eager for revenue from web content companies can hold the user experience hostage.

Cogent, which handles YouTube’s peering interconnections, had complained to the competition authority that Orange had refused its connections, wanting more money to add ports to connect Cogent traffic to its networks. Much of the interconnections between large ISPs, CDNs and web content companies are negotiated by private deals, so it’s rare to see the government get involved, or even to hear much about them publicly. In the U.S., when Level 3 and Comcast became embroiled in a public peering fight after Level 3 started sending Netflix traffic over its connections with Comcast, the FCC refused to get involved, and both parties settled the disagreement.

But in this case, the competition regulator said one ISP was within its rights to charge more money from services hoping to reach its subscribers. This so-called double-sided business model has been sought by ISPs who argue that companies such as Google are freeloaders making huge profits off the pipes of owned by the ISPs. In contract, Google and other content companies argue that their services are the reason customers upgrade to higher speeds and continue paying ISPs money.

And in France the ISP argument has gained at least one supporter in the Autorité De La Concurrence. The authority says France Telecom is offering interconnection prices significantly below market value, and it has accepted the telco’s undertakings to ensure transparency.

French policymakers generally are generally in the mood to extract more money from Google. They have already set such wheels in motion around taxation and copyright fees. Now infrastructure could be the next arena. But its unclear how far France will go.

It’s one thing to try to ensure that consumers have an acceptable connection to support online video, through implementing some kind of standards. It’s another to get between participants in peering disputes, and to possibly start setting rates.

The U.S. fight is bigger than France’s

But such fights are becoming more common as the stakes over the internet and web video get higher. ISPs are worried about the cost of delivering video traffic over their networks, while also losing out on the ability to charge users for pay TV packages that significantly boost their revenue. Meanwhile, consumers are demanding more video online because they can choose what to watch, when they want to watch it, on any device.

The French competition authority’s earlier investigation referred only to two individual companies at loggerheads in a specific peering fight. But the new inquiry by the communications regulator is much wider, looking at industry-wide practices around infrastructure and interconnection. And it comes following consumer outcry — identified in UFC Que Choisir’s survey — to which politicians may be keen to respond.

The outcome will be important because Google is already facing having to pay to re-use news content in some parts of Europe through both commercial agreements and possible new legislation that suggest excerpting is chargeable. That could set new precedents for the online content economy.

The French broadband outcome will be important because it will set up a precedent for other telecom regulators who are struggling with similar issues. Creating standards to ensure that customers have a quality online video experience is no simple task and may well require investment by ISPs, especially those on older technologies or oversubscribed networks.

As for the peering issues, if the government decides to step into the fray there, it could be setting the internet up for regulations that put governments in the role of determining who can connect to whom and how much they can charge. The OECD recently made a convincing argument that such regulations and government involvement would hurt the web and the economic development of companies dependent on the web. So what France does here might have influence far beyond its borders.

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Leighton, who is also chief scientist for the Cambridge, Mass. content delivery network (CDN) provider, will start his new gig January 1, 2013. Last spring, Sagan announced his plans to step down as CEO at the end of 2013. Both Leighton and Sagan will remain on the board and Sagan will stay on as a senior strategy advisor, the company said.

In a statement, Martin Coyne II, the lead director on Akamai’s board said:

 ”When we began evaluating our options for the next CEO of Akamai, our objective was simply to have the best possible leadership team in place for continued growth and innovation in the years ahead, and that’s what we’re doing with Tom’s appointment. We conducted an exhaustive review of the company’s strategy and opportunities as we evaluated a broad range of potential candidates. We are confident that naming Tom is the best and most natural evolution of management responsibility at Akamai.”

The company also promoted two executive vice presidents. Rick McConnell is now president of products and development and Robert Hughes was named president of worldwide operations.  Both will report to Leighton.

Akamai claims a roster of blue chip customers including the BBC, IBM, Microsoft and Hewlett-Packard which also resells Akamai’s CDN as part of its public cloud.

As the nature of web content  has changed, Akamai has had to adapt to handle more dynamic content and has made a series of acquisitions towards that end. Early this year it bought Blaze for its web site optimization expertise just a few months after purchasing CDN rival Contendo. No one expects that M&A  strategy to change.

Akamai competes with Limelight Networks and Level 3 in CDN as well as an array of smaller, more specialized players like Yottaa. Last but not least, public  cloud giant Amazon is both a customer and a competitor to Akamai. Amazon offers its own CloudFront CDN service but utilizes Akamai CDN to speed content delivery around the world.

Just a few weeks ago Akamai and AT&T inked a deal under which AT&T will deploy Akamai CDN servers at the edge of its network and resell Akamai services — in effect bowing out of its own CDN business.

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In a blog post Thursday afternoon, Andrew Dugan, SVP of Network Engineering & Architecture, and Nasser El-Aawar, principal network architect, use a service called Wireshark to test out claims that Comcast is prioritizing its Xfinity on demand traffic that users access via the Xbox. Much like Bryan Berg, who kicked off this kerfuffle with a post on Comcast labeling packets and then accusing it of prioritizing packets, the Level 3 engineers detailed their tests and provided graphs showing that Netflix traffic was degraded on the network when it was congested while the Xfinity traffic going over the Xbox was unaffected.

From the Level 3 post:

While there are a number of factors that can influence download performance for Internet traffic, it appears to us that Xfinity consistently gets good performance in both the congested and uncongested tests, while Netflix traffic is significantly impaired when the home connection is congested. These results seem to be consistent with the practice of prioritization.

Comcast has denied that it prioritizing traffic and instead claims it is marking packets so it can exempt them from the cap and create a “logical” separation. The argument seems to depend on Comcast saying it is creating a logical, but not a physical separation of its traffic by labeling it, with the other side pointing out that this logical separation has physical effects that look an awful lot like physical prioritization.

Comcast has depended on technicalities before when it argued that it did not block peer-to-peer traffic back in 2007, but merely delayed the traffic. But as a result of those delays, the packets were dropped, thus blocking the P2P flows for users.

However, Level 3 is not exactly a neutral party. It is a content delivery network for Netflix, and in 2010 was in a very public spat with Comcast over peering, after Comcast demanded Level 3 pay it for the additional traffic it was sending over its network. The issue faded away and its resolution wasn’t publicized.

Despite Comcast’s efforts to raise its cap and render questions about how it handles its Xfinity traffic via Xbox moot, it appears that those questions are still as relevant as they were before Comcast tossed users 50 extra gigabytes per month.

Comcast van image courtesy of Flickr user Titanas.

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Unlike what Google is building in Kansas City, this isn’t crazy-fast fiber to the home; it’s a city-owned, middle mile, network link other providers can tap into in order to deliver faster broadband to homes and businesses. The 100-gigabit fiber network will connect out to the big long-haul networks run by Level 3 Communications and other providers, offering a way for existing or new ISPs to connect to the larger web. In many areas, these middle mile links are owned by AT&T and Verizon, and it can be expensive, difficult or impossible to connect out to them.

So while the network may not seem fabulous today, it most decidedly could be. Already, 24 community anchor institutions such as libraries, schools and other municipal buildings are connected to the 100-gig network. As the network expands, the city hopes to link up to 199 more. And having a low-cost, middle mile network could entice other service providers to hook up D.C. homes and businesses with faster broadband access. The network was funded in part by federal broadband stimulus funds and is expected to be complete by 2013.

While many of the nation’s politicians don’t live in D.C. proper, I would love for this type of network to act as a showcase for how important the Internet can be for the average citizen. In many ways, it seems like the Web and technology industry speak a completely different language than politicos. Perhaps better broadband could help bridge that gap.

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1. Constructions companies and excavators.
2. Trucks and other vehicle-related damages. (Add ships to this list too.)
3. Natural Disasters (High winds, Hurricanes &  Ice storms.)
4. Vandalism
5. A pissed off Southern landowner with a backhoe and a shotgun.
6. Squirrels (and other wild animals.

Given his track record of being able to accurately predict the future of video — he called video the killer app of broadband at our NewTeeVee conference in 2009 – it’s easy to buy into what he has to say. He also predicted video would be available as streams on many devices and to many screens over the Internet.

It has been an amazing year for the company. Netflix has seen its subscriber base leap from 14 million to 22 million in the U.S. Its stock has been on a tear, and it has seen rivals such as Blockbuster fall by the wayside. It has been painted both as the savior of niche television shows and the destroyer of broadband.

When I think of Netflix, I think of a big data company with a special focus on user interaction and content. Of course, there’s nothing better than getting the lowdown from the man himself to find out what he’s thinking about next. Last week, in a short freewheeling conversation over Skype (Reed does love Skype), he shared his thoughts on the future of television, video and broadband. Here are some excerpts from my conversation.

By topic

• Why ISPs Have to Shape Up
• Impact of Bandwidth Caps
• Importance of Fiber broadband
• What TV Looks Like in 20 Years
• Sensors & User Experience
• House of Cards & Content Expansion Plans

On Internet Service Providers & Innovation

In a letter filed with the FCC, Hastings and Netflix were critical of Internet service providers. When I asked if they indeed were the enemies of innovation, he said his criticism isn’t “blanket” criticism, but he’s critical of certain ISP practices such as pay-per-gigabyte (particularly in Canada) and the practice of charging for sending bits into their network.

“Their consumers want Netflix bits and they charge the consumer,” says Hastings. “Comcast wants to charge our provider for providing those bits. What they want to do is make money on both ends: consumers and the content end.” He believes Comcast shouldn’t charge for the “entry of our bits into their network.”

Instead, Reed endorses settlement-free peering, but Comcast doesn’t agree. Comcast is currently locked in a bitter dispute with Level 3 Communications, Netflix’s service provider. Hastings points out that Charter Communications, a cable broadband provider, practices settlement-free peering. “So, no, we are not making a blanket statement that all ISPs are bad, just certain ISP practices are bad.”

(By the way he does think Comcast has done a great job on its Xfinity app for the web and for the iPad, so he’s not holding any grudges against them.)

Top

On Bandwidth Caps

Last week, Canadian broadband provider Shaw decided to increase its bandwidth caps. According to Reed, this is a step in the right direction because ultimately, it’s good for the Canadian consumer.

Canadian consumers want unlimited Internet, Reed added. (In the U.S., we’ve had unlimited Internet, though some ISP are beginning to impose caps.) He takes heart from the fact that Shaw increased the bandwidth caps and have said it’s going to increase them again.

“The marginal cost of delivering one more gigabyte is a penny,” Hastings added. “I think once you have the fiber installed, it almost doesn’t matter how much [bandwidth] you use.”

Top

On Fiber Broadband & the Future

Over the past twenty years, Internet bandwidth has expanded dramatically, and in the past decade or so, we’ve gone from dial-up to DSL and cable broadband. Now we’re going fiber-to-the-home.

Hastings was super-excited by Google’s 1 Gbps Google Access fiber project in Kansas City, Kan. because it would show us “what can be done” with so much low-cost bandwidth. Today, he pointed out that Netflix works just fine with DSL and cable, but “more fiber means there are going to be more high-definition streams” and more on-demand content. “It is much more than a Netflix story. It opens up possibilities for many interactive, immersive applications.”

“What we have got to do is get fiber to everybody’s home just like we got electricity and telephone lines,” said Hastings. “It will happen over a certain number of years.”

Hastings believes the future of broadband is already here, and pointed to countries like Australia, Brazil and Costa Rica, which made fiber broadband to their citizens a top priority. In the U.S., he’s excited by states like Vermont, which are laying fiber for fast connections for its citizens.

When I asked Reed if the fiber deployments were going to be key to Netflix’s future international expansions, he declined to comment and said the company would share its global expansion plans in the second half of 2011.

Top

It’s an All-NewTeeVee World

Fiber broadband is key to the future of companies like Netflix in a world where all video would become “click-and-watch,” and will always be on demand.  “In the next 10 to 20 years, almost all video will become click-and-watch Internet video and consumers will interact with it on a wider range of devices and it will able be on demand,” he predicted. “You will not tune into a certain channel this is broadcasting — and that is the radical change. It will be an on-demand world.”

“Today on the iPad, you install various apps and in two years Samsung televisions will be like that. You can already see bits of that future,” he added. In five years Hastings believes that all televisions sold globally will have a built-in Wi-Fi connection and the television will also be an Internet access device. In this brave new world, Hastings says Netflix is one of the subscription sources for television shows and movies.

Top

On Sensors & the User Experience

When I asked Reed if he thought the click-and-consume metaphor will apply to everything on the network, he said yes and pointed out that in such a world, the difference would be how consumers interact with services defined by the user experience.

He believes the future user interface of not only Netflix, but other applications, will have to become more interactive and will have to take into account inputs from various sensors. “Sensor web is growing, and Netflix will have to integrate it into our experience,” he added.

“Our user interface will be tremendously advanced from where it is today,” Hastings added. “It will talk; it will integrate with sensors; and when you shake your phone, it will give you various shows.”

Reed also said, “It is up to application developers to integrate those sources of data and figure out social video and what social video means.” When I asked him if re-imagining the user experience with various sensor inputs was par for the course going forward, he concurred. Over the next few years, he expects companies like Apple, Amazon, YouTube and Comcast to keep innovating and learning from each others’ experience.

Top

On House of Cards and Its Content Plans?

When I asked Reed if Netflix was getting into the content business, especially with them spending so much money on the House of Cards show, he said the company is in the business of licensing content. It’s not in the business of producing content and reading scripts. “We don’t produce content,” he said.

In the case of House of Cards, he noted they are still licensing the content in certain release windows and certain categories. “It is a riskier license than the ones we have done before, as we know less about the content than say Mad Men, where we can get a pretty tight prediction on how much people will view it,” Hastings added. “It is fair to say we are taking a lot more risk in our licensing but it is different from being a content developer.”

Top

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As Global Crossing CEO John Legere pointed out in the conference call, this is a deal that has been discussed several times in the last few years, but only today came to fruition. The reasons? An increasing need for scale among the global telecommunications players, a changing network topology as well as the incredible rise in video and cloud computing traffic anticipated in the coming years around the world.

But first, the details. The combined network will serve more than 50 countries and provide connections to more than 70 countries in areas including Latin America and Asia, where growth is skyrocketing. Global Crossing shareholders will receive 16 shares of Level 3 common stock for each share of Global Crossing common stock owned at closing. Based on Level 3’s closing stock on Friday, the transaction is valued at $23.04 per Global Crossing share, or approximately $3.0 billion, including the assumption of approximately $1.1 billion of net debt. The transaction will create a company with pro forma combined 2010 revenues of $6.26 billion.

With the metro fiber assets, undersea cable and long-haul fiber crisscrossing the world, this deal allows Level 3 to play with broadband’s big boys, as those boys get bigger. For example, the industry is consolidating in terms of sharing towers for wireless networks, monopoly wireline providers combining and even wireless providers getting bought. As the last mile and wireless providers consolidate, Level 3 needs the power and scale to control its own destiny. For an example of this, check out Renesys’ awesome blog on competition among backbone providers earlier this year.

For example, the spat between Comcast and Level 3 over delivering Netflix traffic in the U.S. takes on a different tenor now if Global Crossing is part of Level 3, making it more difficult for Comcast to argue that blocking Level 3 still allows network traffic to get through on Global Crossing’s network, driving home the concept of last mile providers trying to erect a toll booth on the Internet and how important scale can be for backbone players. Will adding in Global Crossing’s traffic change the math on the peering debate? Likely not, but it could force the FCC to pay closer attention to this issue it seems anxious to avoid.

Scale is important for other reasons as well. As I explained in my story last week about Cisco’s reorganization, the nature of networking is changing, becoming more chaotic and fluid. The multitude of devices, the desire for video streaming and the need for corporate connectivity anywhere on anything have changed networks from being static point-to-point connections to roving connections that pop up unexpectedly on a variety of networks. To adapt to that shift, companies will need to be large and control their own destinies, much like Level 3 and Global Crossing are now trying to do with this tie up.

So for consumers, this deal could change the balance of power away from last-mile providers eager to set tolls on the Internet, while for businesses and investors, the deal heralds a recognition of the changing nature of networking and Level 3′s and Global Crossing’s attempts to bulk up in anticipation of that shift.

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Level 3 and Comcast have been in a stand-off over peering issues since last November, when Level 3 alleged the cable company was “putting up a toll booth” by charging for Level 3 traffic going over its network. Comcast has disputed this notion, saying this was a regular peering practice and the traffic coming from Level 3 had increased exponentially in the weeks leading up to the dispute.

It soon became clear that much of the traffic in question was from Netflix, which Level 3 won as a CDN customer last fall. Netflix initially refused to publicly take sides on the issue, but it has gotten more frank in recent weeks, going as far as saying that peering charges imposed by “some ISPs” are “inappropriate.”

Today, Netflix finally named names and started pointing fingers. Sorta, kinda, maybe. Here’s what the company had to say in its 10-K:

“(In) late 2010, Comcast informed Level 3 Communications that it would require Level 3 to pay for the ability to access Comcast’s network. Given that much of the traffic being requested by Comcast customers is Netflix data stored with Level 3, many commentators have looked to this situation as an example of Comcast either discriminating against Netflix traffic or trying to increase Netflix’s operating costs.”

Many commentators. Riiiiight. Essentially, this is a careful way of saying Comcast is imposing extra charges on Level 3 to hurt Netflix, which increasingly sees itself as a cable competitor. The report goes on to say:

“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.”

The passage ends with Netflix saying it trusts in regulators to get this right. Unless they don’t, in which case Netflix could be in trouble. Netflix tackles the issue as part of the risk factors to its business, which always tend to include some vague warnings of earthquakes, plagues and other bad things that may never actually happen but have to be mentioned to shareholders anyway.

However, the wording makes it pretty clear that Netflix is actually quite concerned about the issue, and it sees Comcast not as a friendly competitor, but as a company that has plenty of reason to play dirty.

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