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AT&T’s Ralph de la Vega thinks Netflix, not customers, should pay for capacity upgrades

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When it comes to charging large online video providers to interconnect to last mile ISP networks, AT&T’s(s t) Ralph de la Vega believes that someone should pay for the additional capacity needed to meet the demands of delivering online video, so the only question is who.

Speaking at the Rutberg Global Summit in Atlanta on Tuesday, de la Vega, Chief Executive of AT&T Mobility said, “We have to provide additional capacity and so the only question is who should pay for that addition. Should everyone pay for it or should Netflix?”

In response, moderator Rajeev Chand, a managing director and head of research at Rutberg, asked if metered broadband might be the solution, charging heavy users more for the capacity upgrades that AT&T is paying to deliver streaming video traffic. De la Vega shut that down saying, “The pricing models for the customer should be separate from the backbone.”

So consumers dodged that bullet so far, but Chand then asked about the cost of connectivity for the connected car and whether or not that will lead to poor consumer take rates because the cost of connectivity is too high. Audi has announced pricing for LTE connectivity for its forthcoming 2015 A3 sedan, working out to about $17 for a gigabyte each month.

So far GM and AT&T haven’t set pricing for the data plans, although de la Vega said you could attach the car to your current AT&T shared data plan. A GM employee next to me explained that the pricing would come later, and will likely have a trial period associated with it to help get consumers used to the idea of using connectivity. Unfortunately, she said GM doesn’t have information yet on the amount of data customers will use in the car.

Finally, during questioning we got to the fate of WhatsApp and other over the top applications that use AT&T’s network. De la Vega confirmed that those apps will be able to use AT&T’s network, but made a pitch to the audience to continue using AT&T’s SMS service. And when asked in jest about why AT&T didn’t outbid Facebook for WhatsApp, de la Vega joked “Why pay $20 billion for customers that give you 99 cents a year?”

40 Responses to “AT&T’s Ralph de la Vega thinks Netflix, not customers, should pay for capacity upgrades”

  1. Reading the posts I think the main argument is being missed. Up to this point there was competition between ISPs and the winner was the company that could provide the speed the user wants at a speed the user is willing to pay. The customer could be a host or a consumer with an email account. ISP did not care, just about the speed both upload and download is what determined your monthly cost. Also, at the time this was all-you-can-eat as well as there wasn’t demanding content on the internet. Once high speed connections began to become the norm and some people were using it to host websites or download video the ISP introduce throttling. This is a precursor this very discussion. Due to customer demand AT&T needs to update it’s infrastructure. Their home customers don’t want to pay as their speed is not expected to increase so no way to justify the additional cost and the same with providers like Netflix, they don’t need additional bandwidth over what they currently pay for so they can’t raise their price.

    The problem is no competition and market saturation. If there was true competition Netflix could take their business elsewhere but they can’t so instead they fight against their ISP for improperly wanting to raise their bill without a need on their part for the new infrastructure. Luckily it’s not like the government as the price would have been raised a long time ago with absolutely no change in service.

  2. Mr. Reality

    Tim, you are dead wrong, go back to your cubicle at AT&T.

    The ISP are the service providers and it is there responsibility. They are simply trying to pass on costs to the consumer in a round about way through the content provider. The logic is totally flawed it’s just simple profit maximization against the consumer by AT&T.

  3. Hey ATT you are a dumb pipe, either serve up what we pay you to serve up or you can shove your service where the sun dont shine! I am TIRED of being dictated to, when I am the customer that pays you for the service I want delivered!

  4. reasonableguyca

    Users are already paying AT&T & Comcast for high speed, high capacity internet connections. Or are you admitting that your marketing material is all fraudulent?

  5. Mcbeese

    AT&T charges it’s customers for a data service. It shouldn’t be any of AT&t’s business what it’s customers use that data for (Netflix, iTunes, etc.). If AT&T can’t deliver the service they are charging for, then AT&T should charge less.

    AT&T simply wants to double dip for the same data that AT&T customers have already paid it to deliver.

    I wish Netflix would play hardball with these guys. Let’s see how many Att customers defect if Netflix turns off the tap to AT&T (or Comcast).

    • ATT charges customers to carry data across its network. The data does not materialize out of thin air; whoever sends it is responsible for paying. That’s just common sense; it’s the way the Internet has always worked. Otherwise, I could run up you bill and make your connection unusable simply by bombarding you with data. If I want to bombard you with data, at least I should have to pay to send it, shouldn’t I? Why should Netflix get special treatment? ATT is worth only 8 times as much as Netflix, while employing 242,000 people (more than 100 times as many as Netflix), and maintaining miles of fiber and copper. You are being a dupe for Netflix.

      • SMARTNET

        wake up time ……SPOILER ALERT!!!…no commercial company gets on the internet for FREE… ONE MORE TIME NO ONE GETS ON THE INTERNET FOR FREE…






        • DUH is right. This entire discussion was triggered by Netflix arguing that it should NOT HAVE TO PAY, and somehow they have convinced a pack of idiots that the discussion is about whether they should have to pay extra. Incredible. Idiocy.

      • After reading several of your post I have determined that you have no clue how the internet actually works and thus should stop posting concerning this subject until you educate yourself so you stop looking so foolish.

  6. Chris Klopfenstein

    No…The consumer hasn’t dodged the bullet at all. AT&T just realizes they can’t raise their rates much more even though consumers use more data.

    Their “raise recurring monthly revenue” model is at its peak, with so many great post – paid and pre – paid plans available these days for smart devices.

    May as well get even more revenue from Netflix, they figure.

  7. The customer is already paying AT&T a monthly fee for broadband access. Why should they be forced to ultimately pay Netflix more for delivering the content they want. It really comes down to having the customer pay twice, once to AT&T and again to Netflix, since Netflix will pass on the fees paid to AT&T for last-mile delivery.

    Tell me what I’m missing here.

    • You’re missing the fact that anyone who sends data into a network expecting it to come out the other side needs to pay the operator of that network to carry it. The exception is when 2 networks are both dumping roughly equal amounts of data into each other. Then, the payments would be a wash, so they skip it. That’s the way the Internet has always worked. Netflix is just blowing smoke to distract its customers from the poor service they are seeing.

      • Are you implying that Netflix somehow is operating on the internet without paying for internet connectivity in some way? It certainly sounds that way.

        Netflix pays an awful lot to be connected to the internet and thus they pay an awful lot to be be reachable by their consumers. You implying they don’t is shear stupidity.

          • Tim, I think you’re missing the point. Netflix paid Cogent (and also Level 3, amongst others) to deliver their bits to whomever wanted them. And the ISPs are already hooked up with Cogent and Level 3 for access to their part of the internet. As more of the ISP’s traffic demand shifts from other parts of the internet to Netflix (now, apparently 30%), the ISPs are refusing to rebalance their network to accommodate the traffic unless Cogent and Level 3 pay more. And they’re only getting away with this because they have monopoly access to their customers. By all rights Cogent and Level 3 should be charging the ISPs more.

            I really wish we’d get past this ridiculous idea that Netflix isn’t paying it’s way, or that they’re somehow using the pipes for free. Nothing could be further from the truth. The fact that they offer to colocate their CDN hardware with the ISPs network infrastructure is a favor to the ISPs as it saves them for having to provide backhaul. But the ISPs see millions of dollars of additional revenue for their taking if they can just confuse enough people. And, sadly, it seems to be working.

            • There has never been a concept of “all you can eat” access to a network, as you seem to imply. You pay by the size of your pipe. This is how the Internet has always worked. Cogent had insufficient capacity into Comcast to deliver all of the traffic they were accepting from Netflix. They refused to pay Comcast to increase capacity. Please read the link I posted above. Why do you imagine Comcast should just enlarge their capacity for free? If I decide I want a 10 Mbps connection instead of a 1 Mbps connection, I expect to pay more. It is no different for Netflix, just on a larger scale. Isn’t it obvious that it costs money to accept more traffic into your network, if you plan on delivering it to the other side?

              Sure, there is a risk that ISP’s will exploit their monopoly position. But, if that was happening, wouldn’t ATT, Comcast and Verizon be making money hand over fist? Yet Facebook is more valuable than either Comcast or Verizon. Google is more valuable than ATT and Comcast combined. Comcast is only 6 times as valuable as Netflix. Have you thought about the operational scale of those businesses, say how easily we could build ATT from scratch, as compared to Facebook?

              If the problem we have is insufficient network capacity, how is it that preventing network operators from collecting revenue is going to fix that problem?

            • Well I guess it depends on who you think is buying what from whom. In my view I’m paying my ISP to connect me to the internet services I want to use. If 30% of my traffic goes to one service, then my ISP needs to provision their network to handle that. Netflix is paying Cogent to deliver as much data as they can. My ISP then has the responsibility to connect to Cogent with as fat a pipe as required to satisfy my need for Cogent’s customers’ data. It’s not like I’m asking my ISP to backhaul the data from Netflix’s servers.

              So the way I see it, Netflix _is_ paying for the network transport they need. They will deliver it to the ISP via Cogent (and others) or directly as a collocated CDN, whichever is more convenient for the ISP. And I’m paying the ISP to transport those bits from the “internet” to me. In this case those bits happen to be from Netflix. But they are arriving on the doorstep of my ISP at Netflix’s expense. My ISP’s refusal to open the door wide enough to accept them is a ploy to extract money from Netflix and nothing more.

            • I can see how you arrived at your view, but it’s not how commercial networks actually operate. Customers pay for the ability to send data, not receive it. That’s the way most transportation services work, because it is the sender who has ultimate control (even if the receiver might have “ordered” it). The base Internet protocols simply weren’t designed to require receiver permission, and you can’t charge someone for something they can’t control. So, what you are really buying from your ISP Is upstream capacity, but they have to give you downstream capacity, or else there would be no upstream capacity to sell to Netflix, et. al.

            • There’s one major problem with your argument. ISPs do, in fact, build their networks to consume, not generate, data. Almost all ISP service sold is heavily asymmetrical. Some services, like DSL, are sold with just enough upstream bandwidth to satisfy the TCP ACK requirements for the downstream traffic.

              Again, I think you are confusing ISPs with transit. And perhaps I should be more specific and say residential ISPs, since that’s what I think we’re both talking about. Residential customers don’t generate much upstream traffic and the ISPs have engineered their networks accordingly. What they are clearly selling is downstream access to content like web sites, movies, and music. It’s a little disingenuous for them to then turn around and sell their customers to the providers of those services.

            • Of course, ISP’s scale their networks to fit the pattern of traffic they expect. The problem with your conception is that it’s not well enough defined to actually engineer and operate a network. All the different kinds of network businesses (transit, residential ISP, etc.) cannot connect into a coherent “Internet” without some consistent principles. That principle is sender pays. A network that accepts a byte of data addressed to a certain address accepts responsibility for getting it to that address. If that address is not on their own network, then they make business arrangements with another network to carry it further along toward its destination.

              Your model might make a better commercial, but is not workable in reality. Your ISP cannot require a www site to buy a bigger network connection because you like their content. Neither can your ISP be obligated to pay for this connection itself, when the www site might be on the other side of the world. You have got some fuzzy idea that the www site is responsible for getting the data to your ISP’s “doorstep,” and then the ISP is responsible for opening up whatever size doorway is required to accept whatever arrives. Where are these doorsteps supposed to be? If an ISP has a doorstep in San Francisco and one in New York, can it require a www site to deliver packets destined to west coast subscribers to its San Francisco doorstep? Or could a www site in New York deliver all it’s data to the New York doorstep and leave it up to the ISP to carry it cross country? What if I have 1000 doorsteps around the country?

              Your idea introduces all kinds of complexity and doesn’t change the fundamental unknown for the consumer. If you are getting crappy service from a www site is it because the www site is over-subscribed or your ISP is over-subscribed? You are just trying to move the shift of responsibility to an intermediate point in the network that does not work as well operationally. And, still you would have to analyze the end-to-end path to know where the problem was, whether it might have been before the ISP’s “doorstep.”

            • Netflix will deliver their data anywhere the ISP wants, even up to placing a CDN at some convenient point for the ISP. This should be a great news for the ISPs and simplify their network and reduce their cost. That they don’t see it quite that way I think is more opportunism than anything else.

              I’ll leave it at that since I think we’ve gotten a little off track I don’t really have more to add. I don’t completely agree with you but you have made some good points. Cheers.

  8. Just an opinion

    Are the writers at most tech blogs really this clueless? The USERS of the bandwidth should pay for the bandwidth. The end-users pay for network access from the telco and they pay Netflix for access to the content. When you are driving 30% of all bandwidth on the internet, you can probably expected to take some additional responsibility in paying for what you are using. This really isn’t that hard…

  9. This is just PR from AT&T, if Netflix pays, the customer pays indirectly. The carriers did understand, that it is bad for their image, to raise their own price to customers and that it is better to let Netflix raise its price.

    • You are being confused by Netflix PR. The bizarre idea would be for some network users (i.e., Netflix) to be allowed to send data for free because the network operator has decided to charge the recipients (i.e., Netflix customers) instead. Who is allowed to get this special treatment? Can I run up your bill just by bombarding you with data? Much simpler idea is to just charge Netflix for the volume of data they inject into the network, like every other business.

        • No, the store should pay for a driveway that is big enough for its customers to reach the store. But, you can’t attach a 500 lane driveway to 2 lane road, so the business that operates the roads must charge enough for that 500 lane driveway to enlarge the rest of its network to deliver 500 cars to the driveway. Preventing network operators from charging for services is not going to improve the quality of those services. Obviously. Why is this so hard to understand? When you connect to a network, you pay by the size of your connection.

      • Tim, you clearly don’t understand the internet.

        Netflix does not bombard AT&T’s network. Netflix simply delivers the bits that consumers of AT&T have requested. Until that time, not a single Netflix bit attempts to enter their network. It is all just like this website does as does the millions of other “services” out there. So it is AT&T ISP customers that are requesting the data and thus “bombarding” AT&T’s network.

        If AT&T does not like the way their customers are using their network and thus causing them to have to invest to keep up then I guess they need to find a way to sway them legally. Maybe raise their prices, start charging per byte or find some creative way to discourage their use of Netflix without doing the unlawful thing of outright banning it.

        Bottom line is that the consumers of AT&T are paying them for internet access and how they use that is up to the consumer, not AT&T. If AT&T’s network can’t handle the load their own subscribers are putting on their network then they have 3 options: 1.) Invest in their network 2.) Reduce their number of subscriber, thus reducing the amount of data being requested 3.) Reduce the amount of data their subscribers can request by limiting their speed and/or utilizing caps.

        • You are the one who is confused. This website, like millions of other services out there, pays to connect to the network. They pay by the size of their connection. That is what Netflix is trying to dodge. Why is that so hard to grasp?

          I only used the term “bombard” to point out why charging is based on who sends the data, not who receives it. At its base level, the Internet operates like the postal system. You put an address on a packet and drop it in the mailbox. You seem to be suggesting that ATT should inspect the contents of all the packets, and analyze the protocols to determine whether you requested the packet, so they can charge you for receiving it, like a collect call, I guess. That is silly. Why should Netflix expect this special treatment? If you wanted to receive live video of your girlfriend, do you figure ATT is obligated to lay a cable to her house, because you are an ATT subscriber who has “already paid once” for your Internet connection? Or, wouldn’t it make more sense for your girlfriend to pay for her connection?

          • Tim, you really don’t seem to get how the internet works. Netflix is paying for their connections to the internet like everyone else. In fact, they even offer to deliver the content in the most convenient way for the ISP, often bypassing big chunks of the middle that are expensive and unnecessary in this case for both parties.

            But be clear about this: When you buy internet connectivity from your ISP (which, we seem to have for gotten, means Internet Service Provider) you are asking them to connect you to other parts of the internet. And they charge you differently depending on how fat you want your pipe to be.

            So what people are complaining about is that instead of taking my already paid for 50Mbps internet bandwidth and connecting to me to whomever I want (Netflix in this case) my ISP is trying to also charge the internet at large (Netflix specifically here) for access to its customers. And that’s just greed that prays on a relative ignorance of how the internet works.

            Oh, and don’t by any of the ridiculous “peering” arguments, either. First, peering is about peers. ISPs are not peers. They are an end-mile service provider that hooks peoples homes to the internet. But more important, recognizing that home users consume more data than they generate, the ISPs have built asymmetrical networks. So the notion of them peering (where a relatively equal amount of data travels both ways) is nonsense and a total red herring designed to complicate the argument.

            What we need is for the press to stop sucking up to people like Mr. de la Vega and make him truly defend his position. But then I guess we would also need a press that had a clue about the internet.

            • Netflix is not “the internet at large.” Netflix is Netflix. Like every other network customer, they pay according to the capacity of their connection. You have not somehow already paid for their connection when you paid for yours. This shouldn’t be that hard to understand.

            • I’m paying Netflix to deliver movies to a peering point where I then pay my ISP to deliver it to me. Who do imagine is getting the free lunch here? What is it you think you’re buying when you sign up for 50Mbps of internet access?

              This is about monopoly control over access to the ISPs customers and nothing more.

            • Suppose you and I have the same ISP and I am streaming movies from my home. I promise you I will stream movies to you at 10 Mbps per second if you pay me $10. Wouldn’t you agree that I am obligated to at least buy a 10 Mbps connection to our ISP? I can’t buy a 1 Mbps connection and then say “look I have brought my movie to the peering point (aka modem), now you, ISP, must upgrade my connection to 10 Mbps because one of your subscribers wants to buy movies from me.” No, I have to buy the 10 Mbps connection if I want to put 10 Mbps into the ISP network. That is easy to understand, right?

              Now, suppose I have a different ISP and I buy that 10 Mbps connection from them. Does that mean, I am now home free, since we have both paid for our connections to “the internet.” Well, no. There is really no such thing as “the internet” in the way you seem to think. It is a collection of privately operated networks who connect to each other on whatever commercial terms they can agree on. What if my ISP has only a 1 Mbps connection to your ISP? They don’t automatically get an arbitrarily large connection to your network just because they are part of “the internet”. They pay just like any other customer. How could it be otherwise? The cost of moving 10 Mbps across your ISP network doesn’t suddenly disappear because it came from another ISP, or “the Internet.”

              I know exactly what I am buying when I sign up for Internet access. Evidently, the majority of people do not. And companies like Netflix are able to play on that ignorance for their own advantage. If we have a problem with monopoly, it is because there is little financial incentive to make the huge capital investments to build out better networks.

            • By your logic, no one would be paying companies like Cogent to carry traffic between ISPs because Cogent would be paying each of the ISPs.

              Transit providers and ISPs serve different purposes, are built out differently, and have different economic models. I think you are confusing the two.

            • I never said there is some universally agreed upon price to send a Mbps into a network. If I operate a transoceanic cable I probably charge more to carry a byte than a local ISP does. So, Cogent can still make money if it charges more to accept a Mbps than it must pay to get rid of it. Which is exactly how their business works. Nothing in that implies the ISP’s are accepting an arbitrary volume of data for free.

            • I guess the title of this piece is a big source of confusion. When it says “Netflix, not customers, should pay” it obfuscates the fact that Netflix is a customer of the network too. A customer who needs a very fat connection, if they are going to deliver the service they are selling.