Angry customers. Dueling blog posts. An FCC investigation. The most recent fight over peering practices between large ISPs and Netflix has raged for almost 10 months, and we are still at the point where each side is defending its point of view and the end consumer is still getting screwed when they try to watch streaming video.
We’ve talked a lot about why this is happening and each side’s arguments. Others have laid out how to get around the problem using virtual private networks that can hide the Netflix(s nflx) traffic. Verizon(s vz) has been the latest ISP to face the wrath of customers. On Wednesday it tried to explain its position. On Thursday Level 3 explained why Verizon was full of crap and a customer tested his connection using the aforementioned VPN and discovered he could get 10x the speed.
But the core of the problem here isn’t that Verizon is trying to protect its own economic interest by charging Netflix, whose traffic might ultimately force it to invest in network upgrades to meet consumer demand. It’s that Verizon is effectively a duopoly provider of an essential service.
Consumers have to use Verizon, or likely one of the other large ISPs that is economically threatened by streaming video traffic, and Netflix has to find some way of getting its bits onto Verizon’s network in order to serve subscribers who can’t leave the network. Both have an economic interest is prevailing and both can make effective arguments about how the other is in the wrong. Thus, the consumer is basically a hostage in the ongoing Verizon and Netflix negotiations.
Imagine that FedEx, recognizing that Amazon’s drone ambitions were going to cut into its revenue stream, decided to stop delivering Amazon shipments in the two-day Prime window. The consumer would rightly be miffed, and Amazon would be within its right to shift more of its deliveries over to UPS or the U.S. Postal Service. FedEx would either have to lower prices, offer some awesome drone management service or otherwise adapt to the new competitive pressures brought about by Amazon’s innovation.
In the last-mile broadband market, Verizon, Time Warner Cable, AT&T and Comcast have no incentive to make Netflix streaming better. For example, in my market, I’m in the midst of switching from TWC over to AT&T (my only two wireline options). Both are having trouble delivering Netflix’s bits because of a breakdown in peering negotiations.
And thanks to year-long contracts implemented by ISPs and the pain of switching providers (there’s an install fee, another potential contract and possibly the loss of an email address), switching isn’t done lightly even if there were a ton of alternatives. So, while the FCC is investigating the current peering disputes and may eventually have to make a ruling, the big issue is the lack of competition. Google Fiber isn’t going to save us anytime soon. Despite the hype, its network serves a minuscule portion of the population.
The government can either get serious about regulating what is a duopoly industry, or it can get serious about pushing for alternative networks and ensuring that the current broadband market doesn’t become even more consolidated (I’m looking at you, Comcast-Time Warner Cable merger). I know that regulation can complicate things, but figuring out political and technological solutions that let packets flow freely between parties will be essential in overcoming what has become an impasse between content providers and those offering last-mile connections.