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Why the consumer is still held hostage in peering disputes

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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.

10 Responses to “Why the consumer is still held hostage in peering disputes”

  1. Richard Bennett

    This statement is an opinion, not a fact: “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.”

    Another way to look at the problem is that Netflix is not really part of the Internet, it’s a parallel service to the Internet that converges at ISP borders with a pile of traffic 15 times larger than the web surfing app that residential Internet service was designed to accommodate. That’s not a fact either, it’s just a different opinion that has a little bit of factual content.

    If Netflix is part of the Internet, its 35% share of the traffic could be taken to mean that it should be responsible for paying 35% of the costs of Internet service in the US. Another opinion.

    But no matter how many ISPs we have in the US, each needs to dedicate one third of capacity to Netflix, and the rest to the rest of the Internet. That being the case, it would be really nice if Netflix would stop switching its routes every six months to new entry points to ISP networks after ISPs have provisioned extra capacity for the old ones.

    This is the thing that pisses off the ISPs and makes them want to lock Netflix into contracts to make them play nice. That’s a fact.

    • John Smith

      The issue is not quite black and white ,netflix has to go thru a middle man so to speak and often their equipment can not handle heavy traffic and upgrades are not easily installed, new routers are massive and heavy . Then there is the smaller isp , look up show notes this week in google there was a discussion about this very issue. There is also the smaller isp they have issue with handling the heavy traffic

  2. Once again, mostly people understand the problem to be in the last mile, but few have a solution. Well here it is and few will like it as it cuts both ways: mandated interconnection out to the edge applied across the board in layers 1-2 (COs, head-ends, pedestals and poles) in return for market driven “balanced settlements” that afford entirely new revenue models. More importantly balanced settlements provide important price signals and incentives which the (private) IP stack never had.

    For those who say mediation or settlements cut against free or open, they are missing that point that competition will drive pricing down to marginal cost and that the platforms for achieving this (big data, API’s, ad exchanges, etc…) at every layer and boundary point are already developing. In fact, the settlement free concept will be considered an aberration and dead-end and legacy of the initial movement to competition in the voice markets that sprang out of inefficient regulated rate arbitrage and new service creation models. Data in the early 1990s was the proverbial pimple on the voice elephant’s butt, so flat-rate didn’t really matter. The web 1.0 crash showed that we needed a settlement model, which evolved to the Google dominated advertising exchange model that monetized communities of eyeballs.

    But in the future we don’t necessarily have to give up our privacy or identity in order to achieve free, low cost, universal access. The individual communications session can be tied to the commercial transaction through balanced settlements.

  3. PrincetonAl

    “The government can either get serious about regulating what is a duopoly industry”

    Government created a duopoly industry through regulations. Not sure why government regulations are suddenly going to make it better, despite lots of what I think are misplaced calls. I don’t like my cable provider at all (Comcast), but the answer is choice.

    The solution is competition, which might well reveal the peering issue to be something different than true Net Neutrality. Because it might well be that Verizon is treating NetFlix traffic the same as others, and the pipes from where NetFlix are coming are clogged.

    I think the call for more regulation is especially ironic, when you look at the issues with Aereo. Here, existing regulations heavily favor incumbents (Broadcasters) over innovation. This is called regulatory capture, where dominant players seek to secure their position via lobbying.

    Put me in the “no regulation” camp and eliminate the government-sponsored monopolies in broadband.

  4. El Barto

    Verizon is a shady company and will always be until people stop thinking they have the best network. Their cellular network is garbage and even tmobile tops it. They have many network issues and their PR always denies and blames someone else, but they still charge you dearly for crappy service.

  5. Have you noticed that all the major broadband providers have some other source of revenue (e.g., telephone, cable TV) to support their business. Does it occur to you that delivering residential broadband is not a very profitable business. And, if that is the case, why should Verizon make the investments to make Netflix more profitable. Why should my ISP bill subsidize your Netflix viewing?

    • nkillgore


      The ISPs are selling internet – the whole internet, not the internet except for netflix – access at a certain speed for a flat fee per month. At best, they are effectively breaking the internet by not upgrading their peering connections to handle an increased demand in bandwidth. At worst, they are intentionally leaving a too small link in place in an effort to force Netflix to pay for the ISP’s infrastructure upgrades.

      Also, Netflix might be the problem now, but next year, it could be a site that you frequent. Then what? Will you complain when is slow because the Verizon doesn’t like’s ISP?

      • Whatever you think the ISP’s are selling, the capacity for you to receive 10 Mbps from anywhere in the world does not suddenly materialize when you buy a 10 Mbps connection to “the Internet.” Capacity only gets created when some other party pays for the ability to send you 10 Mbps. There is no evidence that Netflix is being discriminated against. In fact, given their volumes they are probably paying less per byte than anyone else. They just want to pay less, which is no surprise, given that they account for 30% of the traffic in the US. And, also they want to deflect dissatisfaction with their service onto the ISP’s, who are always an easy target. But, just because they are “on the Internet” doesn’t mean every Internet customer is obligated to subsidize their traffic. People who watch Netflix should pay Netflix so that Netflix can pay network operators to transport their traffic. That is how the Internet has always worked. If you can afford to host your www site on a faster connection, your customers will get better service.

  6. Golden Frog

    We are Golden Frog, the blogger mentioned in the article is using our VyprVPN service to get better Netflix performance.

    The core problem is the severe lack of competition in the United States. That’s why we filed comments this week to the FCC as part of the i2Coalition:

    We recommend everyone file their own personal comments at the FCC about Open Access before the end of the deadline today!

    We also published an infographic that explains the “Peering Problem” in more detail:

    Common sense says that speeds would inherently slow down due to the encryption overhead but there is more going on at the network layer to explain the increased speed. Excuse the marketing-speak, but we are the only VPN provider that doesn’t “rent” servers and network from hosting providers, etc. We own and operate our own server infrastructure and run our own network. Running your own network means we control the router and can choose uncongested routes to our users. It seems that Verizon intentionally ignores the congestion and resulting customer complaints.

    Netflix is likely using Level3 or Cogent to get to Verizon. If these links are saturated (reports are that they are), then performance through them is going to suffer because the pipe is not big enough for all the bits that need to go through it. Golden Frog uses other backbone providers to get to Verizon, so we’re not going through those congested links. Our paths to Verizon are uncongested. When the author uses VyprVPN to watch Netflix, he avoids the congested links and gets as much bandwidth as he needs.

    Verizon needs more competition so users can leave Verizon for an ISP that provides blazing fast speeds to Netlifx – like VyprVPN does. Unfortunately, consumers do not have enough choice today.