Verizon Public Policy on Netflix

If Netflix were a good citizen, it would (a) let ISPs cache content; (b)
pay them
equitably for direct connections (smaller and more remote ISPs have higher
per customer and should get MORE per account than Comcast, rather than
nothing); and (c) work with ISPs to develop updated technology that makes
more efficient. Bandwidth is expensive, and unicast streaming without
caching is by
far the most inefficient conceivable way of delivering "fat" content to
the consumer.

I noted most of the discussion seems to point to Internet bandwidth as a
cost factor to ISPs, but I wonder what's the impact of Netflix on access
network costs ? They might be harder to measure or directly correlate to
streaming usage, but for non-wired networks (which is usually the case in
rural networks), this impact sounds more harmful to me than uplink costs.


Let's just dispel this, internet bandwidth is not a very significant cost for access networks when compared to moving the data internally and maintaining the last mile access. That being said, incremental usage can drive huge capex, almost always in the very expensive last mile.

Most of our cost (as a cable provider) on a per-bit basis is between the head-end and the customer, or between the head-end and the regional pop. The main driver here should be obvious, the bigger the pipe on the same route, the cheaper the bits... A cable carrying 300 kbit/sec costs just as much to maintain and install as a cable carrying 300 gbit/sec on the outside plant side of the equation, and that is where the real cost is.


I think Jay just won the TMI award for this thread...



If Netflix were a good citizen, it would (a) let ISPs cache content; (b)
pay them
equitably for direct connections (smaller and more remote ISPs have higher
per customer and should get MORE per account than Comcast, rather than
nothing); and (c) work with ISPs to develop updated technology that makes
more efficient. Bandwidth is expensive, and unicast streaming without
caching is by
far the most inefficient conceivable way of delivering "fat" content to
the consumer.

I noted most of the discussion seems to point to Internet bandwidth as a
cost factor to ISPs, but I wonder what's the impact of Netflix on access
network costs ? They might be harder to measure or directly correlate to
streaming usage, but for non-wired networks (which is usually the case in
rural networks), this impact sounds more harmful to me than uplink costs.

if your customer buys 20, needs 6 and gets 4 I guess that's problem, if
the customer buys 2 and needs 4 that's a different one... It's
politically inconvenient to assign blame to third parties for the
provisioned capacity of the last mile network.


And then the bandwidth catches up and it's no big deal anymore.

I think I want this on a T-shirt.

I recall phoning AT&T once asking for 100m service at a commercial
address and it took a swat-team of people on the phone to tell me they
would be 4x/mo what I was paying.. I politely told them they were too
expensive and to not schedule a 8 person conference call for a basic
service level.

i remember calling a very large telco to order a ds3 (yes, it was a
while ago). they transferred me to engineering to see if they had
capacity. engineering told me to hang on, and then i heard a lot
of rustling of paper. i knew that even if i could get the circuit i
would not want it.


Unless of course you've promised the content owner that you would be encrypting each delivery with a different key (because they'd been burned before by things like DVDs, which do not). Then not "problem solved" at all.

You're also assuming that every customer is viewing the same bitrate/resolution/aspect ratio. With multi-bitrate streaming, there's often low overlap between the segments adjacent customers wish to load... even if the content is not encrypted, or is encrypted with the same DRM key for everyone.

Of course, the facts of the situation don't appear to matter really...

Matthew Kaufman

How would "4U of rent" and 500W($50) electricity *not* save money?

Because, on top of that, we'd have huge bandwidth expenses. And Netflix
would refuse to cover any of that out of the billions in fees it's collecting
from subscribers. We can't raise our prices (that would not only cost us
customers but be unfair to many of them; it would be forcing the non-Netflix
users to subsidize Netflix). We simply need Netflix to pay at least some of its

So, to sum up, Brett, you feel that Netflix should be forced to bill their BrettGlassNet users
extra to cover what they pay to BrettGlassNet to reach the users to deliver the content the
users have requested instead of expecting you to bill the users for that yourself.

Because Netflix refuses to do this and has enough of a market presence that you aren't
succeeding so well telling your customers that they shouldn't care so much about Netflix,
you're blaming Netflix for this problem? It's a shame to see a small provider acting so much
like the big $CABLECO and $TELCO providers thinking that they have a right to extort
money from content providers to avoid billing their subscribers more accurately.

more (it costs more to serve each one). And Netflix is particularly out of line
because it is insisting that we pay huge bandwidth bills for an exclusive
connection just to it. It is also wasting our existing bandwidth by refusing to
allow caching.

The fact that some access provider was able to extort Netflix because they are a bigger
800# gorilla than Netflix shouldn't make you expect that you can extort Netflix in the same
way, nor does it mean that by refusing to be extorted by smaller providers, Netflix is
extorting you with their market position. In an ideal world, frankly, none of the access providers
would be allowed to double-dip like this. You should have to bill your customers for the
traffic you deliver to them. If they want more than your network can accommodate at what
they currently pay, then they should have to pay. How you sort that out with your customers
is your business. If you don't want your customers that don't use Netflix to subsidize your
customers that use Netflix, use a usage-sensitive pricing or charge a premium service of
some sort or whatever. That's between you and your customers (so long as you have
competition and your customers have choice).

If Netflix continues on its current course, ALL ISPs -- not just rural ones,
will eventually be forced to rebel. And it will not be pretty.

I don't think so. I think the reality is that access providers have been trying to find ways
to force content providers to subsidize their business and avoid charging their customers
accurately for a long time and that continuing to do so is damaging to everyone involved.

Our best hope, unless Netflix changes its ways, is for a competitor to come
along which has more ISP-friendly practices. Such a competitor could easily
destroy Netflix via better relations with ISPs... and better performance and
lower costs due to caching at the ISP.

Your best hope is to see your competition forced to move to a pricing model that reflects the
costs of delivering what their customers demand so that you can move to a similar pricing model
without losing customers.

It's not that I'm insensitive to your situation, just that I see this as an example of one of the many
ways in which the current model has become utterly dysfunctional and attempting to perpetuate
it seems ill-advised to me.

If Netflix had a closed or limited peering policy, then I'd say "shame on Netlfix". If Netflix only peered
in an exchange point or two near corporate HQ and didn't have an extensive nationwide network, I'd
say shame on Netflix. Reality is that Netflix is in most of the major peering centers already and continues
to work aggressively to expand into more and more second-tier and third-tier peering centers. I'd say
that is Netflix paying their share. Further, for providers that aren't in peering centers Netflix is in, they
have offered a variety of alternative solutions and they pay a selection of transit providers to move the
bits to providers they can't economically connect to directly.

It seems to me that Netflix is being about as good a net citizen as is possible and I, for one, consider
them an example that should be emulated.

Access providers should have to face the reality that they are charging their customers to deliver bits
they request to them. If the price they charge is insufficient to cover their costs in doing so, then they
need to find ways to solve that problem. It is not Netflix fault that your customers want more bits from
Netflix than they want from some other content provider, that's just Netflix having a successful business.
I might have bought the idea that Netflix as a new product represents so much more than expected
bandwidth that you needed time to adjust your business model if you were making that argument 5
or more years ago. However, today, video is an expected service and Netflix is far from the only very large
provider of high-bandwidth video content.


Indeed. We've heard this at each turn of the bandwidth crank from OMG JPG's! to OMG VoIP!
to OMG HD! to OMG Quantum Teleportation! (ok, maybe not the last. yet.)

Nobody's owed a business model, and we all know it's messy around the edges. Suck it up,
and maybe your customers will too.


However, if there is any concern about either a Netflix server OR an
ISP's cache being used to obtain illicit copies of the video, the solution
is simple. This is a trivial problem to solve. Send and store the streams in
encrypted form, passing a decryption key to the user via a separate,
secured channel such as an HTTPS session. Then, it is not possible to obtain
usable copies of the content by stealing either a Netflix server OR an
ISP-owned cache. Problem solved.

That works for individual sessions, but not for the cache scenario. Either everyone
gets the same key (which is equivalent to no key at all) or the cache has to be
able to participate in the encryption.

Beyond that small fly in the ointment, I believe Netflix current model operates pretty
much as you suggest. However, their cache boxes have to participate actively in the
encryption in order to avoid providing the same decryption key to everyone for any
given show. I suspect (though I don't know) that encrypted content is loaded onto
the cache in a form encrypted with a key known to the software on the cache. That
each streaming request causes said content to be decrypted and immediately re-encrypted
with a user-specific key and/or session-specific key and then sent to the user.

Hence the requirement that the cache be on a box run by Netflix, and probably part of
the reason for the greater power requirements.


Jay Ashworth wrote:

[ As you might imagine, this is a bit of a hobby horse for me; Verizon's behavior about municipally owned fiber, and it's attempts to convert post- Sandy customers in NYS from regulated copper to unregulated FiOS service leave a pretty bad taste in my mouth about VZN. ]

Quite agree with you on this stuff. I used to spend a good part of my time working with municipalities on planning fiber builds - so VZ's behavior on those matters leave a pretty bad taste in my mouth too. But.. that's kind of a different issue, wouldn't you say?

Am I obtuse or does it all boil down to:

1. If both Netflix customers, and Netflix all connected to a single network - customers would be paying for their access connections, and Netflix would be paying for a pipe big enough to handle the aggregate demand.

2. The issue is that customers connect to one network (actually multiple networks, but lets stick with Verizon for now), and pay Verizon; Netflix buys aggregate capacity into other networks; with one or more transit networks in the middle.

Well, there are multiple possibilities here...


In case A, it's pretty obvious that CUST $->ACCESS_NETWORK$->TRANSIT_A and NETFLIX$->TRANSIT_N
It's not entirely clear what the economics would be between TRANSIT_A<->TRANSIT_N, but most likely settlement free peering.

In case B, it's fairly obvious CUST $->ACCESS_NETWORK and it's less clear wehter:
  B1: ACCESS_NETWORK$->TRANSIT<-$NETFLIX (transit double-dip)
  B2: ACCESS_NETWORK$->TRANSIT and Transit is settlement free with Netflix (Access pays transit)
  B3: TRANSIT<-$NETFLIX and Access is settlement free with Transit (Netflix pays transit)

I'm sure in the real world there are likely examples of all three scenarios.

In case C, we arrive at what I think most of the argument is actually about. Obviuosly, CUST$->ACCESS_NETWORK.
The question is whether there should also be ACCESS_NETWORK<-$NETFLIX, which is what Brett is claiming should happen and what at least one very large ACCESS_NETWORK has been able to achieve at least temporarily. In my opinion, this case is a case of Access Double Dip where the access network is being paid by both the customer and the supplier for the same delivery.

As I said, this would be like paying for a product from $BOX_STORE and having $BOX_STORE bill me for shipping, and pay $CARRIER for deliver only to have $CARRIER show up at my door asking for even more money before they will fork over my package.

3. Somebody has to pay for what's in the middle (ports into transit networks, bandwidth across them). Those are additional costs, that wouldn't exist if everyone were connected to the same network.

I don't think that's really part of the argument here.

4. Both parties can make reasonable claims about why the other guys should pay.

Not really, IMHO. (See above and below)

5. $LARGE_ACCESS_NETWORKs are big enough to say "Netflix pays" - with Netflix making a visible stink about it.

LARGE_ACCESS_NETWORK may be able to force Netflix to pay, but that's not the same as saying Netflix _SHOULD_ pay. It's more like recognizing that market power and a large customer base can often force an economic decision that is contrary to what _SHOULD_ happen by any other rational evaluation.

6. Netflix is important enough to end users, that Netflix can tell the little guys "you pay." And yes, they're making it a little easier by providing the CDN boxes.

Perhaps, but that's not really what is happening here if you look at it in more detail. I don't deny that Netflix _COULD_ do this, just as $LARGE_ACCESS_NETWORKs _HAVE_ apparently done this to Netflix. However, so far, Netflix seems to be trying as hard as they can to provide cost-effective alternatives for ISPs to accept their bits in a variety of ways and allowing the ISP to choose which solution works best for them.

True, Netflix hasn't built out every single distant corner of the universe with their peering network, but I would say that by any reasonable view of the situation, they have aggressively built quite a network over a large fraction of their service geography and to their credit, they are continuing to aggressively expand that network.

To the best of my knowledge (and I'm sure Dave will correct me if I am wrong), Netflix would prefer to deliver bits settlement free directly to as many ACCESS_PROVIDERS as possible, because it saves Netflix from paying transit costs and it saves ACCESS_PROVIDERS from paying additional circuit or transit costs and it provides a better customer experience all around.

In cases where Netflix' network does not geographically overlap $ACCESS_PROVIDER's network, then one or both will need to cover the cost of bridging that distance, whether with an IP transit relationship, a circuit, or some other mechanism. In most cases, since Netflix is in a high percentage of the major peering centers, most $ACCESS_PROVIDERS already have to build into one of those centers in order to reach many other things, so it is reasonable for them to connect to Netflix at that same point. In other cases, they use a transit provider to reach those centers as well, and so likely they will use the same transit to reach Netflix. In virtually every case, they're going to reach Netflix the same way they reach the majority of other top sites on the internet. In such a case, it makes sense that $ACCESS_PROVIDER pays for their unique geographic situation. It doesn't make sense to expect Netflix to subsidize their choice of geography.

It seems to me that other than $LARGE_ACCESS_PROVIDERS' public statements trying to extort money from $CONTENT_PROVIDERS and Brett's posts in this conversation, the vast majority of people in this thread have overwhelmingly agreed with this point of view.

7. In the absence of some reasonably balanced formal policies and regulations about settlements - we're going to keep seeing this kind of stuff.

Probably true, but I will point out that one of the main reasons that the Internet has become such a cost-effective alternative even for voice traffic vs. the PSTN is the lack of said formal policies and regulations about settlements. Of course, you did say "reasonably balanced" which I don't think is a term that could be rationally applied to the ITU settlement rules for the PSTN.



Why would Netflix pay your ISP?

You are, Brett, a tiny ISP. Only 200 customers. That's barely a /24 of IP

What will happen instead is that your customers will pay to subsidize the
network of larger ISPs who do have that marketing power.

This is the true risk. Of Netflix is also paying money to the ISP, how do
we know the true cost of the connection? A big ISP can fight their way into
a position where no other ISP can compete.


This is so simple.

ISP offers xxMbps and should deliver that to the customer.

Dear customer. If you cannot stream full quality, upgrade .

Dear ISP stop promising xxMbps if you advertise a port cap lower than
theoretical port bandwidth. Basically fraud.

Except they don't. Excuse me for talking about the world outside America.
Netflix believes Denmark is an important enough market to pay for danish
subtitles for their entire catalog and to have Denmark as a launch market
for their service in Europe. But they can't be bothered to have a physical
presence in Denmark. We have to go to a different country and a long way at
that, to get to Stockholm in Sweden, where Netflix peers at the Netnod IX.

Some danish ISPs do peer at Netnod, but it is only the ones that are big
enough to qualify for a cache anyway. It is not economical to buy a link to
Stockholm. Transit is cheaper, so that is what we are all doing.

Then Netflix announces that you have to either have a cache or to peer
directly with Netflix to get Super HD. This is a case of reverse net
neutrality: The content provider is filtering content to ISPs that wont pay
the transit bill for the content provider. "for the content provider" not
"to the content provider". We pay our transit, it should not be our problem
how Netflix pays theirs.

Luckily this is so far only theory. We still get the Super HD. Either
Netflix never implemented the policy or one of our transit providers made a
deal with Netflix. I am not sure which one.

But nevertheless even threatening to play reverse net neutrality games is
NOT being the good guy.

If transit is too expensive for Netflix, they should put in a shared cache
at the danish IX (DIX) in Copenhagen. We would all be happy to peer with
Netflix at that location. If Netflix chooses to host the cache at Interxion
they also get access to the Netnod IX that covers Denmark and southern
Sweden, a metropolitan area of more than 10 million people.