Tag Archives: NetFlix

Net Neutraility Comments at the FCC

Network_neutrality_poster_symbolThe FCC’s Net Neutrality docket got over 1 million comments, most from ordinary Americans who are worried about the large ISPs and web companies colluding to restrict or hijack their Internet experience. I read through some of these comments and people are universally worried about companies like Comcast and Google getting together to limit what they can do on the web. The public does not want to see a network provider have the ability to slow down their Internet experience or to dictate which web sites they can use.

Obviously I didn’t read all of the comments in this docket and one has to wonder if anybody at the FCC can or will read it all. That’s a tall task. But I did look at the comments of the larger carriers and web companies to see what they have to say. There were no surprises with the big ISPs on one side of the issue and almost everybody else on the other.

AT&T is in favor of no additional regulation of the Internet, meaning they would be free to prioritize traffic if they wish. This could obviously make them a lot of money. AT&T says if there must be regulation that they would prefer it to be through Section 706 regulation, which is the section of the FCC rules that talks about no blocking of Internet traffic. AT&T is totally against having a Title II classification of the Internet as a common carrier business. And not surprisingly, AT&T is not in favor of regulating data for wireless carriers.

Comcast is also against Title II classification as a common carrier and they prefer no regulation at all. Comcast says that they are already a good web citizen and don’t need to be regulated, but even if they were there would be loopholes that would allow carriers like them to discriminate. This seems like an odd argument to make from a company that wants approval for a giant merger. Comcast says that if there is regulation that it should also apply to public Wi-Fi and mobile broadband.

Verizon had the longest comments I saw. Verizon believes the best solution is the least amount of regulation possible. They think the market will control carriers because customers won’t accept being throttled. Verizon says the real threat to the Internet comes from companies like Google, Netflix and Amazon. And obviously they are very much against Title II regulation.

On the other side of the argument is, well, just about everybody else except a few other cable companies. There were a few filings that represented groups of Internet-based companies. The Information Technology Industry Council represented companies like Apple, Facebook, Google, Intel, Microsoft, Yahoo and many others. They argue that the FCC needs to put in rules to protect consumers, but also to protect both small and large web-based companies. They are not in favor of Title II regulation but instead would like to see something similar to the rules that were vacated by the courts.

The Internet Association represents Amazon, Ebay, Expedia, Facebook, Google, Linked-In, Twitter, Netflix, Yahoo, Yelp and many others. As you might have noticed, Google and Yahoo are in both industry groups. This group also doesn’t support full Title II regulation but thinks that the FCC needs to find ways to stop the ISPs from discriminating and wants the FCC to support application agnostic network management. They want the same rules to apply to wireless carriers.

Netflix is at the core of a current battle over network neutrality. Netflix is about the only big tech company I could find in favor of Title II regulation. They think anything short of full title II reclassification will just be asking for another court battle that the FCC will eventually lose.

One has to wonder if the volume of public comments means anything. It’s clear where the public stands on this issue and people are afraid that the Internet is going to change to their detriment. They already see the ongoing battle between Verizon and Netflix and they don’t want to see a future where their web experience is dependent upon how ISPs and content providers are getting along. When they buy an amount of bandwidth from an ISP they want whatever fits into that bandwidth to work.

What’s the Truth About Netflix?

Polk County SignClearly a lot of customers around the country are having trouble with NetFlix. The latest round of finger pointing is going on between Verizon, Netflix and some intermediate transport providers.

Netflix uses adaptive streaming for its standard quality video and this only requires about 2 Mbps at the customer end to get the quality that Netflix intends for the video. HD videos require more bandwidth, but customers are complaining about standard video. A Netflix download requires a burst of data up front so that the movie can load ahead of the customer. But after that it stays steady at the 2 Mbps rate and the download even pauses when the customer pauses. It’s getting hard to find an urban ISP that doesn’t deliver at least that much speed, so one would assume that any customer who subscribes to at least 2 Mbps data speeds should not to be having trouble watching Netflix.

But they are. On their blog Verizon talks about a customer who has a 75 Mbps product and who was not getting good Netflix quality. On that blog Verizon says that it checked every bit of its own network for possible choke points and found none. For those not familiar with how networks operate, a choke point is any place in a network where the amount of data traffic passing through could be larger than the capacity at the choke point. In most networks there are generally several potential chokepoints between a customer and the outside world. In this blog Verizon swears that there is nothing in its network for this particular customer that would cause the slowdown. They claim that the only thing running slow is Netflix.

This is not to say that there are no overloaded chokepoints anywhere in Verizon networks. It’s a big company and with the growth of demand for data they are bound to have choke points pop up – every network does. But one would think that their fiber FiOS network would have few chokepoints and so it’s fairly easy to believe Verizon in this instance.

Verizon goes on to say that the problem with this Los Angeles customer is either Netflix or the transit providers who are carrying Netflix traffic to Verizon. Verizon is not the only one who thinks it’s the transit interface between the networks. Here is a long article from Peter Sevcik of NetForecast Inc. that shows what happened to the Netflix traffic at numerous carriers both before and after Netflix started peering directly with Comcast. This data shows that traffic got better for everybody else immediately upon the Comcast transition, which certainly indicates that the problem is somewhere in the transit between Netflix and the ISPs.

Verizon says the problem is that Netflix, or the intermediate carriers don’t want to buy enough bandwidth to eliminate chokepoints. Sounds like a reasonable explanation for the troubles, right? But then Dave Schaffer, the CEO of Cogent came forward and pointed the finger back at Verizon. He says that the problem is indeed in the interface between Cogent and Verizon. But Schaffer claims this is Verizon’s fault since they won’t turn up additional ports to relieve the traffic pressure.

So now we are back to square one. The problem is clearly in the interface between Verizon and carriers like Cogent. But they are blaming each other publicly. And none of us outside of this squabble are going to know the truth. Very likely this is a tug-of-war over money, and that would fall in line with complaints made by Level3, who says that Verizon is holding traffic hostage to extract more money from the transit carriers.

The FCC is looking into this and it will be interesting to see what they find. It wouldn’t be surprising if there is a little blame on both sides, which is often the case when network issues devolve into money issues. Carriers don’t always act altruistically and sometimes these kinds of fights almost seem personal at the higher levels of the respective companies. The shame from a network perspective is that a handful of good technicians could solve this problem in a few hours. But in this case even the technicians at Verizon and the transit carriers might not know the truth about the situation.

Is There a Web Video Crisis – Part IV and Final

The InternetIn the previous three installments of this blog I looked at the issues behind the demands of Comcast and Verizon to charge content providers for creating an Internet ‘fast lane’. In particular I have focused on the recent actions between Comcast and NetFlix. In everything I have read about this issue I never saw any specific reason cited why Comcast thought they needed the extra payments from NetFlix, and this blog series has been about looking for such reasons.

In the earlier blogs I looked at the various components of the Comcast network and my conclusion is that end-user customer fees ought to be covering the cost of the wires, or at least that is how all of the companies smaller than Comcast and Verizon see the issue. I then looked at the issue of preparing the network for peak video usage during simulcasts. Again, my conclusion is that this is a function that is a normal part of making your network operational and doesn’t seem like a reason to charge a premium price to get what is supposed to be there. Finally, I looked at peering, data centers and the network of routers and switches. My conclusion there was that peering generally saves money for Comcast and Verizon and that their savings from peering are far larger than their costs.

In the months leading up to the announcement that the two parties had reached a deal, I had seen numerous complaints from customers who said that their NetFlix was not working well on both Comcast and Verizon. And there were numerous articles like this one asking if Comcast and Verizon were throttling NetFlix. There was clearly something fishy going on and it and it was clear that both Verizon and Comcast were somehow slowing down NetFlix bits as compared to other bits. The complaints were all coming from NetFlix traffic and we didn’t see the same complaint about AmazonPrime or other video providers. And I heard no complaints anywhere about the speeds on the TV Anywhere products offered directly by Comcast and Verizon. I know I was watching Game of Thrones online in HD through my Comcast subscription and it always worked perfectly.

Then, when there was an announcement, it was made to sound like NetFlix was the one who was requesting premium access from Comcast. The Verizon deal was done much more quietly and there was no similar insinuation there. But almost instantly after Comcast struck the deal with NetFlix the speeds popped back up to former levels

One has to ask if NetFlix really got premium treatment of their bits or if Comcast simply removed whatever impediments were slowing them down. I will be the first to admit that I, like almost everybody else, am an outsider and we really don’t know what the two parties discussed as part of this announcement. But when I look at the facts that are known to me, what I see is that Comcast and Verizon were flexing their monopoly powers and slowing NetFlix down to extract payment out of them

There is no doubt that the NetFlix traffic causes cost to these two companies. Video traffic has been growing rapidly on the Internet and NetFlix is the largest single provider of video. But I step back and have to ask the basic question of what end-user fees for Internet are supposed to cover. A customer pays for a connection of a given speed, and it seems to me like these companies have promised a customer that they could use that speed. There is the caveat that Comcast has a data cap – a topic of another blog – but as long as a customer stays under that data cap they ought to always get the speed they have purchased. It shouldn’t matter if that customer chooses to use that speed and capacity to watch NetFlix or read silly telecom blogs – they have paid for a certain level of performance.

For Comcast to say that their network is not capable of delivering the accumulated speeds they have sold to customers sounds to me like they have oversold the capacity of their network. They want customers to buy fast speeds, but they don’t actually want them to use it. I’m not a lawyer, but this starts sounding like fraud, or something similar to fraud.

I simply don’t understand why the FCC would listen to any argument that says that content providers have to somehow pay extra to get normal performance. Because that is what it looks like NetFlix had to do. I can imagine as part of that agreement that there was a nondisclosure signed of the terms, and this NetFlix is not out yelling like they probably ought to be

But the long-term results of what Comcast and Verizon have done is that end users are going to pay twice for video access. They already pay to get a data pipe which is large enough to receive video. And now the cost of movies or movie subscriptions is going to increase to cover what NetFlix has to pay to deliver those movies. NetFlix is certainly not going to eat such costs.

And so the consumer is being screwed by a clear case of corporate greed. I have come to the conclusion that Comcast extracted payments out of NetFlix simply because they are large enough to do so. That is an abuse of monopoly power, and that power is only going to get worse if they are allowed to buy Time Warner.

Is There a Web Video Crisis – Part III

Zeus_peering_around_a_corner__(9386751334)In the earlier two installments of this blog I looked at various components of the Internet backbone to see if any of them might be the reason why Comcast and Verizon want to charge NetFlix and other content providers for and Internet ‘fast lane’. I’ve looked at the fiber and distribution networks as well as the routers in data centers. I also considered caching. In this article I will finally look at peering as a possible reason why there ought to be an Internet fast lane.

Peering is when two networks directly interchange traffic rather than let it route over the open Internet. Peering is done to save money and the savings can be significant. A company like Comcast pays something less than a dollar per dedicated megabit to accept traffic from the Internet. If they can instead have Google hand them the traffic coming from Google services they can avoid paying for the bandwidth that traffic would have incurred coming through the open Internet.

I would assume that Comcast and Google peer because Google peers with many of my much smaller clients. Peering involves having a fiber cross-connection between the two companies at a data center in each Comcast market. Each party would normally be responsible for their own routers and collocation costs at a data center. So Comcast’s cost of peering with Google are relatively small charges for collocation and cross-connection in the data center, while the savings would be gigantic.

This is a good place to note the difference to Comcast for traffic they receive from the web and traffic they send to the web. The companies that sell Internet access sell symmetrical data pipes that provide the same amount of bandwidth in both directions. But Comcast does not sell symmetrical data product to their customers and they provide vastly faster download speeds than upload speeds. For example, the Comcast 100 Mbps download product only has an upload speed of 5 – 6 Mbps. This means that the real cost to Comcast and similar ISPs for Internet traffic is paying for downloading because they have a huge amount of excess capacity in the upload direction. Peering saves them so much money because it shrinks the size of download pipe they must purchase.

So it’s a given that Comcast saves money by peering with Google. With peering they would not have to purchase the bandwidth to provide all of the accumulated traffic for Gmail, Google Search, Google Maps, all the android apps being used on home WiFi networks. It is estimated that for most ISPs that Google is involved with around 25% of all web traffic, so peering with Google can save Comcast from buying a significant amount of Internet bandwidth.

It also costs Google money to peer with Comcast because they also have to pay to use the data centers. But Google likes peering because it speeds up their traffic and gives their customers a better experience using Google products. Peering avoids the extra hops that come from using the open Internet. Generally both parties in a peering arrangement see it as a win:win situation.

Comcast is claiming that one of the reasons they need to charge for a ‘fast lane’ is to cover the costs of peering with NetFlix. I find that claim to be interesting. There is one subtle difference between Comcast’s traffic from Google and traffic from NetFlix. The traffic from NetFlix is one directional in the direction of Comcast while there is some traffic in both directions between Comcast and Google (although it is still mostly towards Comcast). This means that the peering savings for Comcast to peer with NetFlix is even more dramatic than it is with Google. Comcast saves so much money by peering with NetFlix that they could pay NetFlix to peer and still save a ton of money.

When the story about Comcast and NetFlix first came out it was somewhat confusing because NetFlix was using Level3 and other intermediate carriers between themselves and Comcast. It makes sense that they would do this because NetFlix doesn’t own any actual network. The presence of an intermediate carrier does not change the fact that peering with NetFlix is an incredibly good deal for Comcast. The press reports were confusing and it sounded like Comcast wants NetFlix to peer directly with them and not use intermediate carriers. I can only interpret that to mean that Comcast wants NetFlix to buy transport from them and not from intermediate carriers. And this might be how Comcast is ‘charging’ for the peering arrangement. What I find totally mysterious in all of this is how Comcast is using the peering arrangement as a reason why they should be able to charge anything to NetFlix. Again, Comcast saves so much money through this peering that they ought to be the ones paying NetFlix to peer. The whole peering argument has me scratching my head.

And the picture of a cat? It’s peering!

Is There a Web Video Crisis – Part II

Data CenterIn the first part of this series I looked at the three areas of the customer network – the edge network, the distribution network and the Internet backbone. I came to the conclusion that if Comcast and Verizon operate the same way as the hundreds of carriers that I work for that the fees paid by end user customers ought to be sufficient to cover the costs of those portions of the network and to ensure that the network is robust enough to cover video. It seems to me that nobody but Comcast and Verizon seems to have a need to charge for an Internet ‘fast lane’.

But those three network components are not the entire Internet network, so to be fair to Comcast and Verizon there are a few other places to look. In this blog I will consider what happens when a lot of video hits the web at the same time. Let’s see if this might be the reason Comcast needs an Internet fast lane.

There are two different ways that video traffic can be larger than normal on web. The first is when there is a major event simulcast on the web. Simulcast is when a video is sent to many locations at exactly the same time. The granddaddy of such events is the Superbowl. But there are a lot of other big events like the Olympics and the soccer World Cup. In those instances there are a whole lot of people watching the same event. Simulcast doesn’t always involve sports and one of the more recent web crashes was during the finale of True Detective on HBO Go.

There have been a few major crashes in the past during simulcast events and as often as not the problem has been at the programmer’s server which received more requests for signals than it could handle. But considering simulcast highlights another part of the Internet – the servers, switches and routers used to send, route and receive traffic over the web. These devices are the routing core of the Internet and are found today at large data centers. It certainly is possible for these devices to get overwhelmed. In the past when there have been web crashes it was mostly likely these devices and not the fiber data network that got overwhelmed by video

On a per customer basis the servers, routers and switches are the least expensive part of the Internet network. This is not to say that they are cheap, but they cost a lot less than building fiber networks. As mentioned above, the point of stress on simulcast video are the originating servers, and thus it would be incredibly cynical of Comcast to claim that they need to charge a premium price to NetFlix because they don’t have enough servers and routers to handle the traffic. Their terminating routers ought to be sufficient and ready to handle large volumes of videos as a normal course of business.

The other way that web video traffic can get big is when a lot of people are watching video and each one of them is watching something different. Today people watch what they want when they want and this is the primary way that the web handles video. But there are times when usage is greater than normal, and perhaps this is what drives the need for a fast lane.

Broadcasters like NetFlix have helped to ameliorate the affects of large video volumes by caching. For example NetFlix will put a caching server at any large headend at their own cost to cut down on the stress on the web. A NetFlix caching server will contain a copy of all of the programming that NetFlix predicts that people will most want to watch. Anybody who then watches one of these shows initiates the program from the local caching server rather than making a new web request back at the NetFlix hubs. I would have to assume that NetFlix has provided numerous caching servers to Comcast and Verizon, so this cannot be a reason to charge more for a fast lane.

But caching doesn’t always solve large demand. First, a NetFlix caching device only contains what NetFlix predicts will be popular, and if something else they host goes viral it won’t be on their caching server. But more importantly, there is a ton of video content on the web that is not going to be on these kinds of caching servers. If some video from Facebook or YouTube goes vital it is likely not to be already cached because nobody could have predicted it would go viral.

But there is a new technology that should solve the caching issue. Cisco and other smaller companies like PeerApp and Qwilt have introduced a technology called transparent caching. This technology caches content on the fly. If more than two users in a network ask to see the same content it makes a local copy of that content. Within minutes of teens loving some new YouTube video it would be cached locally and would stay in the cache until demand for it stops. This technology will drastically reduce the requests back to the originating servers at providers like NetFlix and YouTube.

My conclusion of this discussion is that I find a hard time seeing where Comcast or Verizon can claim that their routers, switches and servers are inadequate to handle the traffic from NetFlix. These are one of the cheaper components of the web on a per customer basis and they ought to have adequate resources to handle simulcasts or viral videos. Even if they don’t, the new technology of transparent caching promises to drastically reduce the web traffic associated with video since any popular content will be automatically locally cached.

Why We Need Network Neutrality

Network_neutrality_poster_symbolWhile the FCC has been making noise about finding a way to beef up net neutrality, the fact is that the courts have gutted it and ISPs are more or less free today to do whatever they want. In March, Barbara van Schewick, a Stanford professor had several ex parte meetings with the FCC and left behind a great memo describing the current dilemma with trying to rein in network neutrality violations.

In this memo she describes some examples of bad behavior by US and British ISPs. While she highlights some well-known cases of overt discrimination by ISPs, she believes the fact that the FCC has actively intervened over the last decade in such cases has held the ISPs at bay. But now, unless the FCC can find some way to put the genie back into the bottle there are likely to be many more examples of ISPs discriminating against some portions of web traffic.

Certainly ISPs have gotten a lot bolder lately. Comcast essentially held Level3 and Netflix hostage by degrading their product to point of barely working in order to extract payments out of them. And one can now imagine AT&T and Verizon doing the same thing to Netflix and all of the ISPs then turning to other big content providers like Amazon and Facebook and demanding the same kind of payments. It seems that we have now entered a period where it’s a pay-for-play network since the FCC did nothing about the issue.

The US is not the only place in the world that has this issue. We don’t have to look at the more extreme places like China to see how this might work here. Net neutrality violations are pretty common in Europe today. A report in 2012 estimated that one on five users there was affected by ISP blocking. The things that have been blocked in Europe are across the board and include not only streaming services, but voice services like Skype, peer-to-peer networks, Amazon cloud services, gaming, alternate email services and instant messaging.

If we don’t find a way to get net neutrality under control the Internet is going to become like the wild-west. ISPs will slow down large bandwidth users that won’t pay them. They will block anybody who is doing too good of a job of competing against them. The public will be the ones who suffer from this, but a lot of the time they won’t even know it’s being done to them.

I don’t know anybody who thinks the FCC has the courage to take the bold steps needed to fix this. The new Chairman talks all the right talk, but there has been zero action against Comcast for what they did to Netflix. I imagine that the ISPs are still taking it a little easy because they don’t want to force the FCC to act. But the FCC’s threats of coming down on violators are going to sound hollow as each day passes and nothing happens.

Professor van Schewick points out that absent strong rules from the FCC that there is no other way to police network neutrality. Some have argued that antitrust laws can be used against violators. But in the memo she demonstrates that this is not the case and that antitrust law is virtually worthless as a tool to curb ISP abuses.

It’s not just the big ISPs we have to worry about. There are a lot of smaller ISPs in the country in the form of telcos, cable companies, municipalities and WISPs. It’s not hard to picture some of the more zealous of these companies blocking things for political or religious reasons. One might assume that the market would act to stop such behavior, but in rural America there are a whole lot of people who only have one choice of ISP.

I hope that things don’t get as bad as I fear they might and that mostly common sense will rule. But as ISPs violate the no-longer functional net neutrality rules and nothing happens they are going to get bolder and bolder over time.

Statistics on How We Watch Video

Old TVExperian Marketing has published the results of yet another detailed marketing survey that looks at how adults watch video. This is perhaps the largest survey I’ve seen and they talked to over 24,000 adults about their viewing habits. This one has a bit of a different twist in that it correlates TV viewing with the use of various devices. The conclusion of the survey is that people who use certain devices are much more likely to be cord cutters.

Probably the most compelling statistic from the survey is their estimate that as of October 2013 the number of cord cutters has grown to 7.5 million households, or 6.5% of all households. This is several million higher than previously published estimates. This survey shows that age is an important factor in cord cutting and that 12.4% of households that have at least one family member who is a millennial between the ages of 18 and 34 are cord cutters. And something that makes sense is that over 18% of those with a NetFlix or Hulu account have become cord cutters.

The survey also shows that the number of people who watch streaming video continues to grow and that 48% of all adults and 67% of those under age 35 watch streaming or downloaded video from the Internet each week. And this is growing rapidly and both of those numbers increased by 3 percentage points just over the prior six months.

The main purpose of this survey was to look at viewing habits by type of device. One of the surprising findings to me is that smartphones are now the primary device used to watch streaming video. I guessed it surprised me because this is not one of the ways we watch video in our household other than videos that pop up from Facebook. But during a typical week 24% of all adults or 42% of smartphone users watch video.

The television set is still the obvious device of choice for viewing content and 94% of adults watch something on their television each week. Only 84% of adults now use the television to watch live programming and the rest are watching in some different manner. For instance 40% of television watchers still view content from DVDs, 32% get content from a DVR, 13% watch pay-per-view and 9% watch streaming video. As of February 2014, 34% of television sets are now connected to the Internet. Of those 41% use AppleTV, 35% use Roku and the rest have Internet-enabled TVs.

Adults are watching content on a lot of different devices now. Something that might be surprising to bosses around the country is that 16% of adults with a PC at work use it to watch streaming video. One fourth of adults who own game consoles watch streaming video, 26% of adults who own a home PC use it for videos, and 42% of adults who have either a smartphone or tablet use them to watch video.

The survey also looked at what people watch and the time spent with specific programming on each kind of device. For example, YouTube is the source for 59% of the video watched on PCs and the average adult spends over 21 minutes per week watching it. Only 7% of content viewed on PCs is NetFlix, but the average time spent is over 23 minutes per week. And over 10 minutes per week is spent on PCs watching Hulu, Bing Videos and Fox News.

The survey also asked how adults feel about advertising that comes with the video on each kind of device. Not surprising to me, only 9% of those over 50 found the advertising on their smartphone to be useful and 14% found advertising on the TV to be useful. But younger viewers are not quite as jaded as us baby boomers and 36% of millennials find advertising on their smartphone to be useful and 39% find TVs advertising to be useful.

What’s up with Cord Cutters?

Fatty_watching_himself_on_TVMorgan Stanley just released their fourth annual survey on the media, cable and satellite business. In thus survey they talked to 2,501 adults nationwide. In this survey they looked in detail about how people use media – what they watch and how they watch it.

The most interesting statistic to come out of the survey is that for the fourth straight year a significant percentage of people said they are going to cut the cord in the coming year. 10% of respondents said that they were definitely going to cut the cord and another 11% said that they would probably be cutting the cord. If these percentages were true, and 21% of the country was going to be cutting the cord, the cable industry would be in a major tailspin. This survey ought to be major headlines on every business page, right?

But it’s not, and that’s because there have been similar responses to this survey the last few years. In last year’s survey those same two percentages added to 17%. The prior year they added to 15%. But the cable companies did not experience cord cutting to anywhere even remotely close to those percentages in the last two years. Certainly there is cord cutting going on and the industry has certainly lost at least several million people due to this new trend.

But what this survey tells us is that people want to cut the cord. One full fifth of households with cable are clearly unhappy with the big bundles of channels, and eventually that is going to come home to roost with the cable industry. The other statistic that bears this out is that only 50% of the respondents in the survey actually like the big package bundles, a number that is dropping every year.

We’ve seen the same thing before with home telephones. For years people talked about getting rid of their home phone and yet it took a number of years for many people to do so. But eventually people will act on how they feel and the cable industry has a big problem brewing.

As you might expect, there is an age component to potential cord cutters. 30% of the people who said they would or might cut the cord are in the 18 – 29 year-old age bracket. And that percentage decreases as the age increases.

I find these results interesting because almost everybody I talk to is unhappy with what they pay for cable TV. Maybe that’s because most of those people I talk to are in the industry. But I know many cord cutters and I know that this is really happening. I would be a cord cutter myself, but Comcast made me take basic TV (20 or so channels) if I wanted to buy a cable modem faster than 12 Mbps. So I am officially a TV subscriber, even though I don’t own a TV and the cable box they gave me is gathering dust in the closet. There can’t be a lot of people with my same story and who are being coerced into buying cable and who then don’t even watch it. But this does show that perhaps the reported subscribers of the big cable companies are a bit inflated due to these kinds of policies.

The survey also showed that the OTT programmers are doing quite well. 30% of the households in the survey watch NetFlix, up over 5% from the last survey. 18% watch AmazonPrime, up 10% from the last survey. And while the free Hulu service lost about a percentage of viewers, its for-pay service Hulu Plus is up almost 5%.

I titled this blog ‘What’s up with Cord Cutters’, but perhaps a better title would be ‘What’s up with the Almost-Cord Cutters’? There are apparently a whole lot of people who are thinking of cutting the cord. Perhaps one year soon a large percentage of the number of people who say they are going to cut the cord will actually do it. And then the wheels start coming off the cable model.

Is Peering the End of Network Neutrality?

Network_neutrality_poster_symbolNetFlix and Comcast have announced a deal whereby NetFlix will pay to peer into the Comcast network. Numerous articles popped up yesterday talking about how this is the end of network neutrality. But I am not so sure about that. In order to understand this, let me talk a bit about how peering works today. Peering is when two networks decide to make a direct connection between the networks rather than connecting in a more traditional way through the open Internet.

There are two kinds of connections that are typically made. One is local peering. This is when two networks who are geographically close decide to exchange data traffic. This typically benefits both parties. Let’s look at an example of why. Let’s assume the two parties are medium sized carriers, one a telephone company and the other a cable company that are competing in the same community. There is always a considerable amount of Internet traffic that is conducted within a community. People browse the websites of stores in their own community. People do on-line banking with local banks. People work at home and want to get data into and out of their employer’s local networks.

Normally each of these carriers would deliver traffic between their two networks, say between a customer on one network and a bank on the other one by sending this traffic to the open Internet. Each company will have a connection to the Internet, through some wholesale provider that will terminate eventually at one of the major Internet pops like Chicago or Dallas. And so when a customer wants to connect with his bank, the data will travel out through the first network to the major pop where it will be handed off to the data stream going back to the second network.

Such a connection is said to make at least several hops, meaning the times that the message is handled by a data router somewhere in the network in order to figure out where it is going. The more hops, the slower the connection. But local peering solves this problem because the traffic can be exchanged locally and goes straight from one carrier to the other without being sent first to some distant POP. This is a simplistic description because peering arrangements are usually more complicated than this. They are more likely to be between the underlying transport carriers that handles the traffic for the telephone company and the cable company. But peering will make the connection more direct than it would be under normal network circumstances.

The other kind of peering is one that saves money. I have many clients who peer with Google because Google and all of its various subsidiaries accounts for a significant percentage of the traffic on any Internet connection. My clients have done the math and see that it is cheaper to make a direct connection with Google rather than paying their underlying carrier to get it to Google. Anybody who peers with Google this way must pay out of their own pockets to get to a Google POP, probably including paying for the equipment at the POP needed to make the connection. But this kind of peering often results in a significant savings. Most people’s connection with Google is very much one-directional. There is usually a lot more traffic coming from Google than going to Google.

We don’t have the details of the Comcast / NetFlix deal to be certain what the arrangement is. But up until now it’s clear that the two sides have not agreed to a direct peering arrangement. One has to assume that the connection from NetFlix is nearly all in one direction – to download video to customers who sit on the Comcast network. Without a direct peering arrangement the traffic must get to Comcast through intermediate carriers and often would be routed in ways that would slow up the traffic, as is any traffic on the open Internet.

I would assume that there is not one big Comcast network, but instead there are pockets of Comcast all over the country. I would assume that for NetFlix to fully peer with Comcast that they are going to have to make connections with these various pockets, all at NetFlix cost. And if this was normal peering, NetFlix would also be expected to pay for the connections into the Comcast network including owning or somehow paying for the large amount of equipment needed to terminate their traffic.

Again, the two sides aren’t talking about the details. But I would expect it to cost NetFlix something to get their traffic directly to all parts of the Comcast network. That is how normal peering works. Where the line of network neutrality will have been crossed is if NetFlix has to pay a lot more for this connection than what others pay. But since this deal has been under negotiations for a year, one has to assume that both parties had the old network neutrality rules in mine as it was negotiated. I can certainly envision an arrangement that is more like normal peering than of a big violation of the principles of network neutrality. If it was the latter I would expect NetFlix to be putting up a big stink. Network neutrality benefits companies like NetFlix tremendously, and if they aren’t complaining then there is a good chance that this is peering like normal and not a giant money grab by Comcast.

Who Will Be the Cable Killer?

Cable OutletIt’s a given these days that people are dropping cable subscriptions in favor of other sources of content. For now the exodus from cable is a trickle, but as we have seen with other industries, things can change into a flood quickly if there is a widely-acceptable alternative to an older technology.

This leads me to speculate about what company might be the one to break the cable monopoly. My crystal ball is no better than anybody else’s and this is just speculation. But it is not purely a mental exercise, because the odds are that somebody is going to be the cable killer.

One can first look at the characteristics that any cable killer must have. Number one is that they are going to need to have access to large number of potential customers. Today there are only a handful of companies that can make such a claim, although we have seen that when something new comes along that a new industry entrant can attract millions of customers in a very short period of time. The cable industry has a handful of large providers including Comcast with 23 million, Time Warner with 12 million, Direct TV with 20 million and Dish Networks with 14 million. And Charter would join this group if they are able to buy Time Warner.

So who can compete with those kinds of numbers? I can think of several that already have more customers than Comcast. Netflix is one, with over 33 million subscribers. It is not much of a stretch to see NetFlix as a cable killer if they can get enough additional programming to lure people permanently away from cable.

Interestingly, the company that has quietly built a huge pile of potential customers is Apple. They have sold over 20 million Apple TVs. And worldwide they have sold over 170 million iPads, many of them in the US. It’s been rumored for years that Apple was on the verge of announcing a programming blockbuster, and perhaps they have just been waiting to get enough Apple hardware platforms into the marketplace before trying to lure the programmers. This company destroyed the music industry in just a few years and perhaps they can do it again with cable.

And we can’t forget Google. Google has been rumored to be thinking about bidding on the NFL Sunday Package when it comes up for renewal. One thing that Google has that nobody else has is the ability to throw billions at launching a new effort in a hurry. Sports programming is one thing that could lure people off of traditional cable and it is not too hard to imagine Google outbidding everybody else for the NFL and a few other sports networks and then also swinging a deal with ESPN.

There is also the upstart Aereo. Assuming the courts don’t stop them, they will be in every medium and large tier market within a few years and building up a big customer base that is already spending money for alternate programming. While they are only streaming a limited line-up today, they already have the technology in place to support a huge line-up through the air.

It seems to me like it is going to be very hard for programmers to keep ignoring some of these companies. Now that traditional cable is losing customers every quarter it is going to become easier and easier for programmers to do the math and to see that they could get revenues from both the traditional cable operators and the new upstarts. There is no love lost between the programmers and the cable companies and the programmers will make new deals when the math looks right.

If I had to pick a winner from that pile of candidates it would be either Google or Apple. Google is capable of buying the sports market and luring away the many sports fans. Apple could begin offering alternate programming in a hurry through its huge embedded hardware base. And perhaps, the real answer is – all of the above. Once a few programmers decide to break the traditional monopoly they are likely to make a deal with anybody who will give them money for their content. If that happens, the traditional cable companies are toast in terms of keeping any cable monopoly. But they will always be relevant as the largest ISPs in the country.