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Netflix: “Cost of Providing 1GB of Data is Less Than One Cent, and Falling”

Netflix continues to step up its attacks on providers who implement Internet Overcharging schemes on their wired broadband customers.

That concern is understandable as Netflix increasingly transitions to broadband streaming instead of mailing DVD’s to customers.

Getting in the way are five of the nation’s seven largest broadband providers, all imposing limits on customers just as they discover they might be able to do without cable television.

Netflix’s streamed HD shows now consume around 2GB per hour, according to Netflix general counsel David Hyman.  That can eat through usage allowances quickly.  Hyman penned an op-ed in the Wall Street Journal last year blasting the practices of usage caps and consumption billing.

Hyman

“Wireline bandwidth is an almost unlimited resource due to advances in Internet architecture,” Hyman wrote. “The marginal cost of providing an extra gigabyte of data—enough to deliver one episode of 30 Rock from Netflix—is less than one cent, and falling.”

That doesn’t seem to matter much to Comcast, CenturyLink, Charter Communications, and Cox.  All four providers have introduced hard usage limits on customers — a usage cap.  Exceeding it gives any of those providers the right to cut off your broadband service.  AT&T, always one to see a financial angle, charges for excess use of their DSL and U-verse service — $10 for every 50GB. Time Warner Cable recently announced its own experimental “optional” usage pricing package for very light users who consume fewer than 5GB per month.  It will slap overlimit fees on those participating customers who break through the 5GB ceiling at a rate of $1/GB, an enormous markup.

Providers with strict caps usually argue they come as a result of their own network’s capacity problems.  Cable operators who do not consistently manage their network traffic can experience traffic clogs by overselling service without upgrading capacity to sustain user demand.  But providers like Comcast, Cox, and Charter resolved those capacity problems with upgrades to DOCSIS 3 technology, which offer operators an exponentially bigger pipeline for Internet traffic.

Although Comcast promised to regularly review and adjust usage caps since implementing them four years ago, the nation’s largest cable operator has thus far seen no need to raise them.

“We feel that that is an extraordinarily large amount of data,” says Comcast’s Charlie Davis. “That limit is there to make sure we provide a great online experience for every single paying customer.”

Wall Street bankers have closely monitored the industry’s early results from Internet Overcharging, and have been encouraged, so long as operators implement it carefully.

Credit Suisse in a 2011 report to its investor clients suggested the key for successful usage-based pricing is to introduce it slowly and keep “sticker shock to a minimum in the early days” to reduce backlash by consumers and lawmakers.

Once established, the sky is the limit.

Netflix itself is also battling an Internet Overcharging scheme it faces — double-dipping by cable operators like Comcast.  In addition to the fees Comcast collects from customers for its broadband service, the cable operator also wants to be paid directly by Netflix to allow the movie service’s traffic on its network.

That’s an Internet toll booth, charges Netflix and consumer groups.  It’s also uncompetitive, says Hyman.

This month Comcast unveiled its own movie and TV show streaming service — Xfinity Streampix — from which, unsurprisingly, the cable company has not sought extra traffic payments from itself.

Opposed to Internet Overcharging

Three providers which don’t cap customers don’t see a reason to try.

Verizon Communications says its fiber network FiOS has plenty of capacity and has no plans to restrict customers’ enjoyment of the service.  In 2009, Cablevision’s Jim Blackley told one panel discussion usage caps are not in the cards.

“We don’t want customers to think about byte caps so that’s not on our horizon,” Blackley said. “We literally don’t want consumers to think about how they’re consuming high-speed services. It’s a pretty powerful drug and we want people to use more and more of it.”

California’s Sonic.net Inc., goes even further.  Its CEO, Dane Jasper, believes the Federal Communications Commission needs to be more assertive about protecting America’s broadband revolution and the customers that depend on the service.

The fact different operators can take radically different positions on the subject, despite running similar networks, suggests technical necessity is not the reason providers are implementing usage restrictions and extra fees on customers.

As Hyman writes:

Bandwidth caps with fees piled on top are a lousy way to manage traffic. All of the costs of supplying residential broadband are for supporting peak usage. Bandwidth consumed off-peak is completely free. If Internet service providers really wanted to manage traffic efficiently, they would limit speeds at peak times. If their goal is instead to increase revenues or lessen competition, getting consumers to pay per gigabyte is an excellent strategy.

Consumer access to unlimited bandwidth is good for society. It fosters innovation, drives commerce, and advances political and social discourse. Given that bandwidth is cheap and plentiful and will only grow more so with time, there is no good reason for bandwidth caps and fees to take root.

Consumers and regulators need to take heed of what is happening and avoid winding up like the proverbial frog in a pot of boiling water. It’s time to jump before it’s too late.

Currently there are 14 comments on this Article:

  1. jr says:

    “If you watch video or listen to audio online then the terrorists win”-TWC

  2. Ed says:

    If AT&T is selling off its DSL networks, I think that Netflix should seriously consider buying them. Despite being legacy technology, it would give Netflix a foothold into the ISP realm and allow them to somewhat protect themselves if usage-based billing becomes prohibitive for their service.

  3. JD says:

    So I’m in rural Alaska on GCI’s (CableVision) internet. I had the $60 package which promises something like 1Mb/s download. We go through satellite and have about 530+ millisec latency. That plan had a cap of 10GB. Now get this:
    1GB of overage charge equals about $20. One month I had 15GB useage and my bill was $166. I also do not regularly stream video or download movies. I do watch an occasional couple-minute youtubes.. maybe once in a rare while an hour one. My wife watches a few youtubes now and then. I do some photography uploads on flickr and browsing of images.. I spend a lot of time reading news and such, so that must be what our usage stems from – those activities. I think Cablevision probably overcharges – tallying up lost packets and other back-and-forth on the satellite.

    I’ve since upgraded to the $100/month package with a cap at 15GB, and supposed 1.5Mbps dl speeds. (works sometimes on off hours.)

    • Natasha says:

      JD, I wonder how much GCI’s data usage count can be trusted. I watched a 1.5 hour movie on Netflix last night at Netflix’s lowest quality. It used almost 1.5 GB according to GCI, but the picture was obviously low quality, and netflix says it uses a max of .3 GB per hour at that level. It seems to me like GCI isn’t counting accurately.

      • Scott says:

        Awhile back Netflix was able to reduce their HD movie data usage down to 2GB (Use to run almost 3GB).

        So 1.5gb is rather suspicious and high for a SD movie.

        That’s really the problem with metered data usage when it’s to these providers benefit as they have no incentive to accurately meter usage, they make more money off innacurate or when the ‘scales are tipped in their favor’.

        If you’ve read some past articles you’ll see many instances of American or foreign Cable and Cellular companies that have been caught wrongly charging for data usage, in some cases on purpose in order to increase profits.

        Any other business in your community is monitored by the local government to ensure their point of sale and scales are accurate, the question is why ISP’s aren’t subject to the same scrutiny with their metering formulas and systems.

  4. Scott says:

    JD,

    You may want to look into a different provider:

    http://www.starband.com/

    See if you’re able to get LoS to their Sats, or availability. I believe their plan limit may work better for you.

  5. JD says:

    Scott, thanks for the reply. I’ve considered starband or Hughesnet – it is available here. There is a bit of cash outlay getting the dish and set up. That wouldn’t be much of a problem but our government is handily adding to the GCI’s grip on our region by using stimulus money to help them build a microwave land-based system here. A combo of fiber from south Alaska with microwave stations to server very rural areas. I am hoping for speeds enough to join the netflix-type culture where we may actually be able to download or stream of movie.

    If they offer that – with much improved cap, then I will be sucked in. Early next year I’m told. Otherwise I watch my usage and will consider starband if it doesn’t look like this GCI solution will pan out for us.

  6. Scott says:

    Yeah, they’re getting $88 million dollars to build out their network to provide that service but it will certainly be capped as heavily as their other non Fai/Jnu/Anch areas. Still better than satellite as you already know.

    Starband got $7.5 million dollars from the USDA to temporarily subsidize their rates for Alaska and Hawaii customers. I think that’s part of their free or partially free setup deal and lower monthly rate.

    Its outrageous as taxpayer to see GCI’s lobbying getting paid to expand their monopoly across South east Alaska into these regions without solving the real issue of affordable and accessible broadband for Alaskans.

    It would be nice to see that public money better spent on non-metered high-speed broadband that most of the poorer comunnities could afford. Way too many co-workers and friends keep getting hit with big overage bills from GCI for normal usage.

  7. JD says:

    I better do some spell check before I post next time. Anyway, I did research a bit of Starband and see they have a throttling program if they think you “are using too much bandwidth”. I didn’t dig deep enough yet to see how much that is. I do have a friend or two on it and seem to recall they either had the problem of being throttled or it was worrisome if not both.

    Sounds like you have a firm grip on the issues here..

  8. Scott says:

    They only disclose it under their AUP fine print (rather deceptive to not state it upfront IMO)

    http://www.starband.com/aup.html

    Their highest tier Nova Pro 1500 (1.5/256) allows for 4GB per week, if you could perfectly use that every week you’d have 16GB of 1.5Mbit/s transfer. Compared to your current service, the benefit really seems to be the ability to avoid overages for a flat $80/mo under the discounted program.

    Quite a few ** and terms so definitely do your research and ask questions about the Alaska plan with them if you do look into it.

    http://www.starband.com/alaska/

    I’m active on the issue in our market, but unfortunately nothing I can publicly disclose at this point.

  9. Tk says:

    If the government would ban companies being in both the TV and Internet business, that would go a long way to Stop the Cap., as it would remove the conflict of interest.

  10. Kevin says:

    Leaving CableOne after 7+ years at the end of the month after being pushed from unlimited to datacap. Sure I could pay around $30/month more for unlimited service that is half what I have now, and almost 10x what their data cap promo plan is. Disgusts me and I refuse to give them anther dime. Canceling everything and moving to CenturyLink immediately.

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