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Who should pay for Netflix?

This is a burning question of the day, both in Norway and abroad. The debate in the US is naturally best known, and is often linked to the question of net neutrality. But Netflix is a hot potato in Norway too. It may be useful to clarify further the concepts related to net neutrality.

By Frode Sørensen, Senior Advisor, Norwegian Post and Telecommunications Authority

Who Should Pay for Netflix? asks telecommunications operator AT&T, as a response to Netflix’ claims: Internet Tolls And The Case For Strong Net Neutrality. Is it possible to say which of them is right?

Success described as a problem

It seems surprising when increased use of the Internet is presented as a new phenomenon, or even as a problem. Most people who do business would be over the moon if their product was selling like hot cakes! As AT&T mentions, streaming has seen bandwidth consumption skyrocketing. But this traffic growth is not new! It has been going on throughout the life of the Internet and is the very proof of the success of Internet technology.

More traffic = more “goods” to sell. Prices for Internet access are not regulated, and Internet service providers set their prices in competition with each other. AT&T puts forward the argument that postal services are a fundamental example of who should pay. In other contexts, telephone services are often used as an example. What these examples have in common is that usually only one of the communicating parties pays, not both of them.

Who initiates the communication when someone watches a video? Is it the content and application providers who pump unprompted traffic into the Internet, or is it the viewers who order? It is also important to note that the application providers are not “free riders”, but make a contribution. In a report by Plum Consulting1 we can read: “Application providers do not free ride but invest in infrastructure, purchase network services and have developed bandwidth efficient applications”.

AT&T also makes much of the fact that other end users have to pay for Netflix customers’ bandwidth consumption. However, this is an old problem in new packaging: before streaming, it was peer-to-peer file sharing that was the big scapegoat. But it is quite possible for Internet service providers to make greater use of speed-dependent or volume-dependent pricing, and still practise net neutrality.

Forget all you’ve learnt about traditional telecommunications

The Internet introduced a new “world order” in electronic communications. We have gone from typical vertically integrated networks to a separation of the application layer from the network layer. This is often referred to as the end-to-end principle, since the applications are implemented in the endpoints. In this way new applications can be developed and used without the need for the network to be adapted.

This network architecture has served as an innovation platform second to none. Successes like Amazon, eBay, Google, Blogger, Wikipedia, Skype, YouTube, Facebook and Twitter have demonstrated this more clearly than anything else. These are the applications that draw people to the Internet; it is their content that makes people invest in Internet access. Without content there is no interest in connecting to the Internet.

If Internet service providers want to sell more broadband capacity, they need more content online. In a report by WIK-Consult2 we can read: "Next generation access will be stable and self-sustaining only when consumer demand is sufficient to pay for its deployment. This means that demand stimulation – which is heavily dependent on the availability of content and applications – is crucial”.

Traffic growth and technology developments

Today we see that consumers are getting more and more capacity on their Internet access, without the price necessarily increasing. The unit cost of network equipment is decreasing, while the transmission capacity of the equipment is rising. In cellular networks, spectrum efficiency is increasing and additional spectrum is used. We also see increasing traffic offload via wi-fi.

Internet technology and architecture also adapt easily. Internet traffic is controlled automatically using congestion control in endpoints, which has long been used for traditional applications. Adaptive compression of real-time applications such as streaming is also becoming common today.

In Internet architecture caching of content is ever increasing. CDN servers are as good as any other servers. As long as the traffic from these is treated just like any other traffic, CDNs are consistent with net neutrality. Seen from the Internet service providers’ point of view, CDNs help to reduce costs they otherwise would have had when traffic must be transmitted via transit providers.

Net neutrality and quality of service go hand in hand

Netflix proposes introducing “strong net neutrality”. This ought to lead to (more) equal treatment of traffic transferred to or from various places in the Internet. Today the situation is that if you have bought an Internet access from a provider that offers poor quality of service, the traffic will necessarily show a weaker performance than the traffic of users who have chosen better quality.

To require all Internet service providers to offer the same quality of service has nothing to do with (normal) net neutrality. To impose this as a requirement for providers has not been considered relevant. However, on this point there is considerable emphasis on transparency. Providers should present information on the quality of their services, and regulators in many countries have established measurement tools to improve end-user information on quality of service.

BEREC has placed great emphasis on the relationship between net neutrality and quality of service3, and has released a recent publication on this for public consultation4. Here BEREC suggests specific measurement parameters and methods for Internet access services. It is also proposed to conduct a feasibility study to explore the possibility of establishing a measurement system where different European regulators can cooperate on quality measurement.

Who should pay for Netflix?

Back to our initial question: who should pay for Netflix? The answer is really quite simple: there is free competition in Internet interconnection and CDN services. And do any of the stakeholders involved really want regulators to intervene (if it was an option)?

The relationship between providers of Internet access and providers of content and applications is a win-win relationship. Without Internet access - no access to content; without content - no interest in Internet access. Net neutrality is the keystone that allows traffic to flow freely for the benefit of both Internet service providers and content providers.

1The open internet – a platform for growth, Plum Consulting, 2011
2Network operators and content providers: Who bears the cost? WIK-Consult, 2011
3Guidelines for quality of service in the scope of net neutrality, BEREC, 2012
4Monitoring quality of Internet access services in the context of net neutrality, BEREC, 2014