Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Netflix Is Fighting Silicon Valley's Battle Against Bandwidth Caps

Posted by Tom Foremski - May 17, 2011

Broadband availability and speeds are notoriously bad in the US and now with the imposition of monthly caps on usage there is little incentive for cable and Telco companies to improve the situation.

Netflix is trying to change this primarily because its digital movie streaming service has become tremendously popular. And whatever changes Netflix can achieve, it will benefit thousands of Silicon Valley startups because many new products or services rely on Internet connections. Everything has to pass through the gateways of the dominant cable and Telco companies -- the guardians of the last mile.

But if households, and even cafes, are charged high fees because they exceed their usage caps, it will severely limit the adoption of new services by consumers and that will affect a legion of new startups.


Streams everywhere...

Netflix now accounts for about 30% of Internet traffic into US homes during peak evening hours. Plus there are many music streaming services, and other popular services such as YouTube and Hulu. With this broad range of usage homes can quickly reach and exceed caps such as those set by AT&T: 150GB for DSL and 250 GB for U-verse. AT&T will charge $10 for an additional 50GB, or about 20 cents per GB.

Todd Spangler, at Multichannel News reports:

Other major US broadband providers that already have usage ceilings in place include Comcast, Cox Communications and Charter Communications, although they currently warn users who exceed the limits rather than charge them for the extra usage. Internet service providers that do not have specific usage limits including Time Warner Cable, Verizon Communications and Cablevision Systems -- although every ISP reserves the right to disconnect a user who violates their terms of service.

Reed Hastings, CEO of Netflix recently sent a letter to Julius Genachowski, chairman of the Federal Communications Commission, protesting the usage-based billing by ISPs.

Netflix claims that the cost to ISP's to deliver a gigabyte of data is less than 1 cent and that the practice of charging as much as $1 per gigabyte could "stifle the Internet."

Clearly, Netflix has the most to lose because of the caps on usage but that doesn't mean that others won't also lose out. Startups have very little economic muscle or influence with anyone, especially in Washington, D.C. If Netflix is successful in lobbying the FCC to do away with caps, or make sure that only very high usage caps are in place, everyone else wins, too.

But there is another angle on this issue: usage caps are a disincentive for improving speed and data usage because the cable companies and Telcos will make more money from not improving the national broadband infrastructure.

Since most US households have only one or two choices for Internet access, it becomes a tremendously lucrative business producing pure profits because there are virtually no additional costs.

And the US will fall further behind the rest of the world because of cable and Telco companies squeezing as much as they possibly can out of the last mile to the home.

The last mile to the home used to be considered a problem mile: "How can we get high speed to the home?" Now it's a golden mile.

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Please see: GigaOm: What Happens When the Cloud Meets a Bandwidth Cap


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