in Internet Services, Telephony

A content producer’s take on Usage-Based Billing

The Canadian Radio and Telecommunications Commission recently issued a decision on usage-based billing and I’d like to comment from the perspective of a large-scale, Internet video supplier. (Insert the usual disclaimer about my opinions not representing my employer’s.)

As many readers know, I work for the Canadian Broadcasting Corporation in digital media operations. It’s extremely important for our customers — the Canadian taxpayer — to have cheap, unmetered bandwidth, so that they can watch our programming online. “Online” means not only the content that users can stream directly from our website using the CBC player, but also the content we send to our channel partners: iTunes, NetFlix, YouTube, and so on.

The adoption of usage-based billing across the board will drastically affect our ability to reach consumers over the Internet. It doesn’t take very long to go through 25 gigabytes of streaming data in a month. For Bell and other incumbent carriers to characterize anyone who uses over 25 GB/mo as a “bandwidth hog” grossly misstates the available capacity on the Internet today. Otherwise, why should it be possible for a commercial entity to purchase unlimited bandwidth ADSL service from Bell using essentially the same technology as home DSL, but without being metered?

I could continue, but let me instead quote some folks who have said it better than I could: Netflix. Here’s an interesting excerpt from Netflix’s investor relations website; specifically, their Q4 Letter To Shareholders (PDF). Obviously, I’m not speaking for CBC when I say this, but I think the comments here fairly represent the challenges that we, as an “Internet video supplier”, face under a usage-based billing regime.

Delivering Internet video in scale creates costs for both Netflix and for ISPs. We think the cost sharing between Internet video suppliers and ISPs should be that we have to haul the bits to the various regional front-doors that the ISPs operate, and that they then carry the bits the last mile to the consumer who has requested them, with each side paying its own costs. This open, regional, no-charges, interchange model is something for which we are advocating. Today, some ISPs charge us, or our CDN partners, to let in the bits their customers have requested from us, and we think this is inappropriate. As long as we pay for getting the bits to the regional interchanges of the ISP’s choosing, we don’t think they should be able to use their exclusive control of their residential customers to force us to pay them to let in the data their customers’ desire. Their customers already pay them to deliver the bits on their network, and requiring us to pay even though we deliver the bits to their network is an inappropriate reflection of their last mile exclusive control of their residential customers. Conversely, this open, regional, no-charges model should disallow content providers like Netflix and ESPN3 from shutting off certain ISPs unless those ISPs pay the content provider. Hopefully, we can get broad voluntary agreement on this open, regional, no-charges, interchange model. Some ISPs already operate by this open, regional, no-charges, interchange model, but without any commitment to maintain it going forward.

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An independent negative issue for Netflix and other Internet video providers would be a move by wired ISPs to shift consumers to pay-per-gigabyte models instead of the current unlimited-up-to-a-large-cap approach. We hope this doesn’t happen, and will do what we can to promote the unlimited-up-to-a-large-cap model. Wired ISPs have large fixed costs of building and maintaining their last mile network of residential cable and fiber. The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary. Moreover, at $1 per gigabyte over wired networks, it would be grossly overpriced.

I’ll close by giving you a sense of how outrageous a $1/GB charge is.

CBC pays pennies per gigabyte to our CDN to deliver content to the ISP’s front door. Some portion of that is the CDN’s profit, and yet they are still able to meet the marginal cost obligations of expanding their network. In fact, by using a CDN, we are paying a premium to the actual cost of the delivery of the bits, for the benefit of leveraging the CDN’s robust infrastructure, ability to scale, and many points of presence.

From an network engineering perspective, there really is no difference between a CDN and an ISP; in fact, the CDN transfers far more data per year across a far more complex worldwide data network. If our CDN can do it for such a low cost, why can’t Bell? I can only arrive at the same conclusion as Netflix: that Bell and other incumbent “last mile” providers are using their monopolistic ownership of those connections to justify outlandish charges to the customer.