Verizon Public Policy on Netflix

Matthew Kaufman matthew at
Mon Jul 14 19:06:29 UTC 2014

On 7/13/2014 4:00 PM, Brett Glass wrote:
> At 10:25 AM 7/13/2014, Charles Gucker wrote:
>> ALL ISPs are in the business of providing access to
>> the Internet.    If you feel the need to rebel, then I suggest you
>> look at creative ways to increase revenue from your customers,
> My customers do not want me to "creatively" find ways to extract
> additional money from them so as to cover expenses that Netflix
> should be covering. Nor do they want me to subsidize Netflix
> subscribers from the fees from non-Netflix subscribers. They
> want to pay a fair price for their Internet that does not include
> paying ransom to third parties.

Oh come on. [An aside: I really preferred when Brett kept his ranting 
over on another list I read, but I do find it amusing that after all 
these decades of running an ISP, he's finally shown up on the list where 
people who build ISPs talk]

> We currently provide that: we guarantee each subscriber a certain
> minimum capacity  to the Internet exchange at 1850 Pearl Street
> in Denver (to which Netflix does not directly connect) with a certain
> maximum duty cycle.

That is very nice of you. Or perhaps you're actually operating a 
*business* and that is exactly the service you are selling to your 
customers. Not unlike what many other ISPs have been doing for decades 
now. You have arranged to bring bits from "the Internet" to your 
customers and vice versa. And you know that most customers won't use all 
of the bits they possibly could all of the time, so the bandwidth you've 
provisioned from your transit provider and/or peers is substantially 
less than what you sell to the customers, but you're careful to point 
out to the customers that there's no guarantee they can get all of their 
locally-provisioned bandwidth all of the time, and you try as you might 
to ensure that all of your customers get some of the bandwidth most of 
the time.

And of course you charge them for that service. You can't charge them 
for what they'd really like, because what they'd really like costs you 
too much to provide... and (more importantly) you're not the only game 
in town, and so if you charged too much, you'd have no customers at all. 
Funny how business works... you need to charge more than it costs you, 
in order to make a profit, but not so much that nobody buys at all. I 
seem to remember this from a basic economics class. So now we've got the 
baseline of what's important to you... charging a low enough price that 
you continue to have customers, but high enough that you don't starve. 
Like all small business owners before you. The guy at the local hardware 
store probably shares your pain.

>   But we can't guarantee the performance of a specific
> third party service such as Netflix.

No, of course you can't. That's the great thing about the Internet... 
services and software comes and goes, and yet all the complications stay 
the same. A few years ago, the thing that made your life harder was 
Skype. Your very own customers went and installed software on their 
computers that actually sent and received data over their Internet 
connections that you were selling them. The gall they must have had to 
do such a thing!

Suddenly, your infrastructure was being asked to carry real-time audio 
and video streams, when before the design assumption was that such a 
thing wouldn't happen. And it was being asked to carry bits to and from 
your customers that were indexing the location of other Skype users that 
weren't even your customers! Oh no! But, as has happened before and 
would happen again, your customers simply expected to be able to install 
software that uses the Internet.

Sure, it made your life harder, just like when YouTube showed up and 
your customers started to get emails from their friends about cat 
videos. Videos! Huge amounts of bandwidth wasted on cats, when a simple 
text posting to Usenet about one's cat would have sufficed.

Not that you didn't try... you tried updating your policies, adding 
things like "we prohibit the use of the Slingbox on residential 
connections" when another new way to use one's Internet connection 
showed up in the marketplace... But it wasn't entirely successful...

So you complained, and complained, and complained about how your 
customer's usage of the Internet had changed... not because it was going 
to stop YouTube, or Skype, or Napster, or anything that had come before 
or would come in the future... but because it made the world more aware 
of the plight of a small business owner who wanted to not charge his 
customers more than the competition was charging, but who also had high 
costs because of where and how he chose to do business.

That's right. Nobody forced you to establish your ISP in Laramie, or has 
prevented you from raising funding and trenching fiber right to your 
doorstep. In fact, as you have repeatedly pointed out, large ISPs have 
economies of scale , including networks that are conveniently close to 
major peering points, and enough traffic to attract the attention of 
CDNs that wish to place content closer to them... so I guess the real 
question is: who forced you to keep your ISP small and local, instead of 
growing it into a major national or international player? My guess: 
Nobody but you yourself made that decision.

Smaller competitors almost always are forced to compete on dimensions 
other than those that economies of scale bring... I'm sure there's a 
small handcrafted furniture shop in Laramie, and I'm sure their 
furniture costs a lot more to make than what Wal-Mart is buying from 
their Chinese supplier. That was their choice... to start and run a 
business that can't take advantage of economies of scale and leverage 
that their competition has, because they've deliberately chosen to *not* 
grow that way. Adopt their mindset, take a deep breath, and maybe you'll 
enjoy being a local small business owner, instead of someone the entire 
universe is apparently trying to crush.

>   If Netflix wants us to do that,
> it is going to have to pay us, as it pays Comcast.

Have you considered that maybe Netflix doesn't want to do that? Maybe 
they really just don't care if performance to your customers is 
guaranteed. Maybe that's because they know your customers are already so 
used to being hobbled by other restrictions on the use of their Internet 
service that they figure they won't care about Netflix performance. 
Maybe it is because they have millions of other customers who they can 
solve performance issues from more efficiently by improving performance 
to major carriers. Maybe they just haven't gotten around to your ISP 
yet. Maybe they hate Wyoming.

That's their business. You want them to pay you, grow your ISP into 
something they care about.

>   That's only fair,
> because we would be doing something special just for it -- something
> which costs money.

You're free to make infrastructure improvements that improve your 
customers' ability to access Internet services whenever you like. Or to 
fail to do so... and see if they like you enough to not switch to the 
competition who has.

Me, I can't wait until Google Fiber shows up in your town.

> If Netflix tries to use its market power to harm ISPs, or to smear
> us via nasty on-screen messages as it has been smearing Verizon, ISPs have
> no choice but to react.

Oh brother... another "reaction" to yet another novel use of the 
Internet that you didn't originally design your ISP to handle. Have you 
considered just doing the engineering instead of complaining?

>   One way we could do this -- and I'm strongly
> considering it -- is to start up a competing streaming service that
> IS friendly to ISPs. It would use the minimum possible amount of
> bandwidth, make proper use of caching, and -- most importantly --
> actually PAY Internet service providers, instead of sapping their
> resources, by allowing them to sell it and keep a portion of the fee.
> This would provide an automatic, direct, per-customer reimbursement
> to the ISP for the cost of bandwidth. ISPs would sign on so fast
> that such a service could BURY Netflix in short order.

I wish you luck with this venture. You would undoubtedly learn a lot 
about the costs Netflix has experienced while gaining the right to 
stream (and now create) content that users want to see.

But since complaining about the latest thing is so much easier, I expect 
we'll see a lot more of that instead of this service.

Matthew Kaufman

ps. Please read my background before claiming in your response that I 
don't know anything about {starting and running a small ISP in the early 
1990s, operating a nationwide ISP/CLEC and associated backbone with 
significant peering, owning and operating a wireless ISP, peer-to-peer 
content delivery, video CDNs, Skype}

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