Verizon Public Policy on Netflix

Thu Jul 17 00:13:56 UTC 2014

On Jul 14, 2014, at 06:46 , Miles Fidelman <mfidelman at meetinghouse.net> wrote:

> Jay Ashworth wrote:
> 
> [ As you might imagine, this is a bit of a hobby horse for me; Verizon's behavior about municipally owned fiber, and it's attempts to convert post- Sandy customers in NYS from regulated copper to unregulated FiOS service leave a pretty bad taste in my mouth about VZN. ]
> 
> Jay,
> Quite agree with you on this stuff.  I used to spend a good part of my time working with municipalities on planning fiber builds - so VZ's behavior on those matters leave a pretty bad taste in my mouth too.  But.. that's kind of a different issue, wouldn't you say?
> 
> Am I obtuse or does it all boil down to:
> 
> 1. If both Netflix customers, and Netflix all connected to a single network - customers would be paying for their access connections, and Netflix would be paying for a pipe big enough to handle the aggregate demand.
> 
> 2. The issue is that customers connect to one network (actually multiple networks, but lets stick with Verizon for now), and pay Verizon; Netflix buys aggregate capacity into other networks; with one or more transit networks in the middle.

Well, there are multiple possibilities here...

A:	CUST<->ACCESS_NETWORK<->TRANSIT_A<->TRANSIT_N<->NETFLIX
B:	CUST<->ACCESS_NETWORK<->TRANSIT<->NETFLIX
C:	CUST<->ACCESS_NETWORK<->NETFLIX

In case A, it's pretty obvious that CUST $->ACCESS_NETWORK$->TRANSIT_A and NETFLIX$->TRANSIT_N
It's not entirely clear what the economics would be between TRANSIT_A<->TRANSIT_N, but most likely settlement free peering.

In case B, it's fairly obvious CUST $->ACCESS_NETWORK and it's less clear wehter:
	B1:	ACCESS_NETWORK$->TRANSIT<-$NETFLIX	(transit double-dip)
	B2:	ACCESS_NETWORK$->TRANSIT and Transit is settlement free with Netflix (Access pays transit)
	B3:	TRANSIT<-$NETFLIX and Access is settlement free with Transit (Netflix pays transit)

I'm sure in the real world there are likely examples of all three scenarios.

In case C, we arrive at what I think most of the argument is actually about. Obviuosly, CUST$->ACCESS_NETWORK.
The question is whether there should also be ACCESS_NETWORK<-$NETFLIX, which is what Brett is claiming should happen and what at least one very large ACCESS_NETWORK has been able to achieve at least temporarily. In my opinion, this case is a case of Access Double Dip where the access network is being paid by both the customer and the supplier for the same delivery.

As I said, this would be like paying for a product from $BOX_STORE and having $BOX_STORE bill me for shipping, and pay $CARRIER for deliver only to have $CARRIER show up at my door asking for even more money before they will fork over my package.

> 3. Somebody has to pay for what's in the middle (ports into transit networks, bandwidth across them).  Those are additional costs, that wouldn't exist if everyone were connected to the same network.

I don't think that's really part of the argument here.

> 4. Both parties can make reasonable claims about why the other guys should pay.

Not really, IMHO. (See above and below)

> 5. $LARGE_ACCESS_NETWORKs are big enough to say "Netflix pays" - with Netflix making a visible stink about it.

LARGE_ACCESS_NETWORK may be able to force Netflix to pay, but that's not the same as saying Netflix _SHOULD_ pay. It's more like recognizing that market power and a large customer base can often force an economic decision that is contrary to what _SHOULD_ happen by any other rational evaluation.

> 6. Netflix is important enough to end users, that Netflix can tell the little guys "you pay."  And yes, they're making it a little easier by providing the CDN boxes.

Perhaps, but that's not really what is happening here if you look at it in more detail. I don't deny that Netflix _COULD_ do this, just as $LARGE_ACCESS_NETWORKs _HAVE_ apparently done this to Netflix. However, so far, Netflix seems to be trying as hard as they can to provide cost-effective alternatives for ISPs to accept their bits in a variety of ways and allowing the ISP to choose which solution works best for them.

True, Netflix hasn't built out every single distant corner of the universe with their peering network, but I would say that by any reasonable view of the situation, they have aggressively built quite a network over a large fraction of their service geography and to their credit, they are continuing to aggressively expand that network.

To the best of my knowledge (and I'm sure Dave will correct me if I am wrong), Netflix would prefer to deliver bits settlement free directly to as many ACCESS_PROVIDERS as possible, because it saves Netflix from paying transit costs and it saves ACCESS_PROVIDERS from paying additional circuit or transit costs and it provides a better customer experience all around.

In cases where Netflix' network does not geographically overlap $ACCESS_PROVIDER's network, then one or both will need to cover the cost of bridging that distance, whether with an IP transit relationship, a circuit, or some other mechanism. In most cases, since Netflix is in a high percentage of the major peering centers, most $ACCESS_PROVIDERS already have to build into one of those centers in order to reach many other things, so it is reasonable for them to connect to Netflix at that same point. In other cases, they use a transit provider to reach those centers as well, and so likely they will use the same transit to reach Netflix. In virtually every case, they're going to reach Netflix the same way they reach the majority of other top sites on the internet. In such a case, it makes sense that $ACCESS_PROVIDER pays for their unique geographic situation. It doesn't make sense to expect Netflix to subsidize their choice of geography.

It seems to me that other than $LARGE_ACCESS_PROVIDERS' public statements trying to extort money from $CONTENT_PROVIDERS and Brett's posts in this conversation, the vast majority of people in this thread have overwhelmingly agreed with this point of view.

> 7. In the absence of some reasonably balanced formal policies and regulations about settlements - we're going to keep seeing this kind of stuff.

Probably true, but I will point out that one of the main reasons that the Internet has become such a cost-effective alternative even for voice traffic vs. the PSTN is the lack of said formal policies and regulations about settlements. Of course, you did say "reasonably balanced" which I don't think is a term that could be rationally applied to the ITU settlement rules for the PSTN.

Owen