Why a good idea will destroy small businesses.
Like most responsible Netizens, I am in favor of Net Neutrality — the principle that ISPs should not discriminate based on content. In principle, it sounds like a good idea: you, the customer, should have access to whatever services you want, without having to pay extra for it, and without the ISP “throttling” internet traffic that competes with services that they may be offering — for an additional fee, naturally.
But there is trouble in paradise, and its name is Netflix.
The Netflix paradox.
Netflix, you see, is the biggest single source of Internet traffic in the world; it is estimated that as much as 40% if the bits flowing through the system come from that one source. And that places a load on ISPs, who have to purchase additional bandwidth and hardware to handle all of those bits wending their way from Netflix’s servers, across the public internet, to the ISP’s customers. Unlike consumers, ISPs have to pay for the “Public Internet” bandwidth they consume. The big ISPs have a solution: they do a deal with Netflix, where Netflix installs a server within the ISP’s Datacenter. This saves on bandwidth, as the movies on that server can be accessed by customers without having to go out on the public internet ad all the way back to Netflix. It saves on costs, as the ISP does not have to pay anyone for the bits that flow around within their networks.It also makes for a better experience for the customer, who is blissfully unaware that all of this is going on.
This is all well and good if you are one of the big boys — Cox, Comcast, Time Warner — as they all have deals in place with Netflix. But what if you are a small ISP? Netflix won’t talk to these little guys — not worth their time. They have to pay full-freight; as their customers sign up for Netflix, they are shifting massively more data, which pushes their bandwidth costs go up accordingly.
Their customers, however, won’t pay more just to watch Netflix. And there, as they say, is the rub.
Network Neutrality says: “Thou shalt not block or throttle Netflix”. Customers say “I want my Netflix!” And the small ISP says: “If it’s all the same to you, I would like to make a little bit of profit here, so I can feed my children? (won’t somebody please think of the children?!). Sorry, couldn’t resist.
The elephant in the room is bandwidth; most residential internet customers in this country are used to paying a flat fee for “all-you-can-eat” service. This means that those customers who are not Netflix subscribers are effectively subsidizing those who are.
The bottom line is that small ISPs are being punished by a perfect storm; on one side we have fixed-price, customers fattened on “all-you-can-eat” unlimited data. On the other is a major bandwidth hog who won’t cut them a deal. And Net neutrality means that they cannot throttle Netflix traffic or charge their customers a surcharge to make up for their real increased costs.
Residential Internet service is the only utility where most customers do not pay for what they actually use.
Water, gas, electricity, these are usually metered. But not Internet.
For them, the only fair solution is to change their pricing model from all-you-can-eat to a-la-carte, where customers pay for the bandwidth they use. And customers who have been spoiled by unlimited data won’t want that — I certainly don’t.
This is not meant to be a screed against Net Neutrality — it is a good idea, and one which I support in the main. My intention here is not to criticize the idea or derail it in any way. My intention is to draw attention to the fact that the law of unintended consequences will always bite you in the… rear.