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Commentary on The Capital Markets- Category [Technology]

Here it comes fools...

If you’re a Comcast customer living in one of the many states where they’ve imposed no real limits on bandwidth usage for the last few years… enjoy it while it lasts.

During an investor call today (link via Ars), Comcast executive VP David Cohen said that he predicts bandwidth caps (or, as ISPs prefer to put it, “usage-based billing”) to be rolled out network-wide within the next 5 years or so.

Of course.

See, at the core of the problem is one little company called Netflix that is responsible for more than a quarter of all traffic on the Internet during the evening hours.  And that company is hell-bent and determined to not pay for the load that it presents to the end-attachment points or how it concentrates that load, both of which break (in a bad way) the models that the ISPs (cable companies, etc) use to build their networks.

All problems of this sort can be solved by money, and this is fundamentally a fight about money.  Streaming an "SD" movie requires about a gigabyte per hour, per device.  HD doubles that and 4k doubles it again.

Further, it's not just data delivered over time, it's another qualitative measurement called jitter.  In other words you can't have a stream that has material gaps in the delivery of the data or the display of your video will stutter and, if bad enough, fail to play entirely.

The cost-shifting that has gone on over the last few years has been outrageous -- and Netflix should have never gotten away with it, in my view.  But they have, and then it led to the FCC's proclamation about Net Neutrality after heavy lobbying by Netflix and you, goaded on by them complete with various socialist polemics.

The reality of any so-called neutrality mandate is that it forbids an ISP from identifying companies that try to shift their network costs on others (e.g. Netflix) and reflecting it back on the originating party by either asking them to pay up or demoting their traffic so it does not present an abnormal flow pattern within their design parameters.

In other words if what I expected when I designed and built my network, and set prices for access to same, is that you'll watch some number of relatively short videos (e.g. Youtube clips of cats doing cute things), will surf the web for hours a day centered on times of day with each page having average content size and delivery requirements of and will send and receive some number of emails, and then you come along as a content provider (e.g. Netflix) with a bandwidth demand that is 100x what I modeled then something is going to break.

At its core Net Neutrality says is that I have to treat everyone equally.  But it doesn't, and can't, mandate that I sell service at a loss.  What this means is that when some company blows up everyone's existing pricing models in the sort of dramatic fashion that Netflix has, effectively trying to force other people to pay its operating costs, the inevitable result is that said operating costs cannot be made to disappear.

There are only two possible outcomes: Either Netflix is made to pay them (by being back-charged by the ISPs) or you get to pay them.  If you prohibit by law the ISP from back-charging Netflix (which is what "Net Neutrality" does) then you are going to get billed instead.

The ugly reality is that nobody can deliver "true" unlimited Internet at the speeds and prices being marketed today.  Nobody.  It can't be done because the cost of delivery of said service at that maximum point exceeds the price charged.

For example take T-Mobile's "unlimited" LTE wireless service.  I have recorded a 40 Megabit data rate on that service in a few places.  This sounds "great", right?  Well, it might be except that it will burn through a 5 Gb data limit (before throttling) in about 17 minutes, at which point your service is throttled to 128kbps or less.  At that data rate no streaming service works -- not video or audio (e.g. Pandora.)

What if you actually used it for the whole month, and weren't throttled?  You'd consume 18 Gigabytes/hour, or close to 13 Terabytes per month (!).

Obviously T-Mobile didn't engineer that connection to deliver 13 Terabytes per month for every customer on the network.

While the problem is less-severe for "landline" (e.g. Cable, FIOS, etc) customers it is by no means not present.  If you have a 50Mbps connection from Comcast, for example, you could consume 375 Megabytes per minute.  That works out to 22.5Gb/hour roughly 16.2 Terabytes per month.

Again, Comcast cannot engineer for that while charging you $50/month.  Can you buy such service?  Sure!  I used to buy service of similar quality as an ISP all the time -- a 44.7Mbps (each direction) DS-3 "clear channel" line for which I actually paid to move that full amount of data all the time.

But while it's gotten much cheaper than the five-digit price tag per month I paid at that time for such capacity it sure as hell isn't $50/month even today.

So what you who argued for "Net Neutrality" are going to get -- what we're all going to get -- is metered connections. We should get them, in fact -- because right now those of you buying "flat rate consumer connections" are either soaking your neighbor or paying for part of their usage depending on whether you're a viewer of things like Netflix or not.

Metered service will expose this cost-shifting and force those who have been sponges of their neighbor's money to pay up while their neighbors, who have no interest in using Netflix, will see their bill go down -- perhaps by quite a bit.

When, not if, that happens you'll find out exactly what the true cost of your so-called "$8/month" streaming video service is.

I suspect you're not going to like it one bit.

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