I disagree with this theory. If customers pay comcast for bytes then eventually the upstream (L3) will want some of that revenue. That revenue will be passed onto the provider as a lower bill. This encourages Netflix to send more bytes, because if they do Comcast and L3 get paid more and Netflix's bill goes down. The income stream is now completely dependent on how much money the customer can pay. Sure other services (Hulu, Youtube, etc) could step in and offer lower usage but customers are MUCH more likely to pick based on available content then an abstract "we use N bytes per month fewer then that guy". Also, if income is dependent on sending more bytes, provider usage will creep up as far as they can get push it while still keeping customers. In comparison, does the average person pick their mobile provider based on how many minutes they get or if they get coverage at their house. Keep in mind that all providers are within ~10% of each other on pricing. Where do we see costs in mobile going? How much is a text message these days? That is what happens when the user pays for bytes. If the provider pays for transport then the amount of data going over wires is dependent on that providers customer base. The cost of transport now scales directly with size of business. Netflix or Hulu are now directly responsible for their costs which motivates them to be efficient. Comcast can now charge its customers only for upkeep of its network and use the income they get as an "end point delivery network" to offset customer cost. Comcast's cost, which are upkeep and expansion of its physical network, now scale proportionally with its customer base. So in this model, customers pay for the laying of the wire to their house and the upkeep of that wire, which is a 1:1 ratio for the consumer/comcast. Providers (Netflix) pay per byte to the transport providers. Transport providers make thier money off providing transport. Income and cost of doing business for Netflix is directly tied to their subscriber base so it is easy for them to balance their income. Of course, I am not an economist and could be entirely wrong. There are certainly other HUGE political factors, but I think in theory we would all be happier if the system worked by someone paying for a postage stamp then COD. On Thu, Dec 16, 2010 at 1:05 AM, George Bonser <gbonser@seven.com> wrote:
From: JC Dill Sent: Wednesday, December 15, 2010 9:13 PM Cc: nanog@nanog.org Subject: Re: Some truth about Comcast - WikiLeaks style
Sure, Comcast's customers are also paying Comcast. But Comcast wants to get paid from the content provider. I think they are betting that in the long run it's easier to make money from content providers (and have the content providers charge customers or advertisers as necessary to make a profit) than to make money from the end consumer. And I think they are right about this "easier" part. I think that they will succeed at pressuring big content providers to play by Comcast's rules and shift the cost of running Comcast's network from consumers to content providers.
jc
There are two different innovation paths according to who is paying. If the customer is paying, innovation is driven by the interest of the customer. If the provider is paying, innovation is driven by the interest of the provider.
If the customer pays the cost of the transport, a provider with better transport efficiency / quality ratio wins. It spurs innovation where we get better quality product with a better transport efficiency. If there are three competing content services in the market offering basically the same quality product, the one with the better transport efficiency is going to win customers. Or in some cases the customer might choose to sacrifice some quality for transport efficiency. The market eventually settles on what the customers in the aggregate decide is their willingness to trade price for performance.
If the provider pays the cost of the transport, a provider might effectively subsidize the transport cost of a bloated content distribution mechanism. It won't make any difference to the last mile delivery network either way. Either way they get the same amount of money. If provider pays the freight, there might be some company with an absolutely killer technology that can stream much higher quality stuff with less bandwidth usage but if the customer doesn't see the benefit, that in and of itself isn't enough to drive eyeballs to that content. If that content transport method did save the customer money, the eyeballs would move in that direction.
Having the provider pay the cost stifles technological advancement. It facilitates a "deep pocket" established company creating a barrier of adoption to a startup who might have a more efficient product but the user doesn't get any direct benefit so they don't adopt it. Having the user pay gives an incentive to develop technologies that reduce the network burden. Having the provider pay distorts innovation.
In the end, having the end user pay the cost for the product they are consuming results in better, faster, cheaper (yes, you can have all three). Externalizing those costs through subsidies by outside parties throws things out of balance and drives innovation in a way that benefits the provider, not the consumer.