How Your Internet Bill Helps Netflix — and Hurts the Poor

How Your Internet Bill Helps Netflix — and Hurts the Poor

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Netflix is a big and growing user of Internet capacity, which it uses to deliver its steaming video products

This article originally appeared on Broadband & Social Justice.

Netflix, the Los Gatos, California, company that provides movies online or by mail, has come out against metered digital delivery or limits on consumer broadband use.

There is no need to charge more for heavy Internet usage, Netflix argued in an op-ed article in the Wall Street Journal, because broadband is easily and cheaply expanded to meet the needs of the market.

“Wireline bandwidth is an almost unlimited resource due to advances in Internet architecture,” wrote the company’s general counsel, David Hyman. “Adding more capacity is easy. The marginal cost of providing an extra gigabyte of data — enough to deliver one episode of ‘30 Rock’ from Netflix — is less than one cent, and falling.”

Unlimited resource! No effective limit on capacity! All problems have cheap and easy solutions! If that sounds less than credible, well, you can’t blame Netflix for trying. The company has good reason to fight metered use or higher charges. Its business model is built on heavy Internet use.

How heavy? According to Sandvine, a maker of networking products that tracks Internet usage, Netflix’s streaming service accounts for 29.7 percent of downstream Internet traffic in North America during peak hours.

Even when averaged over a full day, rather than just peak hours, Netflix is huge — 22 percent of all of the Internet usage in North America.

That share is likely to grow even larger. In just six months, the company’s share of the peak-hour data stream over Internet service providers has increased 44 percent. Netflix, reports Sandvine in its May 17 report, “has become the largest source of Internet traffic overall.”

No wonder Netflix argues that meters or limits are bad. They are certainly bad for Netflix. But are they bad for the rest of us?

Everyone likes the idea of paying one flat fee for unlimited usage. But Sandvine’s traffic numbers suggest that all users are subsidizing Netflix and its customers. Perhaps those flat fees are higher than they need to be.

That’s because everyone with broadband access, either through a wire or cable or via wireless — pays to sustain and expand their Internet service provider’s network and capacity. But Netflix grabs more than a fifth of that network and capacity to deliver its product to customers — almost a third, in some hours of the day.

In other words, all broadband consumers are paying to deliver those “30 Rock” episodes and much more to Netflix subscribers. All consumers are subsidizing Netflix through higher flat fees.

Those higher subscription fees are a serious problem for many families.

A recent study shows that broadband access at home is common for households with incomes of $100,000 a year or more, but it is uncommon for families making $25,000 or less. These poorer families simply can’t afford it.

The One Economy campaign is working hard to show these families that the benefits of broadband access — in job opportunity, in educational options, in building digital literacy and in many other ways — is worth the cost.

Policymakers can help that effort by removing the hidden subsidy of extreme users.

If the hidden subsidy were lessened or erased — if extreme heavy users such as Netflix and its customers were required to pay a little more — the cost of broadband access could fall.

Charge extreme users more, and charge the rest of us less. That sounds fair.

And here is what is not fair — allowing the hidden subsidy built into everyone’s broadband subscription to keep low-income Americans off the Internet.

 

1 COMMENT

  1. Great to see this cross-posted. As I mentioned on BBSJ, I don't understand why anyone would be against metered pricing. In just about every other context, we pay in proportion to our use of a service. For Internet users, this model would more accurately price consumption, allowing less intensive users to pay much less than a Netflix addict. This just seems like common sense to me.

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