WSJ’s Apple/Comcast Story Not Accurate, News Being Overblown On Wall Street

I wasn’t planning to write anything about the WSJ’s news story about Apple and Comcast being in discussions to work together, but since I have gotten so many inquiries from others asking me to comment on the post and seeing that Netflix’s stock is now down $30 a share as of 2pm ET, I felt compelled to get something up.

From sources I have spoken to, no such deal between Apple and Comcast is being considered today, the way the WSJ describes it. Apple routinely has discussions with all the major content owners but Apple is not working on any special streaming service that will be delivered via Comcast. While one could always speculate that such a service might, could or should come to the market in the future, anything is possible, but not the way the WSJ details it.

For starters, the WSJ post says that Apple would get “special treatment on Comcast’s cables to ensure it bypasses congestion on the Web”. Not only would Comcast not offer that, legally they aren’t allowed to. The post goes on to say that Apple “wants the new TV service’s traffic to be separated from public Internet traffic over the last mile”. This makes no sense. Once the content is already inside the last mile, it’s no longer “public Internet traffic”, so the WSJ authors simply doesn’t understand, from a basic technical level, how content is delivered.

The post also says that the last mile “tends to get clogged when too many users in a region try to access too much bandwidth at the same time.” As we know from the Netflix and Comcast story, the congestion takes place at interconnect points and generally not inside the “last mile”. Does the WSJ have any data to show us that congestion is taking place inside the last mile at Comcast? Also, users aren’t accessing too much “bandwidth”. I get what they are saying, but they are using the wrong term. Bandwidth is simply the amount of data that can be carried from one point to another in a given time period. Users don’t access “bandwidth”, they are accessing content.

How anyone can take the WSJ’s post seriously is beyond me when they use so many vague terms, and it’s clear that the authors don’t understand this subject from a basic technical level. They say Apple wants a separate “flow” for its video traffic. What does that mean? Define “flow”. Earlier in the post they said that Apple would “get special treatment on Comcast’s cables”, but later on say “it isn’t asking for its traffic to be prioritized over other Internet-based services.” Well, which one is it? It can’t be both.

Their “technical” description of how this would work makes no sense at all. They say “Apple’s video streams would be treated as a “managed service” traveling in Internet protocol format—similar to cable video-on-demand or phone service. Those services travel on a special portion of the cable pipe that is separate from the more congested portion reserved for public Internet access.” That’s a lot of vague, generic words thrown together that mean nothing without defining them. “Special portion”? “Managed service”? Are they suggesting a private peering connection? Maybe, but then that’s not inside the last mile. And why do they say it will be delivered using the “Internet protocol format”? Is there any other format to use? Of course it’s in IP format, it’s going over IP-based networks!

I was just going to leave this article alone and not say anything as I’m not trying to police the web. But Wall Street thinks this is big news and has sent Netflix’s stock down $30 a share as of 2pm ET, which is crazy. The WSJ’s post does not have enough facts in it, and far too many errors, to use it as the reason to justify a sell off in Netflix. Just because something is published in the WSJ or any other major publication does not guarantee they have the story right. It does not take much to see that the way the story is written, the authors don’t understand the basics of how content gets delivered on the Internet. They don’t use the right terminology, and the post is filled with so many vague and nondescript terms that no one should be making any decisions on buying or selling stocks based on what this WSJ post says.

Added 4:02pm – While Netflix’s stock could be down for reasons other than the WSJ’s post, nearly all Internet stocks are down today including Google, Akamai, Facebook, Twitter, Yahoo and others. The two stocks that are up are Apple and Comcast. So you can draw your own conclusions if you think the WSJ article had any impact on Netflix’s stock today.

Disclaimer: I have never bought, sold or traded a single share of stock in any public company ever. I have no vested interested in Netflix, Apple, Comcast or any other company mentioned in this post.

Level 3 Files 14 Page Brief Asking The FCC To Regulate Interconnections

Screen Shot 2014-03-21 at 1.06.20 PMLevel 3 has just filed a 14 page brief with the FCC saying that ISPs “must also exchange Internet traffic on commercially reasonable terms without imposing access charges”. They have reinforced their previous statement that they want the FCC to regulate interconnections between networks, but still don’t provide any suggestions on how the FCC should do that. Level 3 feels that “ISPs should be permitted to charge other providers for services they provide, but they may not charge fees simply for the privilege of accessing that ISP’s customers”. So how does one define “commercially reasonable terms” that Level 3 is asking for? [see my earlier post in the day on this topic: Netflix & Level 3 Only Telling Half The Story, Won’t Detail What Changes They Want To Net Neutrality]

Level 3 also states that “many end users might not know, when experiencing degraded performance, that the cause of that degradation is that the ISP’s ports are congested.” They are right about that, which is why we need the companies involved in this dispute to be transparent and provide the data to show all the technical and business pieces behind the scenes.

Level 3 says they are “willing to work with ISPs to ensure that all costs are borne fairly (i.e. that Level 3 will incur the costs to augment its network if the ISP will likewise incur the costs to augment the ISP’s network), the tolls that ISPs are seeking to impose are unrelated to costs.” So what are the costs? Level 3 will only say that the “precise size of the tolls demanded vary from ISP to ISP.” They also argue that these costs “would have an appreciable impact on costs for edge providers, including new or small garage entrepreneurs”, yet small “garage entrepreneurs” are never going to build their own CDNs and won’t need to connect to other networks. If Level 3′s argument is that smaller content owners will also suffer, why aren’t we also hearing from any of these smaller content owners? To date, Netflix is the only content owner who says their is a problem. Where are the other voices?

Level 3 finishes by saying they want “commercially reasonable terms” that are “sufficiently flexible” and that ISPs could agree to “different terms” which are “suited to the unique circumstances of the parties at the time”. That’s pretty vague with lots of variables. Level 3 also says that “while it is impossible to quantify, now, how much worse consumers’ future Internet experience will be than it otherwise could be, or how much innovation will never happen, or how much higher prices for online services might be, those are the predictable consequences if the Commission fails to act”.

What I want are all the facts so I can make an informed decision of what should be done. But without details on the current business terms and how they work between all the parties involved and details, with numbers, on how they want it to change, it really keeps all of us in the dark.

Netflix & Level 3 Only Telling Half The Story, Won’t Detail What Changes They Want To Net Neutrality

Late yesterday, Netflix’s CEO published a blog post making the argument that “stronger” net neutrality is needed and that Netflix will “fight for the Internet”. This follows a post earlier in the week from Level 3 in which they said some ISPs are playing “chicken” with the Internet and purposely causing “congestion”. Unfortunately, both companies are only telling half the story when it comes to this subject and are leaving out some very important facts. They are also making some statements that are factually inaccurate, contradicting themselves and providing nothing in the way of clarity to the topic.

If anything, Netflix, Level 3 and Cogent are doing the opposite and muddying the conversation by using vague, generic and high-level terms, with no definition of what they mean or how they think they should be applied. Even worse, they aren’t detailing any business or technical alternatives on how they think the problem could be solved. They are all doing a lot of posturing and complaining in the media, yet to date, none have outlined any detailed proposal on how they would like to see interconnection relationships regulated or how they want net neutrality rules changed.

Netflix’s main argument in their post is that in this day and age, they feel “stronger” net neutrality rules are required. While that’s their main point and a valid one to make if they want to argue it, they don’t detail how it could be made stronger. They use the term “stronger” twelve times in their post, yet never once define it. Generic phrases aren’t what we need on a topic that is already very confusing. We need clear, concise and well articulated details on how things could change for the better. What exactly does Netflix want to see done and why can’t they come right out and say it? It bothers me that Netflix is telling us that they “will continue to fight for the Internet”, as if they are championing the fight for all of us, but won’t tell us how and what they want as the end result. Netflix does say that ISPs “must provide sufficient access to their network without charge”, but once again don’t define what “sufficient access” means or how it should be measured.

What also makes this complicated is that Netflix is only highlighting the things that benefit their argument and isn’t telling the whole story. In some cases, they are also making statements that aren’t accurate. Netflix likes to make it sound like they have no choice when it comes to sending their traffic into the ISPs networks, when in fact, they have many choices. The transit market is extremely competitive, with at least a dozen major providers who offer transit services at different price points and with different SLAs. Netflix could use multiple providers to connect to ISPs and could also use third party CDNs like Akamai, EdgeCast and Limelight, who are already connected to ISPs, to deliver their traffic. In fact, this is how Netflix delivered 100% of their traffic for many, many years, using third-party CDNs. Netflix likes to make it sound like there is only one way to deliver videos on the Internet when in fact, there are multiple ways. No one who understands how the Internet works would debate this.

Netflix’s whole argument is that ISPs are purposely letting their peering points get congested but what Netflix isn’t talking about is some of the stuff they have done behind the scenes to make matters worse. Saturating a peering point can easily be prevented if you buy transit from multiple providers, which Netflix does. But the reason Cogent is the one transit provider we always seem to hear about is because Netflix continued to push their traffic through Cogent even though they knew it was already congested. Even though Netflix was buying transit from multiple providers, it wasn’t routing around capacity issues, like all the other CDNs do. So why did Netflix continue to push their traffic through Cogent even though they knew the link was congested? That practice is abnormal for any CDN to do as it impacts the quality of the video being delivered. Remember, no ISP decides how the traffic comes into their network or which transit providers Netflix uses. When you use third party CDNs, they also buy transit from multiple providers so that the can route traffic in real time around places where there is congestion.

In reality, the blame could fall on Netflix for continuing to send traffic over a link they know is congested, when alternatives exist in the market. The blame could also fall on the transit provider who sold Netflix capacity that they know they can’t deliver based on their current peering arrangements. It could also be that the broadband service provider isn’t upgrading a link that is still under peering compliance, per their peering policy. Laying the blame on the ISP isn’t always the case or always accurate. It may be at times, but they company that should be blamed will be different depending on the business situation of the companies involved.

So as much as Netflix wants to make this into a net neutrally issue, it’s a business issue. Netflix has alternatives, they chose not to use them. One could also argue that, by Netflix not routing around the performance issues with Cogent, the end result is that it forces the ISP to take angry calls from consumers. And if the ISP gets enough of those calls, maybe the ISP would then agree to join Netflix’s Open Connect program and allow Netflix to come into the ISPs last mile to place their own servers. Netflix’s motives in this whole argument is to protect their business, which is fine, but then they should not portray their argument as one where they are “fighting for the Internet”.

In Netflix’s post they said that Cablevision is “already practicing strong net neutrality”, but neglects to remind us that Cablevision is in Netflix’s Open Connect program. So is that what Netflix defines as “strong” net neutrality, any ISP that agrees to Netflix’s terms? And those that don’t join Open Connect and don’t agree to Netflix’s terms, are those the ISP that have “weak” net neutrality principles? To me, that sounds more like Netflix defining who is “strong” or “weak” based on Netflix’s own business terms and not true net neutrality. Netflix also calls out Comcast as “supporting weak net neutrality”, but the fact is Comcast is the only ISP that legally even has to follow the rules, due to their purchase of NBC.

Netflix also mentions in their post that strong net neutrality prevents ISPs from charging a toll for interconnection to services like “Netflix, YouTube, or Skype” and intermediaries such as “Cogent, Akamai or Level 3″. So why aren’t Google, Akamai, Yahoo!, AOL, Facebook, Twitter, Microsoft, Apple, Limelight Networks, EdgeCast and other CDNs and content owners who have built their own CDNs also complaining as Netflix is? Netflix is the only major content owner whom we have heard from, in a public forum, that thinks interconnection should be covered under net neutrality rules. It’s interesting to note that Netflix mentions YouTube by name, but the vast majority of Google’s content is already delivered inside the last mile via GGC (Google Global Cache). Not every ISP, but the majority of them, has been happy to work with Google and their caches within their network. So one has to ask themselves why Google has had success working with ISPs, but Netflix isn’t.

Moving on to Level 3′s blog post, they too use a lot of generic statements saying they want “reasonable terms” when it comes getting capacity from ISPs but don’t define what that means. Level 3 could outline technical alternatives, like bringing the content further into the last mile at their own cost, but to date, they haven’t proposed such a plan. Level 3′s post says that the way the Internet works, “providers must spend money and connect their networks together.” So on one hand they outline how it needs to be done, but then also argue no payment should be made.

If you thought that was confusing, just think about this. When Cogent wanted to send more traffic into Level 3′s network than Level 3 was sending in return, Level 3 told Cogent it had to pay. Level 3 said, “There are a number of factors that determine whether a peering relationship is mutually beneficial. For example, Cogent was sending far more traffic to the Level 3 network than Level 3 was sending to Cogent’s network. It is important to keep in mind that traffic received by Level 3 in a peering relationship must be moved across Level 3′s network at considerable expense. Simply put, this means that, without paying, Cogent was using far more of Level 3′s network, far more of the time, than the reverse. Following our review, we decided that it was unfair for us to be subsidizing Cogent’s business.” You read that right. Level 3 thinks Cogent should have to pay them, because the balance of traffic isn’t equal, but Level 3 doesn’t think it should have to pay Comcast, even though that traffic is also lopsided. Confused yet?

Level 3 did talk about wanting to implement a peering system based on “bit miles”, but that’s a new and unknown unit of measure that has no common definition in the industry, that I can find. Level 3 proposes that many of its CDN bits travel very few bit miles because they offer to place CDN servers in or near ISP networks so there is very little burden on the ISP. That makes sense on paper, but it ignores the whole balance of trade or investment value proposition on which peering is based. The CAPEX and OPEX differentials between building and growing a broadband network and building a CDN are immense. For the bit-miles approach to gain traction, it would likely require an organization like the IETF to define precisely what bit miles are, how they are measured and how an exchange of traffic could take place using such an approach. Defining a new measurement, basing new rules off of it and trying to enforce those rules without industry acceptance seems impossible.

My goal when writing about this subject is to try and bring some transparency to what is taking place, which is hard to do when the companies involved want to be vague and all have business motives behind their decisions. This whole debate is not going to move forward until these companies start detailing what they actually want, the real impact it will have on their business (with numbers) and give specifics on exactly what should be regulated how it should me measured, monitored and priced. Until that happens all they are doing is confusing the media, consumers, legislators and keeping this debate from moving forward.

Any company that want’s new rules, regulations and the government to get more involved in their business, without defining what they mean, better be ready to have to deal with some laws that might get passed in the end that they didn’t actually want. In my opinion, these companies that are asking for regulation, but not providing the details on what they really want are asking for potential trouble. There are a lot of smart people at these companies and all of them should have already proposed detailed alternatives on how this could be solved. I know that some of them plan to make additional filings today, but from what I have already seen and heard, none of these filings will detail or outline any real alternatives to the situation.

Disclaimer: It’s nearly 2am ET and I need to get to bed, so apologies if my eyes missed some grammar errors. I will re-proof it in the morning.

Netflix’s CEO Publishes Post Calling For “Strong Net Neutrality”

Netflix’s CEO Reed Hastings just published a post on Netflix’s blog saying the Internet needs “strong net neutrality” and explains his case as to why. Problem is, he does not suggest any alternatives on how to fix the problem. I’ll have more thoughts on the topic in a follow up blog post shortly.

Global Licensed/Managed CDN Market To Reach $60M In 2014

Screen Shot 2014-03-19 at 10.31.24 AMIn addition to my role at StreamingMedia.com, I’m also a Principal Analyst at Frost & Sullivan and I’ve recently released my latest report on the size of the “Global Licensed/Managed CDN Market“. The report details the market drivers, restraints to market growth, product and pricing trends, competitive landscape, and market forecasts and trend analysis broken out by region of the world for the next four years.

Outside of commercial deployments, nearly all large scale telcos have already deployed or are building out CDNs internally to handle the flow of video across their network. It’s a move they all had to make for cost savings and quality of experience (QoE) benefits and while most of them are simply deploying boxes from major hardware vendors, or building it on their own, some telcos are working with vendors who offer a licensed and/or managed CDN offering, so they don’t have to start from scratch.

While there was an uptick in the number of Licensed CDN (LCDN)/Managed CDN (MCDN) deals in 2013, the market opportunity is very small, at just over $60M this year globally. The market for LCDN/MCDN services will never be large and there are only a few vendors who even offer the service, with most of them doing it for ancillary benefits to their core business and not for generating a lot of revenue from licensing the software or doing a managed CDN build out. The LCDN/MCDN model is still evolving and its success as a stand-alone offering is still to be determined. The market will never be a large opportunity in terms of revenue, but LCDN/MCDN is starting to become more of a check box for CDN service providers to help strengthen their core business.

The key takeaways from the report are:

  • Most telcos and carriers are not expected to offer commercial CDN services, but will likely leverage LCDN/MCDN for internal CDN deployments
  • Very few vendors offer a true LCDN/MCDN solution; those who do, provide it as it offers ancillary benefits to their core business
  • LCDN/MCDN is a small market today, just over $60M in total revenue with at most, two dozen or so deployments
  • LCDN/MCDN offerings are mostly being sold by commercial CDNs, but over time, should be offered by hardware vendors already selling to telcos and carriers
  • It won’t take long for LCDN/MCDN to go away as a stand-alone offering and instead, be sold as part of a larger solution set

Copies of the report are available to any customer who has a subscription to Frost’s Digital Media research service and anyone interested in getting a subscription can contact me for more details. Also, while many research analysts at other firms won’t talk to someone unless they are a customer of that firm, I have and always will talk to any company who is interested in getting more details on any aspect of the video, streaming and content delivery ecosystem. You don’t have to be a customer of Frost & Sullivan for me to take your call and do a briefing with you, so call anytime.