Aussie telcos declare war on Netflix

Two and a half years ago, NBN Co chief Bill Morrow blamed online gaming for creating massive congestion on the National Broadband Network (NBN) network. Accordingly, NBN Co was “evaluating” throttling downloads for users during peak periods in order to relieve  fixed wireless congestion.

Then early last year, the blame for NBN congestion was shifted to online streaming services like Netflix, with Dr Steven Conway from Swinburne University of Technology warning the NBN is facing a “congestion time bomb”.

Now Australia’s two biggest telcos – Telstra and Optus – have called on data-hungry streaming services like Netflix and gaming companies to help pay for the costs they are imposing on networks:

Andrew Sheridan, Optus’ head of regulatory and public affairs, said the problem was only going to get worse if there was no change…

“We are positioning this very much as an industry challenge,” he said. “If we get this right it should ultimately be in the long-term interest of Australian consumers and businesses.

“The current situation is a substantial portion of traffic, particularly at peak period, is actually over-the-top traffic. A lot of it is gaming traffic. The big spikes are when the big gaming updates [arrive] from the likes of … Fortnite, Siege, Grand Theft Auto. If we look forward into the future, we’re going to see growth in traffic as we see proliferation of 8K, augmented reality and virtual reality.”

OTTs are by far the biggest users of data globally. Netflix alone accounted for 12.9 per cent of global downstream traffic in 2019, according to a study by Sandvine…

Telstra’s head of networks Nikos Katinakis agreed with Mr Sheridan that OTT services needed to contribute more…

The Australian Competition & Consumer Commission (ACCC) has recorded massive year-on-year increases in internet downloads:

The ACCC also warned that “this trend is likely to be further boosted during 2019-20 with the entry of new competitors such as Disney+ and Apple TV+”.

The main problem is not the streaming platforms per se, but that the $57 billion NBN was under-engineered from the outset and was never ‘future proofed’ to cope with the inevitable growth in data demand.

Accordingly, Australia is in the unfavourable position of having to ration scarce broadband capacity to avoid network congestion.

Unconventional Economist
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Comments

  1. TheLambKingMEMBER

    The main problem is not the streaming platforms per se, but that the $57 billion NBN was under-engineered from the outset and was never ‘future proofed’ to cope with the inevitable growth in data demand.

    Ummmmm, No. The original NBN was future proofed. Fibre to the Home ensured that upgrades to more than 10Gbps to each house were possible. It was Malcolm & Murdoch that changed the design and ensured that it was no longer future proof.

      • Maybe but nbn was neutered by applying fibre to the node and then a dedicated copper connection to each user. 5G is fibre to the node and then a few shared wireless connections to a neighbourhood of users. Anyone who can’t see the problem there really isn’t looking very hard or is too busy listening to marketing.

  2. Telstra and Optus – have called on data-hungry streaming services like Netflix and gaming companies to help pay for the costs they are imposing on networks

    I can’t follow that reasoning. Surely the consumer who chooses to download from Netflix or gaming companies is the one who should help pay for the costs they are imposing on networks. And surely the consumer is already paying via their expensive monthly bill. And this applies to people not named surely too!

    By the strange reasoning of Telstra and Optus, they might analyse porn downloads and then ask naked women to help pay for the costs they are imposing on networks. That hardly feels fair.

    • Hernando de Soto

      +1
      The end user has always paid. Optus and Telstra need to buy more upstream bandwidth. Their business model assumed users were only using their bandwidth 5% of the time.

      It’s just a money grab, but hey, it worked for news sites going after Facebook and Google.

    • The reasoning is that it’s easier encourage a legislative shakedown a foreign company than it is to charge customers more in a (relatively) competitive market.

    • Considering that Services like Netflix and Steam are basically the point of a broadband network it beggars belief that they can be deemed “problems” in the first place.

      No-one needed the NBN for browsing and email. If that’s all I needed the internet for I’d just have a phone.

  3. This is the Australian way if doing business. They don’t want to compete to get customers. They get together and want customers to pay a high price for crappy products without updating thier infrastructure. More income without needing to outlay money to compete.

  4. Whinging rent-seeking parasites. If Aussie ISPs were really concerned about excessive Netflix bandwidth they can sign up for the Netflix Open Connect program free of charge. The real problem is that Aussie media companies are incapable of creating content that people are willing to pay for.

  5. I don’t get this blog and their reporting on the NBN. It’s totally misguided.

    You go back a page and talk about how 5G is going to smash the NBN and now the NBN can’t keep up because its not future proofed. Sums up the lack of knowledge re the technology involved in both systems across the general public.

    Sounds to me that the Marketing Teams and the Infrastructure Teams are at logger heads like usual. Selling unlimited data plans without knowing full well that CVC costs can’t support it. So then some wanker from marketing blames the content creators.

    Typical crap Australian Managers who have no vision and just resort to changing polices or enacting barriers of entry to get their top line or bottom line numbers.

    Start be gutting all the middle mangers and invest in your network you idiots so people will want to pay for the service you provide.

    • Its a bit sad LVOs telco industry posts are click bait with nothing interesting to say that I can’t already read in the MSM.

      Moving back to the topic, these peak download events that telcos experience are things like the digital release of the years biggest games, or more often giant release day patches of theses same games.

      It’s the equivalent impact of three 40 deg days in a row on our electricity infrastructure. Just like electricity the obvious answer would seem to be improved demand management rather than legislation that increases costs which are ultimately passed on to consumers.

    • RandomCommenter

      Whether super high speeds can be achieved isn’t really relevant.

      All that matters in the end is what service the customer will pay for. Different customers have different requirements – I am sure there is still somebody out there on dialup.

      The NBN strategy has high capital cost part and has mismanaged this so as to throw away a lot of the performance that was possible. CVC costs reflect this.

      Plainly, some customers (perhaps not you) will choose a lower price wireless product even if that means a lower speed. The evolution of the networks will increase density of 5G sites pretty rapidly, which will have some advantages for real world performance.

      For the NBN retailers, this is especially problematic because usually they would rely on a cross subsidy to heavier users from lower users.

      The issue here was lack of vision. There was an assumption mobile services couldn’t meaningfully compete with fibre services. Some of this was based on pseudo technical arguments about wireless being a shared medium or similar but really just got down to the idea that fibre *can* provide a faster service. Trivially true but not the point – the point is people buy a speed at a price and don’t care about much else.

      What we are going to see is that you can take a lot of customers and revenue of the NBN using wireless and probably make a bit more money from it.

      We’ll probably see NBN sold off at a low price once this all comes home to roost. Ironically, enough it will be valuable in the hands of a 5G operator to increase the density of their network, but the government won’t value it that way.

      That’s a really sad outcome.

      • To your arguments I agree people may try to ditch their NBN connection and go full 5G wireless, but you are never going to get max theoretical speeds on a 5G connection and the data plans are never going to be sufficient on a wireless plan so you’re going to fall back on the NBN. They are more complimentary technologies.

        If you look at that graph that’s posted on this blog re the exponential data growth and tell me that 5G is going to fill the gap where the NBN is, you don’t understand.

        I am a single household and I move roughly one terrabyte of data a month, work/gaming/4k streaming. If I had two kids and a partner I bet that it would be 2/3 larger.

        • RandomCommenter

          Vodafone sells a 200Gb / month plan for $55 today.

          A large number of people are going to get by on plans like that, even if they throttle speeds. Sure, that might not be adequate for you, but it will be adequate for a lot of people. Note particularly that it is utterly irrelevant if *part* of the market is completely unserved, provided that part isn’t too big.

          This group of people isn’t going to fall back to NBN or anything else. No matter how much you might want people to adopt the right technical solution, the market is going to speak and take a large chunk of the market.

          More people on 5G means less people on NBN equals higher costs per user.

          You (and the regulator) are better off betting that they are substitutes – with that realisation we can move forward to see what opportunity there is for regulation to disincentise the use of 5G this way and possibly steer people toward NBN. On the other hand, if the theory is that my nanna that struggles to use email is only going to settle for an NBN connection because she doesn’t believe the theoretical 5G speeds will be achievable in her area, well, nevermind it’s all going to sort itself out.

          My guess is the Government can’t or won’t see the problem, and even in the best case we’ll end up with an access regime well after the horse has bolted.

          • Sure hook it her up with a Vodafone sim only plan. A single device for a single person no worries. ISP’s have mentioned that people on a 25/5 NBN connection are generally not profitable for them due to whole sale cost. So even if she stays she wouldn’t be contributing the the pool of users she think she is.

            Connect that in a house of people and it would last a week and unworkable. The market will attempt to try and do so and then realise that the speeds they are getting are not what’s advertised, their technical support is non existent and their connection generally sub par.

        • RandomCommenter

          Apologies, have gone past the nesting limit so cannot reply to the right comment.

          A houseful of people, like a family, will each have their own mobile plan. So, 4 people would be in the ballpark 800Gb / mo. Since they probably have a phone and want broadband elsewhere than home, these mobile plans can actually be pretty attractive.

          The key thing that determines whether your 25/5 customer is profitable is whether they are the kind of customer that causes you to buy CVC. The telco would prefer a customer that uses very little bandwidth and especially none during peak times: it’s discussed with specific references to low bandwidth users here, for example: https://www.smh.com.au/business/companies/nbn-co-ponders-changes-to-its-contentious-pricing-structure-20190730-p52c2z.html

          I would be grateful if you had a link if saying it was different for whatever reason. But to be honest I would be pretty surprised if low bandwidth customers on bucket plans stopped being profitable – that and the law of large numbers is the business model for a telco.

          And yeah don’t worry about nan she has a lot of trouble figuring out why WiFi only works at home so the Vodafone sim is an easy choice. She mainly just downloads apps like candy crush so easy to keep happy.

          Thanks for the conversation by the way.

  6. kiwikarynMEMBER

    If you apply the same analogy, then appliance manufacturers should be paying the electricity companies for all the extra electricity they have to produce so that consumers can run heating/cooling in peak periods. Bandwidth is a utility. It shouldnt make any difference to telcos if I use my internet connection to make video calls or to watch Netflix or to post cat pictures on my blog. Its their job to price that bandwidth appropriately, and for consumers to pay for what they use, not for third parties to pay providers so that their services can be utilised by consumers. Just like no electrical appliance manufacturer has to pay electricity companies so that their products can be used.

  7. So dumb. The US telcos and some European ones already tried a very similar thing, trying to sting Netflix and Google (for Youtube) for extra cash. It’s just telcos wanting to double dip because they haven’t provisioned their networks to handle the amounts of data users want and pay for.

    The equation in reality is extremely simple: 1. the user pays a fee to be able to access the sites and download what they want. 2. the user wants to access Netflix. That’s it, there’s no step 3 – the user has already paid!

    As an addendum, you’ll notice that just like here, it’s always the larger ISPs that want to double dip on Netflix and Google etc. for extra cash. Surely it’d be the smaller ISPs that would be hurting if this was really an issue, right? Nope, the smaller ISPs just agree to peer with Netflix, etc. free of charge (at internet exchanges), because they realise that content providers and ISPs have a symbiotic relationship and it’s in everybody’s interest to do that. It saves the ISP money paying for transit capacity for all their traffic to the content provider, and it saves the content provider money to pay for transit to the ISP, so both benefit. It’s only ever the big ISPs with a lot of market power that try to use their heft to force content providers to pay extra for the privilege of delivering data to customers who have already paid for the delivery of that data.

    • Amen to that.

      Just like what 9,7,The Age and NewsCorp wants to charge Facebook and Google when someone posts a link of their terrible journalism.

      Stuff trying to just provide a better service, lets change the law to enact barriers of entry to engage in a monopoly.

  8. Hahaha good luck with gaming companies, they know it’s a load of bull and Australia is one of the worst gaming markets so they would be fine with just leaving. Still need to wait a few decades before the total voting populace isn’t ignorant of technology and know where the blame actually lies.

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