Rural Telco Reality – Part 1 – Netflix and Hulu

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Last month, I attended IP Possibilities in Kansas City, Mo. The focus of the conference was on the changing demands of broadband subscribers and how as a rural service provider can you step up to meet that challenge.  This was by far the best IP Possibilities show I’ve attended. There was a lot of debate, panel discussions, and the name that kept coming up as a game changer was Netflix.

The big topics discussed and those that I’ll cover in this article are:

  • Over-the-top video (OTTV) such as Netflix, Hulu, and Youtube.
    • How do service providers cope with the increased bandwidth usage?
  • IPv6 deployment and transition
    • Yes everyone, you should have taken care of this a long time ago.
  • Changes to the USF (Universal Service Fund) in the National Broadband Plan
    • How does this affect you as a rural service provider?

Netflix, Hulu, and Youtube … the game changers

Service providers gamble with their bandwidth to the Internet and the bandwidth offered to customers. For example, if a service provider has 100 customers each with 10Mbps Internet service the provider doesn’t purchase a Gigabit Ethernet (1000Mbps) of bandwidth to the Internet.  The provider instead hedges on the fact that not all 100 customers will be on at the same time and not all 100 customers will be using 100% of their bandwidth at all times. The exact mathametical formula for figuring out what amount of bandwidth is needed is dictated by many factors including customer demographics, service speeds offered to customers, and applications being used.

With the advanced uses of the Internet now, such as streaming video and social media, consumers are using more bandwidth and forcing service providers to make investments in infrastructure and upgrades to their Internet bandwidth in order to keep up with consumer demand.  Having 1,000 customers going through a 45Mbps DS3 is no long viable and that link would be upgraded to a 100+ Mbps Ethernet.  If available the Ethernet service will almost certainly cost less than a DS3.  A DS3 line is typically around $3,000 a month, nearly $5,000 in some areas.  Ethernet costs are much more reasonable, if available in the area, costs around $5-30/Mbps depending on the area.  For 100Mbps service it would cost, on the high-end, $3,000/month for 100Mbps Ethernet service.  However, if there is NOT an Ethernet offering a provider may have to purchase an additional DS3, doubling their Internet costs per month from $3,000/month to $6,000/month.

This actually creates two groups of opinions in the rural telco market. Those that have access to cheap bandwidth and those that don’t.  About half of the providers I spoke to have no big issue with this extra bandwidth consumption, their systems can handle the bandwidth, and they just incrementally add bandwidth to their upstream pipes. The other half don’t have systems that can handle the increased bandwidth demands and don’t have access to cheap bandwidth providers. This makes the increased demand a VERY expensive problem.  Some suggestions from the latter group:

  • Content providers, like Netflix, should give up a portion of their revenue to support providers that are carrying their content.
    • Probably won’t fly … would set the precedence that all web providers (video, audio, text, etc.) would have to be billed by service providers.
    • Who tracks this usage?
    • Who pays for this additional billing overhead?
  • Put caps on Internet usage, if a user goes over cap they get charged per extra 1GB or other unit.
    • This is probably what we will see happen
    • The light users don’t see a change, heavy users get charged more
    • Email or SMS alerts when the consumer reaches their cap
    • Should help offset the cost of upgrades and additional bandwidth
  • Metered billing, each customer gets billed based on their data usage
    • Treated like a standard utility
    • This also could be an option
    • Email or SMS alerts when the consumer reaches a certain threshold they can set

From a consumer perspective this whole issue is confusing. They have signed up for, lets say, a 10Mbps service.  They pay $59.99/month.  In the consumers mind if they want to use 10Mbps of bandwidth 24/7, that’s there right, because thats the service they were offered and signed-up for.  Which makes perfect sense, this is how the service was marketed and the perception they were given.  However, if all of the provider’s customers started using all of their bandwidth all of the time the provider would have to increase their Internet bandwidth to keep up with demand, thus costing money and probably bankrupting the company depending on the availability of cheap bandwidth and current state of their infrastructure.

This is a complex problem, one that has been created in part by the providers themselves.  As bandwidth to consumers increases, those consumers will find ways to fill it.  Whether its BitTorrent, Facebook, Youtube, or Netflix.  The next-gen app is right around the corner.  Service providers need to create flexible networks that can handle upgrades and bandwidth increases in a simple fashion.  Ethernet Internet connections provide flexibility as does fiber infrastructure out to customers.  Today it’s GPON and DOCSIS 3.0 … who knows what tomorrow will bring that can make use of the fiber infrastructure.  1gig to 10gig to 40gig to 100gig.

In the second part of this article we will discuss the IPv6 transition and problems.

 

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