How Google found the best route for the Netflix era

Commentary: The answer to better, faster video-streaming services over the Internet can be summed up in one word -- competition.

Google Fiber signage
A pro-Google Fiber sign outside a Homes for Hackers house in Kansas City. Marguerite Reardon/CNET

Net neutrality isn't the only thing needed to keep the Internet open and free. Competition may in fact be the best way to ensure that consumers get the best quality access to the Internet.

Jeffrey Burgan, director of network engineering for Google Fiber, explained in a blog post Wednesday why Google doesn't charge companies like Netflix or Akamai for connecting directly with its own broadband network to exchange traffic, or what's known in the business as network peering. And in so doing, he laid out the perfect argument for how best to protect the Internet and make sure consumers get a high-quality Internet experience.

Google's comments come amid a firestorm of controversy over new rules proposed by the Federal Communications Commission that are supposed to protect Net neutrality, a principle that suggests Internet service providers and governments should treat all Internet traffic the same. While ISPs and consumer advocates alike agree that no one should be allowed to block or degrade traffic on the network, they disagree over whether broadband providers should be allowed to provide commercial services that offer priority to some types of traffic.

Broadband providers say this could provide a new revenue stream and improved access for certain services, while Net neutrality supporters say it will create a two-tiered Internet of haves and have nots.

Google_Fiber_speed_test.jpg
A speed test of the 1Gbps Google Fiber service in Kansas City shows blindingly fast uploads and downloads. CNET/Marguerite Reardon

Meanwhile, Netflix has been embroiled in a public debate with Comcast over the fees that Comcast is charging Netflix to connect to its broadband network. Netflix has acknowledged that its business dispute is not a Net neutrality issue per se. But it feels that this is yet another example of how big broadband providers, like Comcast, use their control over a consumer's broadband connection to achieve their business objectives.

Burgan explains in his blog that unlike major broadband providers such as Comcast and Verizon, Google Fiber is taking a different approach to these business deals. It doesn't charge companies like Netflix to directly connect to its network. Why? It wants to set itself apart by providing better-quality streaming video services than competitors in the same market.

He writes that the arrangement, which includes allowing Netflix to put its video servers inside Google data centers so it can be closer to customers, is a "win-win-win situation."

"It's good for content providers because they can deliver really high-quality streaming video to their customers," he says. "It's good for us because it saves us money. ... But most importantly, we do this because it gives Fiber users the fastest, most direct route to their content."

The result, he says, is that Google Fiber offers better Netflix performance than any other major ISP, according to speed rankings compiled by Netflix. And that may give some broadband customers a reason to choose Google Fiber over a competitor.

"So why not enable it?" he asks rhetorically.

It's a good question.

Peering 101

Before we get too deep into how this all works, let's get a handle on what network peering is -- and isn't. Peering relationships are business deals established between different network providers to exchange traffic. A peering point is a place where networks connect to each other. And even though these business deals have never been part of any formal Net neutrality protections, they play a significant role in how consumers experience the Internet.

In his recent testimony before a congressional subcommittee once again explaining and defending his Net neutrality proposal, FCC Chairman Tom Wheeler acknowledged that peering is not a Net neutrality issue. But he suggested that the FCC may also want to look into these business deals to ensure that big players are not abusing their power.

The public spat between Netflix and Comcast over their peering arrangement has helped highlight these deals and how the relationship between a company distributing content and a broadband provider may be affecting the quality of video streams that people get at home, regardless of what tier of Internet service they have subscribed to from their ISP.

As Burgan notes in his blog, and as I have explained in my Ask Maggie column, the Internet is made up of many networks. The company providing you with a broadband connection only gives you access to the Internet in the so-called last mile, which is the portion of the Net that connects directly to your home. It doesn't control the flow of traffic the entire way. Sometimes before the content you've requested even reaches your broadband provider's network, it hits a bottleneck and slows down.

To minimize those delays, companies have built content delivery networks, or CDNs, to ensure that traffic can flow through the networks as quickly as possible without any hiccups. Where the different networks interconnect, there are often business arrangements. If the flow of traffic is equal between providers, no money exchanges hands. But if one company pours more traffic onto the other's network, the company with more traffic to share generally pays a fee for that interconnection.

Recently, Netflix, which has built its own CDN, has complained that the largest broadband providers are forcing it to pay for peering or interconnection. The company says this isn't fair, in spite of the fact that it's delivering more content than it's receiving, since it's merely delivering a service consumers have requested.

Comcast argues that because the volume of traffic that Netflix sends to its network is out of balance from what it sends to Netflix, it wants Netflix to pay a fee that will cover the additional cost of accommodating the extra traffic. Comcast says that providing additional network capacity in a broadband network, whether you are offering space in your own data center or not, still costs extra money. It may not be a significant amount of money, but it's an additional cost of doing business. And Comcast feels that Netflix and others should bear the cost.

This is how Comcast and other large ISPs have done business with other content delivery networks for years.

Netflix eventually caved to Comcast in the business negotiation. But it hasn't done so quietly, which explains the public arguments back and forth. Now Netflix is calling on the FCC to get involved in these deals to ensure companies like Comcast are not abusing their power.

The power of competition

So who is right? In some ways, they are both right. Each company makes a fair argument. But remember these are business deals. And in any business negotiation, some players have more negotiating power than others. Comcast is the largest broadband provider in the country. And it will soon have even more broadband subscribers if its deal to buy Time Warner Cable is approved by regulators. This means it exerts a tremendous amount of power in the market, since it serves a great number of Netflix's customers.

What's more, in many markets, it's the only broadband provider, which gives it even more power in those regions. For these reasons, the FCC has said that it will explore whether more regulation is needed.

By contrast, Google and many other broadband providers that, like Google, have agreed to connect to Netflix directly for free, are challengers to big companies like Comcast. Not only do they serve fewer Netflix customers, but often they are also trying to gain an advantage in the market to compete more aggressively with companies like Comcast.

In other words, Google has to give consumers a reason to dump their existing ISP and subscribe to Google's broadband service. That's why it has decided to offer a 1Gbps download service for $70 a month. It's not because people really need 1Gbps broadband or that they have even asked for it. But if the company can deliver a service that is 100 times faster than is typical and it only costs $30 more, it gives people a reason to pick Google over the incumbent provider.

Indeed, this is the very reason why competition is so important. If you have competitors willing to slash pricing on consumer services, like Google Fiber has done, or if they are willing to give "suppliers" a break on their costs to ensure a better quality of service for consumers, they can gain an edge over other companies.

Unfortunately, for US consumers, the broadband market is sorely lacking when it comes to competition. Even when multiple providers compete in the same market, they may not be available to all the same households. This means that many consumers are left with only one choice when it comes to broadband access. The result is that the incumbent provider has little incentive to upgrade its network or cut prices or even make sure customers get decent customer service.

But in markets where there is competition, incumbent providers have reacted. When Verizon Fios and AT&T U-verse first began competing, cable operators stepped up their game to provide faster services in those markets. They matched their competitors on pricing. But many economists will tell you while two competitors are better than one, it's likely not enough to dramatically improve service or reduce pricing.

This is why it's so important to see Google Fiber and other companies, and even municipalities, entering the market with their own networks and services.

The increased competition is already having an effect in some markets. Take Austin, Texas, as an example. Within a week of Google Fiber's announcement that it was coming to town, AT&T announced it was also going to introduce a 1Gbps service. Grande Communications, a small local provider, also increased its speeds. And Time Warner Cable increased speeds to 300Mbps and said it would expand its Wi-Fi hotspot network.

Google's decision to offer free peering and collocation to Netflix and others in order to guarantee its service is better than its competitors is simply another example of how competition ultimately benefits how consumers experience the Internet.

And Google isn't the only broadband provider to have a settlement-free peering agreement with Netflix. What's interesting is that most of the US broadband providers that have such an agreement with Netflix are either new competitors to a market or face stiff competition from new entrants. For example, Clearwire, Cablevision, Grande Communications, and RCN are among the broadband providers that have settlement-free arrangements with Netflix. All of these companies, with the exception of Cablevision, are not considered incumbent cable providers with exclusive franchise agreements. And even though Cablevision has had an exclusive cable franchise in some markets, it now faces competition in much of its territory from Verizon Fios.

I'm not saying that Net neutrality protections are not necessary to ensure that broadband providers don't abuse their power. And I'm not suggesting that the government refrain from regulating peering relationships. What I am arguing is that competition is likely to provide the same, if not an overall better, outcome for consumers, which is guaranteeing that they get the best Internet experience possible.

 

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