Verizon CFO: Netflix Traffic Necessitates a Transit Fee

10 Mar, 2014 By: Erik Gruenwedel

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Netflix’s burgeoning broadband traffic upended existing peering balances to the point that Verizon Communications advocates the subscription streaming pioneer pay it a transit fee for smoother access, CFO Fran Shammo told an investor group.

Speaking March 10 at the Deutsche Bank Media, Internet and Telecom confab in Palm Beach, Fla., Shammo said that when peering points were established among ISP networks, it was agreed that no financial payments would exchange hands so long as the traffic delivered between them was mutually beneficial.

Then along came Netflix, which has in recent years created a broadband sigalert of sorts. The SVOD pioneer routinely accounts for about a third of all broadband traffic during primetime hours — easily dwarfing distant runner-up YouTube, according to Sandvine.

“They never contemplated someone dumping as much volume into the peering point as, say, a Netflix. So what happens is you become out of balance,” Shammo said.

The CFO said Netflix’s broadband traffic demands have caused Verizon, as well as other major ISPs, issues — manifested in curtailed download speeds. As a result, Verizon, Comcast, and others have told Netflix that improving download speeds to its subscribers requires paying for direct access via their networks.

Comcast and Netflix recently agreed to a landmark transit agreement — a pact Verizon and AT&T, among others, hope to emulate.

“I think that is where the [ISP] industry will end up,” Shammo said, adding that a deal with Netflix would be forthcoming.

Separately, the CFO said Verizon has put in place a fully functional over-the-top video platform capable of offering SVOD, broadcast TV and electronic sellthrough — much of it made possible following the acquisition of Intel’s pay-TV platform.

Shammo said Verizon’s joint venture with Outerwall for Redbox Instant (melding SVOD with disc rentals) has highlighted subscription streaming’s benefits and challenges. The CFO said Verizon FiOS is now the fifth-largest “cable” operator in the country, with access to another 100 million eyeballs on wireless devices.

“It has taught us a lot about what it's going to take to become [an] over-the-top [player]. There are a lot of barriers still out there that have to be broken down and obviously the [main] one is the content rights,” he said. “We are preparing ourselves for whatever happens in that ecosystem, we will be able to take advantage of it.”
 

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