Netflix customers will get faster and more reliable access to streaming video after Netflix agreed to pay cable and broadband giant Comcast in exchange for direct connection to Comcast’s network. But while the deal solves customers’ sluggish streaming issues, it reveals how little Internet service providers (ISPs) are doing to keep up with a rapidly changing Internet.
Netflix’s traffic jam occurred largely because Internet providers’ networks can’t handle the amount of bandwidth required by the video streaming consumers. But with only a few major providers dominating a mostly unregulated market, ISPs such as Verizon, AT&T and Comcast haven’t been pushed to expand their networks to fit demand.
Paid video streaming services like Netflix have surged in popularity, streaming over 5 billion hours of media, according to the company’s 2013 third quarter earnings report. Netflix’s 33 million account holders make up over a third of all streaming activity. Despite this growth, ISPs have not expanded their networks to accommodate these consumers nor built the necessary infrastructure needed to handle large volumes of streaming.
Instead, ISPs will share each others’ networks when needed, a practice called peering. ISPs say online streaming services like Netflix take up a lot of bandwidth and put a huge strain on their networks. And it takes money to build out the infrastructure to match increasing demand, Jeff Silva, a telecommunications analyst at Medley Global Advisors, told NPR.
But it’s not as if Internet providers are struggling for cash and simply can’t afford to build out their networks. To the contrary, most are growing — Comcast’s stock rose over 15 percent by the end of last month, according to a recent shareholder report. The issue is lack of market competition.
Cable companies have merged with many of the ISP companies nationwide, shrinking the number of options available to American Internet users. when Comcast bought Time Warner for $46 billion earlier this month. Since consumers who are unhappy with their Internet speeds usually can’t switch to a competitor with better quality service, these companies have no incentive to change their current model of high prices and slow speeds.
This market setup is unique to the U.S. Overall, Americans roughly pay twice as much as users in other countries for slower Internet. For example, New Yorkers pay $70 a month on average for less than 20 megabits per second (mbps), while South Koreans pay around $28 a month for a connection that is four times as fast. High-speed Internet connections clock in at least 45 mbps, according to a New America Foundation study released in October.
In addition to few competitors, ISPs face little regulation on how they can distribute access. The FCC deregulated Internet companies in 2002 to allow for the development of more high-speed access. But the result has been most Internet providers swallowed up by cable companies, they don’t have to offer fast access as a default.
Net neutrality rules were one attempt to correct that, but after a recent court decision threw out the existing rules, the future of open Internet access is murky. Absent any structure, pay-for-access deals between Internet providers like Comcast and services like Netflix may become more common. And without firm regulations or net neutrality rules, Internet providers truly have no incentive to build faster networks.