IBC
Netflix has hit
back at mobile operators demanding that it pay them for the “unsustainable”
cost of data delivered over broadband networks.
article here
In a keynote
at Mobile World Congress Netflix co-CEO Greg Peters said: “I believe in a
clear and direct symbiotic relationship between a thriving creative industry
and a thriving network ecosystem. It shouldn’t be a binary choice between big
telco and entertainment companies.”
This was Peters’
first major speaking engagement since promotion to co-CEO from chief product
officer last month. His presentation either showed remarkable prescience that
this topic would dominate conversation, or was hastily re-written following
criticism from the likes of Orange and Deutsche Telekom earlier this week.
Operating margins a
point of debate
“Our operating
margins are significantly lower than BT or Deutsche Telekom,” Peters claimed.
“We could argue that they should pay entertainment companies for the
cost of our content which is what happened under the old pay-tv model.”
He was responding
to rare explicit criticism from operators who want companies like Netflix,
Google, Apple, Amazon, Disney and Microsoft to pay their ‘fair share’ for the
exponentially rising volumes of data being carried over telco networks. Telcos
claim that they are bearing the brunt of capital investment and running costs
while Netflix and Co cream off the profits.
Peters pointed out
that Netflix has invested more than $60 billion in content over the last five
years.
“That’s roughly 50%
of all of our revenue in that timeframe. That is the part we play in creating
this virtuous fly wheel leading to more people willing to pay for broadband services.”
Conversely, he
suggested internet service providers’ costs have been relatively static despite
claims companies like Netflix put excessive stress on their networks. “State
regulators have highlighted this too recently, calling out that infrastructure
costs are not very sensitive to traffic,” he said. “Growing consumption is
offset by efficiency gains.”
Collaboration not
confrontation
Peters also noted
that Netflix is partnered with more than 160 ISPs and telcos many of which
bundle the service directly into consumer offerings, he said this showed the
value of collaboration.
He cited Open
Connect, a content delivery network in 75 countries which Netflix “offers for
free to ISPs” specifically to stream Netflix content from local data centres as
evidence of the company’s investment in managing data loads. The company’s
proprietary compression technologies have halved its bitrate between 2015 and
2020, thanks to improved encoding technology, he claimed.
He directly
addressed proposals by some telcos that entertainment companies should be taxed
to subsidise investment in network infrastructure.
“This would have a
significant adverse effect,” Peters warned. “It would reduce investment in
content, it would hurt local creative communities and its hurts consumers.” He
also pointed the finger at broadcasters like the BBC which are increasingly
turning to the internet for content delivery.
“As broadcasters
continue to shift away from linear to streaming they will generate significant
internet traffic,” he said.
Paying the piper?
Finally, Peters
argued that broadband customers already pay for the development of networks in
mobile or broadband subscription fees.
“Requiring
entertainment companies to pay more on top would mean ISPs are charging twice
for the same infrastructure. As consumer group BEUC has pointed out, there is
no suggestion these levies would be passed onto consumers in the form of lower
prices or better infrastructure,” said Peters.
Netflix found
support among industry analysts. Giving an interview to Mobile World Live,
Kester Mann, director consumer and Connectivity, CCS Insight said, “I don’t buy
the argument that Netflix should pay. It is an operator’s own customers that
are using the network, not the big tech companies themselves. Operators need
these relationships [with big tech] to upsell services and customers onto new
tariffs.”
The heightened
vocalisation around “fair share” should be set against the backdrop of the
energy crisis and spiralling costs that are hitting telcos. Their margins are
being squeezed, consumers are reluctant to spend more and there’s uncertainty
about the macro-economic environment.
“There may be other
ways innovative ways they can monetise the network rather than getting others
who piggy back off the network to pay for it,” mused Grace Donnelly, Snr
Consultant, STL Partners.
Speaking up for
operators was Pablo Iacopino, Head of Research, GSMA Intelligence. “Should
Netflix pay? It’s not a black or white decision. I think all big tech companies
should contribute to network investment but we need to find the right model.
Whether partnership or contribution they need to do more.”
Operators have been
gnashing their teeth about this topic for several years now. What was
noticeable at MWC2023 was the tension between this attempt to get big tech to
pay arm in arm with a desire to partner with the ‘hyperscalers’ to grow the
business.
Alliance with Cloud
and Big Tech
The buzzword at
this conference has been ‘Open’. The mobile industry is keen to strike
partnerships with technology and applications developers as well as with cloud
providers to deliver new digital services taking advantage of sunk investments
in 5G.
“We are at the
doors of a change of era,” declared José María Álvarez-Pallete Chairman &
CEO, in a keynote. “There is radical disruption on every front driven by the
intersection of telco, computing, AI and Web3. Moving from today’s connectivity
to that of the future is a bigger leap than the change from black and white
photography to 3D digital reality.”
In the same opening
address, Mats Granryd, Director General of GSMA, said, “The new era will make
everything digital. Applied AI will effect every area of economic activity.
Blockchain ledgers will bring seamless global collaboration.“
The GSMA calculates
that operators worldwide will spend $1.5 trillion on mobile capex between now
and 2030; over 90% of which is for 5G.
“We’re exploring
innovative financial models to achieve this investment,” he continued. “While
today’s connectivity is defined by speed, security and mobility, tomorrow’s
connectivity will also be defined by processing capability, capacity
reliability and customisation.”
Capitalising on
this, said Álvarez-Pallete, “required seamless, massive fully interoperable
communications and realtime computing.”
To this end 21
major operators including Vodafone, Orange and Telefónica announced a
partnership with Amazon and Microsoft. The Open Gateway is intended to simplify
the development of new applications that run over multiple operator networks
and to scale business opportunities from the cloud to the edge. It is also
designed for operators to tap into the AI smarts of the big cloud providers.
Börje Ekholm
President & CEO, Ericsson explained, “To drive the next digital decade we
need to collaborate and build ecosystems. Advanced networks capabilities
exposed through network APIs will drive the next level of digitisation and also
give our industry new monetization opportunities in addition to subscription
revenues.
“Open and flexible
networks leveraging cloud and automation will be a critical next step in
evolving our industry,” he added.
Gaming is the new
video
Operators hope to
make money from 5G with new immersive experiences but these have yet to
materialise.
Radhika Gupta, Head
of Data Acquisition, GSMA Intelligence, preferred the term “reality+” rather
than metaverse. “We have moved too fast in the past year assuming we can all
jump into the metaverse immediately,” she said in video interview with Mobile
World Live. “Nonetheless gaming and entertainment will be the main consumer use
cases for immersive experiences driven by the shift in online consumer online
behaviour.”
Gupta pointed out
that since the introduction of cloud gaming over mobile “gaming is the new
video.”
Industry moves
beyond mobile
Estimates suggest
that over half of delegates to MWC are from outside the telco industry showing
further convergence of major technologies.
“There are an awful
lot of non-telecoms people here,” observed Andrew Collinson, Executive Director
& Chief Research Officer, STL Partners in a Mobile World Live video
interview. “It feels like the industry is growing in a different direction way,
changing in quite a profound way, even if the show is not entirely clear of its
new identity.”
Paolo Pescatore,
analyst PP Foresight said, “MWC has expanded beyond mobile. Everyone has a
device connected to the power of a mobile network. The fact that Netflix is
keynoting shows how valuable connectivity is to content and that we rely on a
converged network to provide exciting new consumer applications.”
Call for more
spectrum
The GSMA wants to
free up further spectrum and is putting pressure on the World
Radiocommunication Conference at its forthcoming meeting in Dubai. The WRC
guards the international treaty governing the use of the radio-frequency
spectrum and the communications satellites.
“We know that
affordable spectrum is vital to our industry. 5G needs capacity to grow. Speed
and quality are directly linked to spectrum. We need WRC to deliver spectrum
crucial for the expansion of 5G. If we can achieve this we can close the
connectivity gap.”
By this the GSMA
mean the 3.6 billion of the world’s population which do not use mobile internet.
Four hundred million of these are people not covered by mobile broadband at
all. The rest live in areas of coverage but do not use mobile internet. Closing
the gap requires, Granryd said, affordable handsets, digital literacy and
relevant local language content.
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