Plumbers Rule in the Kingdom of Pipes

The video content revolution has numerous facets that have been explored extensively on this blog: new distribution scenarios (TV Unbundling in Canada – Stakes and Opportunities), new screens (Is 4K Technology Worthy of all the Buzz?), new formats (OTT, VOD, IPTV, DVR... The alphabet soup of new TV), and new competition (Canal+ Canada: The Trojan horse of a French giant?The Netflix Effect in CanadaNetflix and the Halo Effect: Retention and Conversion, the Numbers that Count).

This revolution is in full swing, and every time it manifests itself in spectacular fashion (for example, records were shattered after the uploading of the second season of House of Cards produced by Netflix), we may lose sight of the fundamental processes at play behind the scenes before this content reaches our screens. Pipes are often invoked to illustrate these processes, and it’s an image that perfectly suits the video streaming universe—a universe of interconnected channels through which content flows.

We also tend to forget to which extent access to the pipes and traffic flow—both in terms of radiofrequencies used for wireless and Wi-Fi communications and fibre optic networks operated by Internet service providers (ISPs)—are major issues. Major issues over which communication giants are ready to wage war behind the scenes and spend billions of dollars to shape tomorrow’s media landscape.

The profile of this future landscape appears in statistics and forecasts regarding new video content consumption practices that often make the news. Here are a few examples:

  • In 2013 and on a planetary scale, according to Cisco, the average mobile user consumed 356 MB of data—including two hours of video content—on a monthly basis. Cisco predicts that five years from now, the average “mobinaut” will consume 3 GB of data, including 20 hours of video content, per month.
  • Once again according to Cisco, by 2018, video content will take up more space and account for 69% of global mobile traffic (67% in North America) compared to 53% today.
  • According to Ipsos Reid, 74% of Canadians online subscribe to a TV distribution service (cable, satellite or IPTV). Of these, 47% also subscribe to over-the-top (OTT) content services such as Netflix or access video content through iTunes.
  • According to the CRTC’s Communications Monitoring Report, 75% of Canadians subscribed to a broadband Internet service in 2012 and spent three hours per week on the Internet watching television.

They say content is king. In the kingdom of pipes, content is more of a king in appearance. Maybe the true sovereigns of this kingdom are the plumbers, who invest in installing and maintaining the plumbing required for the content to flow—as indicated by a quick review of two important issues in this respect: the rarity of the spectrum and the neutrality of the networks.

The spectrum and the ultimate video experience

Wireless communications travel through the spectrum of radiofrequencies—a national resource that is inexhaustible but not unlimited—that is in increasing demand and considered as a public good by most jurisdictions. That is the reason why it is under government control. Here in Canada, it is managed by Industry Canada which recently held auctions to authorize access to the most sought after spectrum, i.e., the 700 MHz spectrum, assigned to broadband mobile services and which allows wireless service subscribers to view video content and download music.

The February 2014 auction enabled the Canadian government to raise $5.2 billion, i.e., $1 billion more than in 2008 and twice the amount predicted by analysts. The four main bidders—Rogers, Telus, Bell and Videotron—placed big bets to acquire the licenses that cover almost the entire Canadian population.

Rogers alone bid more than the 2 billion predicted for total bids, i.e., 3.2 billion to purchase spectrum blocks covering 99.7% of the Canadian population. The company wasted no time to announce that its purchase would enable it to provide the “Ultimate Video Experience”:

The 700 MHz spectrum Rogers has acquired benefits all customers whether they live in cities, towns or rural areas. The spectrum will allow Rogers to deliver the ultimate video experience and it will carry wireless signals across longer distances. It will also benefit Enterprise customers with faster mobile broadband compared to existing LTE coverage. 700 MHz spectrum has the added advantage of providing better in-building reception in densely populated cities, allowing customers to enjoy the speed and consistency of LTE inside buildings. (source)

Bandwidth under surveillance

“Frank Underwood Didn’t Break the Internet, But He Pushed its Limits” titled the Wall Street Journal (article reserved for subscribers) in a report on the outflows of Congent. The Internet operator which serves as an intermediary between Netflix and the ISPs operated at full capacity for at least twelve hours a day during the weekend of February 14—given numerous subscribers spent the weekend watching the entire second season of House of Cards.

This event occurred one month after “net neutrality” or “network neutrality” resurfaced in the U.S. Net neutrality is a principle instigated in the United States in the 1970s, at the time to guarantee an equal processing of all telecommunications network data. Today, the FCC applies this principle to the Internet in order to prevent any discrimination on the basis of source, destination or content in the transmission of data.

Last January 13, the U.S. Federal Court of Appeal rendered null and void the FCC’s rules on neutrality (the FCC has since announced its intention to implement new rules). Several billion American dollars are at stake as is, at the core, the Internet’s future orientation: on the one hand, free and unlimited access to the Internet to encourage expression and innovation (and the emergence of the next-generation Facebook and Google); on the other hand, a two-tier Internet service allowing wealthy corporations to negotiate their way to the fast track.

Netflix was seen as the big loser in this decision but, as certain observers point out, the company could turn it to its advantage given the decision allows it to “purchase” an express lane to develop a competitive advantage.

That is exactly what seems to be happening: Comcast and Netflix recently announced that they had reached an agreement under which Netflix agreed to pay an undisclosed amount to set up “a more direct connection” for its users who are Comcast subscribers. In the wake of Comcast’s acquisition of Time Warner announced last February 13 (a transaction that would result in making it the cable distributor of close to one third of all American households and the Internet service provider of close to 40% of all American households), this agreement will certainly have major impacts on the Internet. For Tim Wu, the American law professor who popularized the concept of network neutrality, “this is the water in the basement for the Internet industry, the first in what could be a flood of such arrangements.”

In Canada, the CRTC has not yet issued rules on net neutrality. It has instead implemented a framework to “guide Internet service providers in their use of Internet traffic management practices.” Rather than regulating discriminatory practices, the Commission “encourages ISPs to make investments to increase network capacity as much as possible” while realizing that they may “need other measures to manage the traffic on their networks at certain times.” ISPs must therefore obtain the CRTC’s approval before implementing an Internet traffic management practice that would lead to a deterioration or slowdown of traffic.

A question of speed

Google is obsessed by speed, stated its CFO, Patrick Pichette during a conference. To such a point that the Internet giant is already predicting that Google Fiber will expand from 1 gigabyte per second to 10 gigabytes per second by 2022.

As we can see, when it comes to transmitting content over the Internet, everything brings us back to speed, whether in terms of spectrum or bandwidth. And the more high-definition content such as 4K is available on the Internet—as Netflix now does—the greater will be the need for high speed connections and the more the pipes and their connections will contribute to shaping the web’s future.

(To gain a better understanding of this piping, listen to the interview with Duncan Stewart on bandwidth that you will find on this blog.)

Danielle Desjardins
Danielle Desjardins offers analysis, research and writing services for media and cultural enterprises through her company, La Fabrique de sens. Before that, she was director of planning for Radio-Canada, where she was responsible for strategic, corporate and regulatory matters for more than 20 years.
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