Bit Traffic: Who Pays for Internet Traffic and Why?

Who Pays for Internet Traffic and Why?

As the ITU is currently reconsidering much of what we think of as the Internet, I thought it prudent to start a discussion about who pays for Internet Traffic and why they pay for it.

Simply put, right now the originator pays for traffic, but if major European Telcos have their way it will be very different soon. It’s important to understand why we haven’t dealt with Internet traffic in the same way as Telephone Traffic, or rather how they differ.

ArsTechnica has a great piece about this very subject, but the gist is this: Regulating Internet usage like Phone Calls doesn’t make sense because unlike Phones, Internet is concurrent (both sides send near equal amounts of traffic). The core of TCP (which is the protocol over which nearly all packets are sent) is handshakes, which are basically lost packet checks that require responses from both parties. Therefore it makes more sense for organizations to peer instead of having a send/receive relationship because these packet exchanges are synchronous and bi-lateral. Whereas exchange relationships with traditional Telcos take contracts and lengthy negotiations, because of the nature of the Internet, most peering relationships are established with a handshake (because it is actually advantageous for all but the largest carriers to peer).

So who pays for Internet traffic now? The originator: I.E. the user. The people that want this to change are the very large telcos who are tired of bearing Netflix’s traffic without extracting additional tariffs. The problem is that those services are being paid for by the user fees, the monthly connection, the access charges. The largest ISPs would like to double dip and bill the consumer for access and the products they use for “sending”. One can see the business motivation here, and without significant consumer education, it’s likely that new regulations will pass making “sending” internet packets prohibitively expensive.

Why do Carriers want this?

To be blunt, there is no other obvious way to monetize video. Consumers won’t pay for it, and the usage accounts for over 80% of carrier pipes. Check out this powerpoint deck on the subject to see how monetization is stagnant but usage is growing rapidly. More usage without commensurate billing is a loss for carriers, and it’s difficult for them to stop usage patterns like the video usage we’ve seen once they become established. The solution is to charge the producers of content, which is an end-run around having to bill consumers (as those providers will likely pass the costs on).

Will it work? Only time will tell. My feeling is that carriers will keep trying to find a way to monetize video however they can, but this isn’t the best way to do it.