AT&T’s New Bandwidth Cap Is Bad News for Netflix

Discussion in 'Economics' started by misterno, Mar 15, 2011.


    AT&T will soon cap its DSL bandwidth at 150 GB per month, the company confirmed yesterday. Customers who use more data during at least three months will have to pay $10 for each additional 50 GB bucket of data. That’s bad news for Netflix (NFLX) and its users, who could get dangerously close to the cap.

    How much Netflix video does 150 GB get you? Not that much, actually: If you watch a movie like Moulin Rouge in HD, you’re going to use around 3.5 GB of data. A single episode of Weeds equals about 800 MB when watched in HD. If you were going to use all your 150 GB of AT&T (T) bandwidth to watch HD video from Netflix, you’d only be able to watch about three hours per day — and that’s without doing anything else.

    Nielsen recently estimated the typical customer is streaming around 11 hours of video from Netflix’s website per month. However, Nielsen’s data is based on PC and laptop usage only and doesn’t include any streams accessed via iPads, Roku set-top boxes, Blu-ray players or any of the other 250 devices Netflix’s streaming service is now available on. These devices have arguably been the biggest driver for the company’s online video growth, and they’re likely to also have a significant impact on many people’s bandwidth consumption.

    Granted, all of this is pure back-of-the-envelope math. Real-life usage involves data transfer overhead, which eats up additional bandwidth. Then again, only a portion of the Netflix catalog is actually available in HD. Many TV shows are, but a good number of movies can only be watched in SD, which doesn’t eat up quite as much bandwidth.

    Still, AT&T’s bandwidth cap could have a significant impact on the future of the service. Netflix currently only offers 720p HD. An update to 1080p would close to double its bandwidth impact, meaning that you’d suddenly only have 90 minutes per day to watch before you’d be billed extra by AT&T. Competitor VUDU (WMT) is already offering 1080p streams, and YouTube (GOOG) has been offering 1080p for over a year. It’s technically possible; there’s demand for it; but bandwidth caps could prevent Netflix from upping the ante in terms of HD quality.

    Bandwidth caps could also spoil Netflix’s attempts to position itself as an alternative to traditional pay TV. U.S. households watch more than five hours of TV per day. The average American would burn through his monthly AT&T bandwidth allotment in just 18 days if he’d cut the cord and replace all of his TV viewing with HD streams from Netflix.

    The biggest issue for Netflix, however, could be the psychological effect. People will think twice about using Netflix if they think it will lead to extra ISP charges. The company is well aware of these issues; Canadian users, who often have to deal with much lower bandwidth caps, have the option to disable HD streaming entirely as part of their account settings. That’s right; Netflix offers the option to make your video streams look worse so you won’t give up on streaming entirely. There’s no word yet on whether a similar option will be introduced in the U.S. as well.
  2. CET


    Those that can't compete, like AT&T and Comcast, impose limits to hurt their competition. NFLX has an $8 and $10 option. Just get the $10 option and watch some stuff on DVD once you max out your streaming usage. Not a big deal. The NFLX valuation is a whole other matter.
  3. They should at least get the terminology right.

    Bandwidth is a data rate. They are imposing a usage cap.
  4. If ATT is successful with these new cap levels and associated overlimit fees, Comcast, Charter and Time Warner Cable will also impose caps and fees. It might impact NFLX over the long-term...
  5. achilles28


    The issue at stake is lost revenue for Cable and Satellite TV providers.

    They pressured regulators to impose usage-based internet billing to make unlimited, high-quality media downloads unaffordable. The fear is Cable and Satellite TV models will go the way of print news as customers migrate to online services, such as netflix, which offer similar content at firesale prices (~10%).

    The standard industry clap trap of punishing download hogs is nonsense. ISP transmission cost per gigabyte is actually surprisingly low: 2-4 cents, per GB. Up here in Canada, big name ISP's charge 4-6 dollars PER GB in overage. That's a 10,000% markup. A good example of private industry corrupting Regulators to limit competition and free markets.
  6. Pekelo


    Just a few points:

    1. 98% of the users won't notice any difference, since they don't reach the limit.
    2. If you operate a service, wouldn't you charge for more usage?
    3. Heavy users slow the system down for everybody else. They should either do it in off peak times or pay more for it...
  7. achilles28


    1) Bandwidth caps make sure of that
    2) Free markets should determine prices. Not Industry groups corrupting Regulators.
    3) No, they don't. That's pure bunk sold by ISP's to legitimatize caps. Transmission and overhead cost per GB of data is less than a nickle.

    The fact of the matter is North American fibreoptic networks are slow compared to many parts of the world - specifically, Asia and Russia. Large ISP's want to milk their dated networks without having to worry about competition or build out infrastructure. Take a look at South Korea. Blazing fast networks. The notion that each GIG of data transfer is incredibly costly is just a myth sold by ISP's to charge BIG prices and levy caps (to charge even BIGGER prices)...
  8. Ever been to an all-you-can-eat buffet or whatever you call them and see the 500lb slobs load up on 50lbs of food for a few bucks?

    I want to see a reasonable price for reasonable service. I don't want the providers nor the bandwidth hogs gouging me.

    I had to use dial-up for 1.5 miserable decades as there was no other alternative other than to move or try to deal with problems with satellite net.

    Our area finally had DSL introduced a few weeks ago. Thank you Frontier Comms. Verizon never had any intention of doing such a thing for the peasants of Dumpwaterville.

    3M is the max offered here. During the day I get 95% of that, but from 7pm-11pm there is a point for about a half hour where it can drop to as low as 12%. It will be interesting to see what happens when school is out for summer.

    I've read that Netflix streaming movies alone consume 20% of bandwidth and it's going to get worse.

    I definitely don't want permanent monthly cut-off caps of 5GB as Frontier and others considered a year ago. And I don't want a ridiculous $10+ per GB of usage as some were considering.

    I want to see this crippled net infrastructure fixed with 100% reliable up time and more consistent speed.

    I wouldn't mind paying a smaller access charge and decent price per GB, but consumers and businesses seem to want a consistent monthly charge-revenue.

    I would like to see a much lower access charge, so I can have multiple DSL lines-and since land lines are being dropped by the millions you would think the phone companies......Once every year or so one phone line will be down for days. Scary stuff, haven't had both lines go out yet.