Changing lanes: the evolution of the CDN

Netflix’s recent interconnect deals with Comcast and Verizon in the US have highlighted the challenging nature of the relationship between OTT providers and ISPs. As IP content proliferates, how will CDN infrastructure evolve and who will hold power? Anna Tobin reports.  

Is it time to get out the violins? Are ISPs justified in feeling that they are being taken for a ride? Cable and telecom companies have spent years aggregating and creating content to retain old and entice new customers. Now many content owners are taking the OTT route, sending their content down the ISPs’ pipes free of charge and their customers just can’t get enough of it, they are often even prepared to pay the content owners direct for their content.

Now, some large consolidated ISPs are attempting to turn the tables to try to regain control of their traffic to make it pay.

The unhappy marriage between Netflix and Comcast in the US is the most high-profile case pointing to this power shift. The way Netflix sees it, Comcast is effectively charging third-party content providers to access its souped-up highways to reach their  customers. Netflix could have refused and taken the toll-free route, but this, they argue is congested and results in slow streaming speeds and poor Quality of Experience for viewers.

In a statement explaining the company’s reluctant decision to comply, Ken Florance, vice-president, content delivery at Netflix says: “Netflix agreed to pay Comcast for direct interconnection to reverse an unacceptable decline in our members’ video experience on the Comcast network. These members were experiencing poor streaming quality because Comcast allowed its links to internet transit providers like Level3, XO, Cogent and Tata to clog up, slowing delivery of movies and TV shows to Netflix users.”

Subsequently, Netflix has signed a similar deal with Verizon, but it still argues that having to enter these commercial agreements goes against the principle of net neutrality.

Presumably to avoid opening themselves up to probing questions, neither party was willing to be interviewed about this story. But, in a statement, Jennifer Khoury, senior vice-president, corporate and digital communications in public policy at Comcast, claims that Netflix is presenting a distorted view of the situation.

“Netflix’s decision to reroute its internet traffic was about improving Netflix’s business model. While it’s understandable for Netflix to try to make all internet users pay for its costs of doing business, as opposed to just their customers, the company should at least be honest about its cost-shifting strategy,” says Khoury. “Comcast has a multiplicity of other agreements like the one Netflix approached us to negotiate and so has every other ISP for the last two decades. Those agreements have not harmed consumers or increased costs for content providers – if anything, they have decreased the costs those providers would have paid to others.”

The Netflix-Comcast dispute has led the whole industry to rethink the positions of the different players in the market. The disharmony goes beyond this particular dispute, says Nivedita Nouvel, vice-president of marketing at CDN technology provider Broadpeak.

“The story probably started three years ago with the Level3-Comcast-Netflix case. At the time, an agreement could not be reached between its [Netflix’s] CDN provider, Level3, and one of the biggest operators in the US, Comcast,” says Nouvel. “To Netflix, this agreement was a key element in addressing an important portion of its market. The company’s practice of dealing directly with the last-mile owner, which fully controls its network, probably comes from this painful experience. Inevitably, this brings many questions to the floor concerning who should handle what part of the video streaming business.”

Major ISPs across the world are equally concerned about who should be meeting the costs of transporting streamed traffic. In a guarded statement, a Virgin Media spokesperson said: “As people do more online than ever before, we should be talking about ways to ensure continued investment, innovation and a great online experience.”

Commercial agreements

Netflix is promoted via an app on Virgin Media UK’s TiVo boxes, and marketed to Virgin Media customers. Such mutually beneficial commercial agreements are likely to become more commonplace, predicts Jon Haley, vice-president, marketing and business development at technology provider Edgeware.

“Good examples are Swedish cable operator Com Hem, which offers Netflix on its TiVo boxes, and Jazztel, the Spanish telco, which has been offering local broadcaster Prisa TV’s OTT service under its own Canal+ Yomvi brand since 2012,” he says.

Meanwhile, other ISPs are looking to their customers to shoulder the cost of the extra traffic. Christy Thomas, director of business strategy at Alcatel-Lucent Core Networks, cites Deutsche Telekom as an example. “We are seeing different reactions from different operators trying to protect their investments as OTT providers fill their pipes with traffic. Deutsche Telecom in Germany tried to put some limits on the traffic their subscribers can access, but they’ve upset a lot of their subscribers as a result. I think the trend will be more towards service providers partnering with OTTs as Virgin Media and Comcast have done [in their different ways] with Netflix,” he says. “What we are seeing is an ongoing migration of traffic to the most cost-effective way of delivering. Operators are putting in place various mechanisms to present the right interconnect models for the content owners to deliver the best quality of experience.”

It is also important to remember that Netflix is an exceptional case due to its size, but the OTT market is still very much in its infancy. More and more content providers ranging from multinational broadcasters to tiny niche content providers are launching or preparing to launch OTT services. Soon it won’t be possible for last mile providers to do deals with every third-party content provider knocking on their doors.

“This is why network operators selling IP transit and CDN operators exist,” says Mark Taylor, Level 3’s vice-president of media and IP services. “They efficiently support hundreds of content customers and compete vigorously for that business. It is unlikely that there will be many more direct deals like Netflix-Comcast. But that still leaves the problem of getting access to a monopoly’s control over broadband consumers.”

When there is only one operator feeding into homes, jibes about monopolies are only to be expected, but this doesn’t mean that there is only one way to access those viewers.

As Broadpeak’s Nouvel sees it, to deliver higher Quality of Service to viewers, OTT content providers have two options: “They can invest in the development of their own content delivery system, striking deals with operators to install their software or appliances on their premises. However, operators are reluctant to let external content providers install their hardware into existing infrastructures, due to lack of control over the equipment and operational issues such as maintenance, etc,” she says. “[Alternatively] they can leverage existing delivery solutions deployed by operators for their own content. However, this has to deliver a significant gain over the standard delivery of anonymous IP packets, and at a cost that is able to compete with what they pay CDN service providers. Currently, operators who want to address content providers directly lack a real differentiator in terms of their offering and value proposition. This is what Broadpeak brings to the market with nanoCDN, a technology that allows the streaming of live OTT channels by leveraging the operator’s multicast capabilities. The result is a significant improvement in quality to content providers at a low cost for the operator.”

Cost barriers

Whilst many content owners would love to build their own CDNs, very few would be able to finance them anyway. Netflix is rolling out its Open Connect CDN; Yahoo has recently bought PeerCDN; Google will also deliver caches to operators that will take them, and there is speculation that Apple is working on launching a CDN. Aside from these huge global brands, however, not many content providers will have the finance available to deploy their own CDNs. They have no choice but to find alternate ways to guarantee that their viewers receive good QoS – including striking deals with operators.

“Operators have limited ability to manage multiple content provider relationships, both from a technology and a business perspective,” argues Peter Coppola, vice-president of product and solutions marketing at global CDN provider Limelight Networks. “We expect there will be more such deals, but we do not believe it’s a real trend. An OTT content provider needs relationships with one or more CDNs that have demonstrated their ability to deliver at scale into the geographies the OTT provider is targeting.”

As the market matures, Coppola believes that the demand for global CDN services will grow. “One of the advantages operators have in dealing with a global CDN is that they represent an aggregation of many content providers,” he says. “A CDN like Limelight is a good option for content providers in that we have already negotiated arrangements with more than 600 operators for delivery.”

Due to the complexities of the web that the internet has spun out, however, it seems that both local and global CDN providers will have a role to play in getting content to viewers.

OTT content providers have three options open to them to achieve their goals, says Taylor at Level 3. “First, they can do what Netflix has done and build their own CDN. That CDN is then deployed in third-party data centres where it is available to peer with ISPs, or purchase transit off IP transit networks. They can also deploy their CDN infrastructure inside ISP networks,” he says. “Second, they can outsource that whole thing to a CDN provider like Level 3. Level 3 does all this work and on an aggregated basis for hundreds of content customers. Large content owners typically contract with two or more CDNs for resilience and for global coverage. Finally, there is a middle way where the content owner buys their own CDN servers, but deploys them in third-party data centres and then buys IP Transit of multiple providers for resilience and global coverage.”

However, says Nouvel at Broadpeak, the CDN works best by caching content closer to end-users, based on its popularity. “Caching servers and streaming servers are, therefore, deployed by operators to handle the assets and live channels delivered by content providers,” she says. “In addition, operators can propose specific technologies, relying on their control of the home gateways, to enhance the service. nanoCDN from Broadpeak is based on this approach. It allows the delivery of live multi-bitrate channels at a low cost and can also be used to enable transparent caching of OTT video content, meaning the content provider does not need to change its portal. This solution allows content providers to combine the benefits of operator CDNs and global CDNs. In the future we think content providers will use a combination of CDNs: local operator CDNs for their region of focus and global CDNs to extend their reach outside this zone.”

Net neutrality

Whilst ISPs wrestle with how to make money from all of the traffic travelling down their networks, they have the added headache of having to comply with ever evolving net neutrality legislation.

“There are many questions that are raised concerning net neutrality,” says Nouvel at Broadpeak. “Obviously, most people don’t want to see the internet becoming a place where content is restricted to those who can afford to pay for it. On the other hand, it’s legitimate for end-users to benefit from higher QoS for the service they pay for, versus a service that is free.”

However, net neutrality isn’t really the issue here, argues Taylor at Level 3. He says that ISPs investing in a CDN infrastructure don’t present net neutrality concerns, but they could create unfair monopolies. “It isn’t the CDN investment that is at issue. The issue is how an ISP that has monopoly control of the connection to its broadband consumers interconnects with the rest of the internet,” he says. “What we have seen is that they have been trying to impose interconnection tolls that would unfairly advantage their own content or their own CDN over competitors. An ISP can throttle access to their network at the interconnect point. And in doing so have exactly the same effect that the net neutrality rules were set up to avoid.”

To preserve neutrality while allowing ISPs to optimise their traffic, says Nouvel, “operators need to implement technologies that enhance the quality of delivery for premium content without degrading the common internet traffic. This can be done by using [Broadpeak’s] nanoCDN technologies, for live ABR and transparent caching. By caching specific content and removing it from the traditional chain of delivery, the technology actually improves internet traffic globally.”

Whatever the arguments about interconnect tolls and privileging access, in this highly competitive marketplace it is unlikely that ISPs will be willing to sustain free-riding OTT offerings long term. To avoid becoming ‘dumb pipes’, telcos and cable operators want to monetise their investments in infrastructure by selling streaming and caching capabilities. They would like to pass on the costs of OTT content to someone, and viewers and the content providers are the only choices available.

The regulators in the US and Europe are starting to sit up and take notice that their existing net neutrality rules possibly didn’t anticipate all of these issues emerging.

As Haley at Edgeware says, “For internet TV and video services to compete with broadcast and DVD rental, there are really only two choices for regulators – let the ISPs charge the OTT provider for the required delivery quality or accept that they will need to increase broadband pricing for consumers, with price freezes or even data caps to cover the cost of the required network upgrades.”

The ISPs will need to put their PR machines into overdrive to face the wrath they are likely to engender among both customers and content pedlars. If the courts are to have the final say, that could mean years of legal wrangling.