Netflix Is Eating Your Bandwidth — And ISPs Are Furious

Netflix just passed a milestone that should alarm every broadband subscriber in America — not because of Netflix itself, but because of how ISPs are going to react.

According to Sandvine's latest Global Internet Phenomena Report, Netflix streaming now accounts for more than 20% of all downstream internet traffic in the United States during peak evening hours. That's more than any other single source of traffic, including web browsing, YouTube, and BitTorrent combined. On some networks, Netflix's share hits 30%.

A year ago, Netflix's traffic share was in the single digits. The company had about 20 million subscribers, and many of them still received DVDs by mail. Today, Netflix has crossed 20 million streaming subscribers, and the explosive growth of streaming is rewriting the math that ISPs use to manage their networks.

The Bandwidth Cap Problem

Here's where this gets personal. Comcast — the nation's largest cable ISP with roughly 17 million broadband subscribers — imposed a 250 GB monthly bandwidth cap in 2008. At the time, 250 GB seemed generous. Normal web browsing, email, and occasional video might use 20 to 50 GB per month. Only heavy file-sharers and power users came close to the cap.

That math has changed dramatically. A single HD stream from Netflix uses about 3 to 5 GB per hour, depending on quality settings. A household that watches two hours of Netflix per day — perfectly normal for a family — burns through 180 to 300 GB per month on Netflix alone, before counting anything else.

Suddenly, Comcast's 250 GB cap isn't comfortable headroom. It's a real constraint that ordinary households can hit simply by using a mainstream streaming service the way it's designed to be used.

And Comcast isn't alone. AT&T has been testing bandwidth caps on its DSL and U-verse services — 150 GB for DSL, 250 GB for U-verse. Time Warner Cable experimented with metered pricing in 2009 before fierce customer backlash forced a retreat. The pressure on ISPs to limit usage is only growing as traffic volumes rise.

The Conflict of Interest Nobody's Talking About

Here's the part that should make you angry. Many of the ISPs pushing bandwidth caps also sell television service. Comcast is a cable company. AT&T's U-verse bundles TV and internet. Time Warner Cable's core business is selling you a cable TV subscription.

Netflix is the single biggest threat to their TV revenue. Every subscriber who cancels cable in favor of Netflix and Hulu represents lost revenue — not just from the TV subscription, but from set-top box rentals, premium channel add-ons, and pay-per-view purchases.

Bandwidth caps conveniently make streaming video more expensive and less attractive. If you have to worry about hitting a 250 GB cap every time you fire up Netflix, you might think twice about canceling cable. The cap functions as a tax on cord cutting, protecting the ISP's television business from competition.

Comcast insists its cap is about network management and fairness — ensuring that heavy users don't degrade the experience for light users. But their refusal to count their own Xfinity on-demand video traffic against the cap tells a different story. When Comcast's own streaming doesn't count but Netflix does, the cap starts looking less like network management and more like competitive sabotage.

Cord Cutting Accelerates

Despite the caps, cord cutting is accelerating. An estimated 800,000 American households dropped pay-TV subscriptions in 2010 — up significantly from previous years. Netflix, Hulu, iTunes, and over-the-air broadcast are proving to be a viable alternative for a growing number of viewers.

The economics make sense. A basic cable package runs $50 to $80 per month. Netflix streaming costs $7.99. Even adding Hulu Plus at $7.99 and renting a few movies on iTunes, cord cutters save $30 to $60 per month.

What cord cutters need is a reliable, uncapped broadband connection. The ISPs know this, which is why the bandwidth cap fight is really a fight over the future of television.

What You Should Watch For

Metered pricing. Several ISPs are moving toward charging by the gigabyte, similar to how wireless carriers have moved from unlimited data to tiered plans. AT&T recently announced overage charges of $10 per 50 GB over the cap. This model will spread if ISPs can normalize it.

Zero-rating. Comcast's exemption of its own streaming content from data caps is a test case. If ISPs can exempt their own services from caps while counting competing services, they effectively get to pick winners and losers in the streaming market. This is a net neutrality issue that the FCC hasn't addressed.

Usage reporting. Check your ISP's usage meter if one exists. Many subscribers have no idea how much data they're using. Knowing your baseline will help you understand how a cap would affect your household.

Speed requirements. Netflix recommends at least 5 Mbps for HD streaming and 25 Mbps for Ultra HD (when available). If your DSL or cable connection doesn't reliably deliver these speeds, you'll get a degraded experience. Check your actual speeds — not what your plan promises, but what you actually receive. Our guide to understanding your connection can help.

The Fight Ahead

The next two years will determine whether the internet becomes a metered utility where you pay by the byte, or remains the flat-rate, all-you-can-eat service that enabled Netflix, YouTube, and everything else that makes broadband worth having.

ISPs want metered pricing because it protects their TV businesses and generates additional revenue. Consumers and streaming companies want uncapped connections because that's how the internet has always worked and because caps stifle innovation.

Netflix just made this fight unavoidable. When the most popular application on the internet can push a typical household over its bandwidth cap, something has to give. Either the caps go up, the caps go away, or streaming goes mainstream with an asterisk: *subject to overage charges.

Grab some popcorn. Actually, stream it — if your data cap allows.