Netflix says Internet download caps only in place to drive up bills

Canadian Internet providers are using data caps to inflate their profits, not provide better service, Netflix CEO Reed Hastings said in an interview Tuesday.

Canadian Internet providers are using data caps to inflate their profits, not provide better service, Netflix CEO Reed Hastings said in an interview Tuesday.

The video streaming company just released a plan to combat the relatively low downloading allowances on most Canadian Internet plans but users shouldn’t have to ration their data usage, Hastings told The Canadian Press.

“Internet traffic is extremely cheap and the problem is there’s not much competition in this market and that’s why you get these big prices,” he said, adding that it’s unreasonable for users to be charged dollars per gigabyte for overage fees.

The true cost of that data is less than a penny per gigabyte and shrinking, Hastings said, although ISPs have disputed that estimate.

“The ISPs that want caps, they want to be able to charge more, they want to be able to have bigger bills. That’s understandable, but that may not be in the public’s interest,” he said.

“Really, caps are not an effective way to manage a network, it is an effective way to drive a bill up, so that tends to be why caps are used.”

On Monday night, Netflix rolled out options to control the data that is consumed when a user watches a movie or TV show. Users can still stream with the best available video and sound quality, which can sometimes take more than two gigabytes per hour to stream. But a new default setting — at a lesser quality — will consume only 300 megabytes an hour.

With the new setting, watching 30 hours of content a month would transfer about nine gigabytes of data, which Netflix notes would come under the caps of most Internet plans.

Download caps have been closely watched by Netflix since it launched in Canada last September and the U.S.-based company has lobbied the federal government on the issue.

“We’ve said a range of different things in different forums but the essence of it is data caps are a really inefficient way to manage traffic,” Hastings said.

“Having high speed Internet is really important to Netflix, arguably it’s really important to any society also, and we’re involved in being a voice for why high speed uncapped Internet is a great thing.”

Hastings said he’s been pleased to see public and political resistance against the industry’s attempts to implement wholesale usage-based billing, which would make it difficult for smaller companies to offer unlimited plans and compete against the large ISPs.

“Sometimes consumers having more choices isn’t in the interests of the incumbents, those companies that have strong positions, and so the push back on (usage-based billing) I think is great for a fast Canadian Internet.”

Hastings was also up to speed on a new proposal Bell Canada filed to the CRTC on Monday night, suggesting a “aggregated volume pricing” plan instead of usage-based billing for billing small ISPs that use its network.

The Montreal-based subsidiary of BCE Inc. (TSX:BCE) says it’s willing to let the ISPs decide how to bill their customers, so long as the ISPs pay for overruns at the wholesale level.

ISPs could pre-purchase each terabyte of data transfers from Bell for $200, or about 19.5 cents per gigabyte. Additional usage would be charged at 29.5 cents per gigabyte.

Hastings said those rates should still be far lower.

“That’s certainly better than $2 or $3 (per gigabyte), it’s a ten-fold reduction, but is there another ten-fold reduction that ought to happen? Yeah, absolutely,” he said.

In an emailed statement, Bell said the average monthly usage per user is about 16 gigabytes a month, while half its customers use less than five gigabytes.

“Netflix is an American company offering a service that rides on Canadian carrier networks. Canadian carriers like Bell are the ones investing the billions required to keep up with growing capacity demands, for video and every other online application, and ensuring that pricing is fair and straightforward for all users,” wrote Bell’s Mirko Bibic, senior vice president of regulatory and government affairs.

A Rogers spokesperson was not immediately available for comment.

Netflix is on track to add its one-millionth Canadian customer sometime this summer and Hastings said he’s extremely pleased with the business north of the border.

But he’s well aware of the most frequent gripe about Netflix’s Canadian operation: the quality of content available.

“We’re definitely hearing that people want the content to get better and better,” he said.

“But as you see in our growth to 1 million subscribers so quickly, it’s already a much better option than many others that people have. And so they subscribe but they do tell you, ’We hope you (improve) the content better and better,’ and we get the message and we’re definitely working on it.”

On Monday, the company announced a significant step toward that goal by signing an exclusive five-year deal with Paramount Pictures to acquire the rights to first-run movies and older titles.

It means films that normally would’ve aired on pay channels like The Movie Network or Movie Central will be Netflix exclusives. So Netflix users can look forward to eventually getting access to movies like “The Fighter,” “Morning Glory,” “True Grit” and further down the road, “Captain America: The First Avenger” and “Super 8.” Those movies should typically hit Netflix about three to five months after being released on DVD and Blu-ray, Hastings said.

He also hinted that the company is launching a site for French Canadians this summer, and will soon start testing a much-requested feature, the ability to queue up content in a waiting list.

“It’s definitely something we’re going to test and see does it really help the experience. Mostly we think people just want to click and watch but of course there are some people who will want to keep a list, so it might work well to be able to support that,” he said.

“It’ll get rolled out to tens of thousands of Canadians and then we’ll see do they really use it.”

Hastings also noted that experiments to integrate Netflix with Facebook will happen in the U.S. and Canada in the summer.

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