Cloud

CloudFlare provides 'cautionary tale' against consolidation of ISPs

CloudFlare's CEO details the expenses breakdown in providing its mirroring services around the world, pointing to Australian ISP Telstra as an example of the drawbacks of ISP consolidation.

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Image: Przemyslaw Koch

With the looming specter of the impending merger of Comcast and Time Warner Cable, a great number of politicians and organizations are stepping up to voice their displeasure about the proposed deal, including Sen. Al Franken, Dish Network, New York City Mayor Bill de Blasio, Los Angeles Mayor Eric Garcetti, Netflix, and RFD-TV. It's no surprise that Comcast (which twice was voted the Worst Company in America) is facing pushback in its attempts to further consolidate its control over internet access in the US.

Adding to the voices of dissent in the proposed merger is Matthew Prince, the CEO of content delivery network (CDN) CloudFlare, in a relatively candid look into the inner workings of the business side of the company. Although Prince doesn't offer exact figures as to CloudFlare's actual bandwidth costs (presumably for contractual reasons), he does offer an interesting look inside the company's operations and expenses on a per-continent basis.

How CloudFlare works

For the uninitiated, CloudFlare operates effectively as a reverse proxy; the service sits as a man-in-the-middle (at the DNS level) between the server actually hosting your website and the user viewing the website. CloudFlare buys bandwidth (herein "transit") from various providers, depending on the circumstances — the transit cost varies around the world, and by provider: in some cases, bandwidth is purchased from a Tier 1 provider or regional transit providers that have a peering agreement with the networks they need to reach.

CloudFlare doesn't operate (or bill users) in the way that most CDNs do — their transit cost is based on utilization over time ("flow") instead of cost-per-packet ("stock"). Also, although CloudFlare pays for transit, they do not pay for peering, in contrast to, in particular, Netflix. As such, the more CloudFlare peers, the less they pay for transit.

CloudFlare's argument against consolidation

In North America, CloudFlare peers only about 20-25% of traffic, leaving them to pay for the remainder 75-80% of transit. North America and Europe have among the lowest transit rates in the world, so the relative lack of peering is not an issue at present. For comparison, in Europe, CloudFlare peers approximately half of traffic, making its transit price in Europe effectively cheaper than the US, although the base price is still the same. (Again, the original blog post uses hypothetical prices that are not repeated here; those prices do not reflect the actual transit cost.)

However, in Australia, in which CloudFlare peers with "virtually every ISP in the region except one": the formerly government-operated telecom Telstra. Telstra controls approximately 50% of the market, and charges 20 times the standard cost of transit in North America. Following the same equation as above, given that CloudFlare is capable of peering half of their traffic, the effective price is still 20 times the cost of transit in Europe after peering. As pointed out by Prince, CloudFlare pays approximately the same amount per month to serve all of Europe, (about 750 million people) as they do Australia (22 million).

Telstra's position as market leader in Australia provides them to ability to demand comparatively exorbitant prices from organizations such as CloudFlare. The primary concern is being offered by Prince is regarding the centralization of ISPs in the US — namely, the Comcast acquisition of Time Warner Cable — would be able to use their market position to demand similarly high rates for transit. Of note, those two companies purchased the assets of the bankrupted Adelphia Cable and split it in 2006, making Comcast the largest ISP, and Time Warner Cable the second largest ISP in the US. As Netflix CEO Reed Hastings points out, if the principals of Net neutrality are not adhered to, "ISPs can demand potentially escalating fees for the interconnection required to deliver high quality service."

What about everybody else?

Comcast and Time Warner Cable are not the only large telecoms eyeing a potential merger. Softbank Corp., majority owner of mobile network operator (and Tier 1 backbone) Sprint has been publicly eyeing T-Mobile USA for some time, but the status of that acquisition is in doubt. Satellite Television provider DirecTV may be acquired by AT&T, Inc., pending federal approval.

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About James Sanders

James Sanders is a Java programmer specializing in software as a service and thin client design, and virtualizing legacy programs for modern hardware.

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