A new report commissioned by Netflix has found its Open Connect programme helped internet service providers (ISPs) save over $1 billion during 2021.
The programme involves the streaming service partnering with ISPs to deliver its content more efficiently.
Netflix works with over a thousand ISPs to localise substantial amounts of traffic with Open Connect Appliance embedded deployments.
The company commissioned Analysys Mason to quantify the impact that initiatives such as Open Connect, its caching and traffic delivery programme, and the implementation of advanced video encoding standards are having on the economics of broadband networks.
The analysts aimed to quantify the impact of both Open Connect caches and advanced codecs in the UK and South Korea.
They built a bottom-up model of the cost structure of a hypothetical ISP, inputting the ISPs’ traffic levels, network topologies, type of caching deployed and costs of network equipment and wholesale inputs. The analysts then used its results to create worldwide level based on Netflix’s traffic flows.
They found that the network costs of the modelled ISP, which was estimate to be around 50 per cent of revenue, can be grouped into the two following elements:
- Access network costs. These are largely insensitive to traffic levels, and represent the majority of network costs (around 80–90 per cent). These costs are related to ‘last mile’ access infrastructure between an ‘edge’ or ‘local’ network node and end-user premises (now increasingly fibre-based), and are largely invariant with traffic. They are primarily driven by the deployment of the network to homes and offices, and the connection of end users to the network.
- Costs in the core and backbone network. These are partly sensitive to traffic and represent around 10–20 per cent of network costs. These costs are expected to remain stable over time (on an annualised basis) as a result of economies of scale, decreasing equipment and link costs for high-capacity links and the continued delivery of traffic through caches located deep in the modelled ISP’s network, including Open Connect appliances (OCAs) provided by Netflix.
The analysts also concluded that Open Connect (like other similar partnerships between content providers and ISPs) ensures that growing demand from end users can be handled sustainably without increasing network costs over time. State-of-the art codecs further reduce the traffic intensity of video content; the impact of this will increase as more end-user devices become compatible with those codecs, added the report.
Global savings resulting from Netflix’s investment in Open Connect and codec improvements amounted to an estimated $1-1.25 billion for ISPs around the world in 2021.
The full report can be downloaded here.
