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I'd like to know how. I am confused. :) it just seems to me that Netflix pays for bandwidth and so does the ISP. And bandwidth use is what is at question here because its what the ISP is complaining customers use too much of.

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Because the ISPs oversell their actual bandwidth on the hope that no one actually uses all of it at the same time. It's like how an airline might overbook a flight expecting a few people to not show up. Then Netflix comes along and everyone can very easily max out their bandwidth simultaneously all streaming movies in the evening.

I can see this as a valid point, but netflix has been around for years now. surely they still can't still be using the same thought process..

airlines get burned anytime they oversell and everyone does show up, they give out flight vouchers, hotel rooms, meal tickets all on top of another flight a few hours later or the next day..

Both capital expenditures (hardware, staff, etc.) and demand are much, much higher for ISPs than Netflix, both of which justify a larger price to the consumer.

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