The war between Netflix and Comcast bursts into the open
It was obviously a little soon for everyone to claim that February’s deal between Netflix and Comcast, assuring the video streaming service more direct connections to Comcast’s home customers, resolved the issues between them. Or does anyone think Vladimir Putin and the Ukrainian people are now pals?
Last week, Netflix Chief Executive Reed Hastings fired a broadside at his supposed new partner over the issue of network neutrality, the principle that all services and content providers on the Internet should get equal access to an Internet service provider’s customers. In a blog post, he said Netflix had agreed to pay Comcast a fee -- a toll, he called it -- “to protect our consumer experience.”
But he warned that Netflix is willing to do so only “in the near term.”
If you were Comcast, would you take that as a threat? You’d be wise to do so. Comcast, the biggest cable operator in the country, is about to face intense regulatory scrutiny in connection with its proposed $45-billion merger with Time Warner Cable, which ranks second. Hastings sounds as though he’s planning to make Comcast’s treatment of net neutrality an issue in that proceeding.
If so, he’s got plenty of evidence to work with. Comcast’s record on net neutrality is horrible. As we observed when its Time Warner Cable deal was announced, “It’s a record of broken commitments to customers and regulators, and of corporate deception.”
Comcast, in a response to Hastings issued over the name of David L. Cohen, its executive vice president, claimed “there has been no company that has had a stronger commitment to openness of the Internet than Comcast. “ It mentions the Federal Communications Commission’s open Internet regulations, which were struck down by a federal appeals court in January, and observes: “We are now the only ISP in the country that is bound by them.”
Yes, that’s true. What Comcast doesn’t mention is that it’s bound by those rules because the FCC insisted on it as a condition of approving Comcast’s acquisition of NBCUniversal in 2011. And it’s bound by the rules only until January 2018. And the reason the FCC made it a condition of the merger, one can assume, was that Comcast couldn’t be trusted otherwise.
Hastings makes the point that Comcast supports “weak” net neutrality, which forbids ISPs to interfere or restrict the choices made by end users of what content or services they want from the Web. He wants to see Comcast commit to “strong” net neutrality, which would prevent the cable operator from charging big providers, like Netflix or Google’s YouTube, an extra fee for streaming content to their subscribers at high quality.
That’s the battlefield where the war between Netflix-like providers and ISPs like Comcast will be fought. The Netflix position is that its service is so popular that more customers will clamor to sign up with Comcast and insist on better broadband service, for which they’ll pay Comcast more money, so their Netflix movies will look better. Hastings thinks Comcast should be satisfied with the subscription revenue and not try to squeeze his company for more.
The reason there’s any fight over this at all is because ISPs such as Comcast, taking advantage of their effective monopolies over Internet service to the home, haven’t resisted the temptation to give their customers mediocre performance at an inflated price. The technology and infrastructure exists for Comcast to give all its subscribers service good enough to show every Netflix video stream at high def, but why bother? If its customers think Netflix movies look lousy on their Comcast connections, they’ll blame Netflix.
The ISPs’ attitude was revealed last week by Jim Cicconi, an executive at AT&T, who responded to Hastings by arguing that Netflix wants AT&T to incur all sorts of infrastructure expenses “as a consequence of Netflix’s good business fortune.” That’s one way of looking at it. You might think that AT&T should incur those costs to serve its own customers, but AT&T disagrees. Cicconi praises his employer for spending money to build out its GigaPower high-speed network in Austin, Texas, though he doesn’t mention that it’s doing so only because it doesn’t want to lose customers to Google, which is building a competing high-speed network in Austin.
If regulators treated ISPs like the public utilities they have effectively become, battles like the Netflix-Comcast one wouldn’t happen. Instead, the FCC’s tolerance for poor ISP performance knows no bounds. Now the issue of net neutrality, and whether Comcast should get a big new opportunity to violate it, has landed in the lap of its new chairman, Tom Wheeler.
Wheeler says he’s working on a new set of net neutrality rules. Hastings has plainly decided to try to put his thumb on the scale. But it’s important to keep in mind that the rules may eventually boil down to who gets to reap the biggest profit from consumers, Netflix or Comcast, so it’s probably not wise to think of either of them as being on the customer’s side.
As happens whenever behemoths battle, the little guys get stomped. In this case, we the customers will be getting the bill; we just don’t know yet whose name will be on the return address.