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Netflix-Comcast a different kind of net neutrality

Is the deal really a betrayal of neutrality, or could it be a truce between two opposing sides that forces them to work together?

Comcast Reports Quarterly Earnings Rise 16 PercentEver since Netflix and Comcast announced their joint interconnection deal a few weeks ago, there has been no shortage of analysis on what it all means for the future of the internet. Opinions have ranged from the dire – such as an article on The Verge declaring that “the internet is fucked” – to the predictably apologetic, like the op-ed pieces that always come out of the neo-con American Enterprise Institute to support any big corporate deal.

Many commentators have suggested the agreement sounds the death knell for net neutrality, or the broad ideal that internet providers should not unduly discriminate against certain forms of traffic. The problem in this case has been that Comcast has been slowing down Netflix for some time, to the point where the service has been difficult if not impossible to use for some subscribers. The cable company has plenty of reasons to do so: not only does Netflix compete with its own video offerings, it also clogs up a lot of its network (it accounts for an estimated one-third of all internet traffic). That degradation effectively forced the streaming company into signing an interconnection deal directly with Comcast rather than going through third-party providers such as Cogent, which it has typically done in the past.

It’s understandable why the agreement provoked such negative reactions. With actual net neutrality rules in the United States in limbo if not dead, large network owners such as Comcast are effectively free to engage in whatever extortionate activities they want, which is exactly how this situation has been perceived; Netflix had no choice but to give in to its customers being held hostage.

The precedent the deal sets is worrying for a number of reasons. In the first instance, it frees the figurative wolves to come after Netflix. The company will, in all likelihood, have to do similar deals with other big internet providers such as AT&T, Verizon and Time Warner Cable, and once they’re done in the United States it’s only a matter of time before the situation repeats in other countries. Following that, price hikes must surely be on the horizon, right?

There’s also the issue of what this means for other internet companies. Netflix is probably able to afford such deals, but the little guy starting a competing video service in a garage somewhere surely can’t, meaning that his customers will end up with second-class service. This two-tier internet is the very bane of the net neutrality ideal.

There are, however, a few legitimate counters to these points. For one, Netflix is a unique case in that it is a relative giant that accounts for a huge chunk of internet traffic. By the time any new start-up attracts the wrath and the associated traffic slowdown of Comcast et al, it will in all likelihood be big enough – and earning enough cash – to make similar deals. It’s true that oversight of such inevitable deals is needed to ensure they’re not anti-competitive, but the Netflix deal itself isn’t a guarantee that small companies won’t have a chance. It simply lays out the inevitable path for them.

It’s also unknown what Netflix is paying Comcast. The company’s chief financial officer David Wells says the amount isn’t significantly more than what it is otherwise paying third parties, to the point where, “We’re not going to be interested in doing something that’s going to meaningfully change the economics for us on that.” If that’s true, there isn’t much reason for concern.

Perhaps the most important result to come out of this agreement is the fact that net neutrality – and internet issues in general – has effectively lost its corporate sponsor. Now that Netflix is in bed with Comcast, the company probably won’t be making too much noise about the cable company’s misdeeds, real or imagined. It’s simply bad business to publicly attack one’s partners, a gentlemanly courtesy that will extend to whatever other big ISPs the company signs up with. If any issues arise, they are more likely to be discussed by the involved parties in private.

Netflix has indeed been ratcheting down its public rhetoric from some time now. The high point came in 2012 when chief content officer Ted Sarandos famously compared Canada’s low internet usage caps to a “human rights violation.” Over the past year or so, company representatives have been toning that message down significantly, repeatedly saying the situation is “getting better.” Yet, with large Canadian ISPs/broadcasters increasingly exempting their own content from usage caps, that’s hardly the case.

It wasn’t so long ago that Google was the main voice for net neutrality and other pro-internet issues, but the company’s desire to sell Android phones ultimately forced it into a silent compromise with Verizon. Netflix stepped into that void for a while, but with its inevitable silencing the role will be vacant once more. Who steps up to fill it is an open question at this point.

Gentlemanly silence works both ways, though, which means there should be noticeably less rhetoric about the “Netflix problem” flowing in the opposite direction. In other words, ISPs are probably going to complain less vocally about how big of a burden Netflix is on their networks once they’ve partnered with the company. Moreover, Comcast’s willingness to partner with Netflix may be the catalyst that effectively kills off the efforts underway at various ISPs to create competing services. After all, no one really wants or needs what are sure to be inferior Netflix clones from cable companies.

Rather than a betrayal of neutrality, the interconnection deal between Comcast and Netflix looks to be an affirmation of it. It’s a truce between two opposing forces that effectively forces them to work together. The long-term test will be whether one can exert more influence and power over the other, but in the meantime the stalemate is perhaps a best-case scenario. As the old saying goes, everybody wins when no one truly does.

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5 Comments on Netflix-Comcast a different kind of net neutrality

  1. Jean-François Mezei // March 10, 2014 at 12:16 am // Reply

    Netflix has, for a long time offered to deliver content for free to ISPs by placing a cache appliance inside their network (called OpenConnect).

    This greatly helps ISPs lower their transit costs and is *welcomed* by ISPs who most certaintly don’t demand payment for a service which lowers their costs.

    For Comcast to demand some form of financial revenue in exchange for not slowing down content FOR WHICH RETAIL CUSTOMERS HAVE PAID COMCAST TO DELIVER, it totally wrong.

    If I pay for x gigs of data per month, it doesn’t matter if the data comes from netflix of from singapore. It consumes the same resources once it arrives inside Comcast’s network.

  2. If we handed over control of our road networks to Wal-Mart, all roads would soon lead to Wal-Mart. This is why we have shared open access road networks that are governed in the public interest. This is essential to optimizing creation of wealth and opportunity in our economies, and to optimizing economic efficiency (minimizing waste in all forms).

    For these same reasons, it has become untenable for private interests to control the infrastructure of digital service delivery while they remain in the business of delivering digital services. It is massively counterproductive to allow any private interest to govern competition, innovation and growth in a Digital Economy when that private interest has a vested interest in precluding competition with their own services.

    Bring on structural separation in our telecom and broadcasting industries, so that networks and services operate completely at arm’s length from one another. Put an end to the ridiculous, wasteful farce of facilities-based competition and walled gardens. This could not happen too soon.

    http://www.afr.com/p/technology/isp_tie_ups_may_curb_content_says_HRGOzUXUaBObRv3VfIPH5L

  3. The trick for access monopolies (or duopolies) is to move the WAN/MAN demarc as close into the core and up in the layers of the communications stack. It’s all about building a bigger moat around the last mile castle keep. Comcast wants no more than 18 peering points, Verizon 12, AT&T 4. The problem with this consolidation to the core is it runs counter to all aspects of competitive, economic, application, network, technological and customer efficiency. In fact all the natural laws of communication are being violated. But since regulators don’t even understand network economics properly how would they know this?

    Here are 2 clear examples:
    1) Netflix scaled because of all the CDN’s and competitive transport and peering arrangements of the “general broadband internet” that developed in the 2000s. Demand from the edge is what grew Netflix’ volumes which in turn benefited everyone else. It was a virtuous process that drove bandwidth costs to the first mile down by 20-40% annually over the last 15 years. This and similar deals will kill that virtuous cycle.

    2) Worse, by pushing interconnection to the core, the result will be hairpinning or tromboning of 2-way IP sessions hundreds of miles. The wasted backhaul as we go to 2-way HD collaboration (synchronous streams of 4-10mbs) will be enormous.

  4. I’m baffled that you think that what happened with Netflix is isolated (due to Netflix unusually large bandwidth requirements) and won’t eventually do serious harm to startups and other smaller companies.

    Once the carriers have killed net-neutrality and established this precedent with Netflix, why wouldn’t they go after everyone else? It will take time and will start with the other big players like Google/Youtube, but there would be no economic sense for the carriers in stopping there.

    As well, they could make it a bidding arrangement – companies bid against each other for the fastest packet delivery. Like the way companies big up the price of google ads, but without the hands-off approach of Google – those companies big enough to establish corporate relationships would always beat out the smaller players. Again, if we abandon net neutrality, why wouldn’t the carriers’ start thinking about how far they can take this?

    It is not surprising that Netflix and Google (Youtube) would back away from efforts to promote net-neutrality – this development will cost them a bit now, but ultimately it favours the incumbents.

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