Netflix, Comcast in War of Words Over Net Neutrality

Netflix CEO Reed Hastings last month characterized Comcast Corp., the nation’s largest broadband provider, as a defender of “weak Net neutrality.”

Hastings made similar observations this week, prompting Comcast to issue a rebuttal.

In a letter to shareholders commenting on its first-quarter results, Netflix executives expressed concerns that Comcast, through its pending $45.2 billion acquisition of Time Warner Cable, would wield excessive power over the Internet.

“Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix,” Hastings and Netflix COO David Wells wrote in the letter. “The combined company would possess even more anticompetitive leverage to charge arbitrary interconnection tolls for access to their customers. For this reason, Netflix opposes this merger.”

Netflix’s opposition to the Time Warner Cable merger, Comcast proclaimed in a blog, “is based on inaccurate claims and arguments.”

Comcast pointed out it is the only Internet service provider in the United States that is currently bound by Federal Communications Commission network neutrality rules that a federal appeals court in Washington set aside. In January, the U.S. Court of Appeals for the District of Columbia Circuit vacated FCC’s anti-discrimination and anti-blocking regulations following a legal challenge by Verizon Communications Inc.

Comcast, however, previously agreed to be bound by the network-neutrality regulations as part of its 2011 merger with NBCUniversal, and the company said the regulations would be extended to millions of other Americans – Time Warner Cable’s base of broadband customers – under its planned merger.

But Netflix has painted Comcast as anything but a friend of network neutrality.

Last month, Netflix said a lack of adequate interconnectivity has constrained its performance, leaving high-speed Internet customers with “high buffering rates, long wait times and poor video quality.”

“Once Netflix agrees to pay the ISP interconnection fees, however, sufficient capacity is made available and high quality service for consumers is restored,” Hastings wrote in a March 20 blog. “If this kind of leverage is effective against Netflix, which is pretty large, imagine the plight of smaller services today and in the future.”

Hastings published his blog a month after Netflix and Comcast announced an interconnection agreement upon which a more direct connection was established between the two companies. The agreement did not grant Netflix preferential treatment, according to a Feb. 23 press release.

In a blog Monday, Jennifer Khoury, a senior vice president with Comcast, distinguished network neutrality from interconnection and declared the arrangement between Netflix and Comcast is not out of the ordinary.

“There is nothing unprecedented about our agreement with Netflix. It’s very similar to agreements that companies like Akamai, Yahoo, Limelight, and Google have with companies like Verizon, AT&T, Level 3, Sprint, and Comcast,” Khoury wrote. “Comcast alone has thousands of these transit relationships.”

Khoury added that Netflix approached Comcast directly in order to cut out wholesalers with whom the company had paid for transit.

“This arrangement was thus about Netflix exercising its market power to extract a more favorable arrangement directly from Comcast than what Netflix had been paying for through third-party providers,” she wrote.

Network neutrality has been a topic of debate for years, as an increasing number of companies have emerged that compete with the likes of Comcast and Verizon by delivering services such as streaming movies and Internet-based phone service over broadband networks controlled by their rivals.

Netflix, which has radically changed how many Americans view television shows and movies, is a case in point. In the United States alone, Netflix serves 35.7 million streaming subscribers. Netflix customers can’t stream the TV shows and movies without a high-speed connection.

A report last year from Sandvine noted Netflix and YouTube comprise more than 50 percent of downstream traffic on fixed networks in North America.

Without Net neutrality, Netflix claims, big ISPs like Comcast have power to demand potentially higher fees for interconnection, driving up prices for consumers, who have few broadband options.

Comcast denies consumers have few choices. Citing FCC data, Khoury said 97 percent of homes in the United States have access to at least three fixed or mobile providers that offer broadband services. And one of Comcast’s selling points to the FCC – as the agency reviews whether the Time Warner Cable acquisition is in the public interest – is that the companies compete in different territories so the merger won’t reduce consumers’ broadband choices.

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