Last week it emerged that Netflix has agreed to pay Comcast for a direct connection to the cable and internet service provider’s network, which will improve its streaming video quality to those of its end users who are Comcast broadband customers.
Comcast has confirmed what it calls a “mutually beneficial interconnection agreement” but both sides have so far declined to provide specific terms of the deal.
Net neutrality is a hot topic in the US at the moment, especially with the pending US$46 billion, Comcast merger with Time Warner Cable now on the docket for potential anti-trust and other forms regulatory scrutiny.
Comcast and Time Warner have claimed their proposed merger is not anti-competitive, as once some subscribers are given up they will not exceed a combined 30% share of the US cable market, and in any given market they do not overlap much if at all.
However the potential monopsonist behavior is just as important as monopolist behavior, and the combined company will have such national mega-clout in buying and sourcing programs. It is hard to believe no restrictions of any kind will be imposed on the deal to get it through.
In addition, both companies are major broadband suppliers of internet access itself, as well as cable suppliers, and have the power to throttle competing entities such as Netflix, which streams programming directly to their customers’ computers, and in principle are competing with the cable guys, which is where net neutrality issues can start to come up.
So far the big cable companies, including Comcast and Time Warner, have made no promises at all about not holding back data from potentially competing entities, whether in the context of congestion of data pipes or not. The big telecoms companies are not much better to date in this regards either.
However, last week Netflix did come to its new peering agreement with Comcast, who are well documented to have been slowing down Netflix’s internet movie streaming services for the last several months. Netflix had clearly been annoyed about it, whether it was deliberate corporate behavior by Comcast or just a function of ordinary congestion at peak periods.
For Comcast, coming to terms with Netflix quickly likely made good sense in the context of securing a favourable climate for securing overall regulatory approval for their merger with TWC Cable. For Netflix it makes critical sense to be able to properly service their customers again, though other ISPs who have also been holding up their data rates may now be reinforced in making similar demands.
The important questions are of course, in the broader context of these new mutual arrangements, were they fair and do they set appropriate precedents for moving forward?
According to tech website GigaOm Comcast and Netflix sat down and negotiated the crux of their new peering agreement at last month’s Consumer Electronics Show in Las Vegas. Peering agreements are very common arrangements for telecoms and other networking and ISP companies to provide each other with, usually mutually reciprocal, transmission rights, usually on a net free basis, and only when traffic is predominantly in one direction only, as is the Netflix case, for some form of payment.
It seems the interconnection deal with Comcast was set up not just by engineers at Las Vegas, which would be the normal approach, but by the two companies’ CEOs as well, between Reed Hastings of Netflix and Brian Roberts of Comcast. In other words strategic business issues were considered to be just as important as technical ones in this case.
Since Netflix is purported to currently already drive as much as 30% of US broadband traffic at certain points in the day, it is not in itself disrespectable for it to be asked to pay something for the privilege of clogging everybody’s pipes, in a one way direction, in order to help pay for extra capacity in fibre and data centres to be installed to cope.
Other providers in the intermediate portion of the transcontinental chain of service providers, such as Cogent, or Level 3 or XO Communications already do charge as well, so just because Comcast is at the so-called “last mile” is not a reason to say they shouldn’t do it at all, provided the charges are reasonable. And that is not in itself an argument that reduces net neutrality, which is a much larger issue of giving actual preferences to your own subsidiaries’ data streams, or to those of companies with whom you may have alliances whether you have peering agreements or not.
However even with a deals such as Comcast has now consummated with Netflix, the devil remains in the details. At a minimum regulators should demand such arrangements be made transparent, and they should strive to follow some principle that matches the cost of installing more network ports or extra fiber needed to carry such incremental loads. As it is, no one knows what Comcast seems to be charging Netflix, whether it is reasonable or whether they just had them over a barrel and that is a concern.
Of course the “last mile” will not stay in the hands of the cable companies for-ever if they do abuse their position for too long. Google is building out its Google fibre all over the continent and so, quite possibly though they do not talk about it all, maybe Apple.
The Federal Communications Commission Chairman Tom Wheeler now has the unenviable task, therefore of putting forward a coherent framework for the regulatory response that must come from a number of agencies in official Washington, in the months ahead, concerning the Comcast TWC Cable merger itself and concerning deals such as have just been cooked between Comcast and Netflix. It is important they get it right.