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2/24/2014
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Netflix Deal With Comcast: Net Neutrality Domino?

Netflix pays cable provider for fast, reliable service. Consumer advocates fear it's the first of many deals to come.

Netflix and Comcast announced a deal on Sunday whereby the bandwidth-hungry movie and television streaming service will pay the nation's largest cable provider for fast, reliable access to its subscribers.

It's being hailed as a landmark deal that acknowledges a weakening of Net neutrality rules that once ensured free and equal access to Internet bandwidth regardless of capacity demands. In January, a federal appeals court struck down Federal Communications Commission Net neutrality rules, saying the agency had overstepped its authority.

Proponents of Net neutrality have argued that major US carriers, including Comcast, Verizon, and AT&T, could wield too much power over content providers without rules preventing them from restricting access to bandwidth and charging premiums based on capacity demands. Netflix, producer of the popular House of Cards series, accounts for as much as a third of Internet traffic during peak viewing hours.

[Want more on the court ruling against FCC? Read Net Neutrality Court Ruling Won't Ruin The Internet.]

Last week, the FCC proposed new rules that would prevent Internet service providers from blocking legal sites or services from consumers and would restrict, but not ban, carriers from selectively restricting bandwidth. InformationWeek columnist Jonathan Feldman has argued that Carriers Won't Win The War On Netflix and other content providers because network monitoring will make restrictions obvious and they could not withstand the resulting public outcry.

The deal with Comcast signals that Netflix isn't counting on new Net neutrality rules and wasn't prepared to gamble with the customers' streaming experience. Terms of the deal were not divulged, but a source told The New York Times that Netflix will pay Comcast several million dollars per year to provide more direct and reliable access to its content, bypassing intermediary connections to its network to ensure steady streaming free of pauses and hiccups.

Image credit: Wikipedia.
Image credit: Wikipedia.

The deal comes just 10 days after Comcast agreed to pay $45 billion to acquire Time Warner Cable, a deal that, if approved, will give the company a third of the US cable market and 40% of the broadband Internet access market. There have also been reports that Verizon, another giant among carriers, has been restricting access to Netflix in the wake of the court ruling on Net neutrality rules, a charge that the carrier denied.

Consumer advocates fear that the Netflix-Comcast deal will spark similar deals with the cost of the fees passed along to the consumer. Will carriers be able to hold content providers over a barrel until they agree to pay fees for adequate bandwidth? It remains to be seen whether the FCC will attempt to step in to prevent such deals or whether its new rules will stand up to court scrutiny.

Engage with Oracle president Mark Hurd, NFL CIO Michelle McKenna-Doyle, General Motors CIO Randy Mott, Box founder Aaron Levie, UPMC CIO Dan Drawbaugh, GE Power CIO Jim Fowler, and other leaders of the Digital Business movement at the InformationWeek Conference and Elite 100 Awards Ceremony, to be held in conjunction with Interop in Las Vegas, March 31 to April 1, 2014. See the full agenda here.

Doug Henschen is Executive Editor of InformationWeek, where he covers the intersection of enterprise applications with information management, business intelligence, big data and analytics. He previously served as editor in chief of Intelligent Enterprise, editor in chief of ... View Full Bio

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rradina
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rradina,
User Rank: Ninja
3/2/2014 | 7:21:19 PM
Re: Pollyannas think carriers won't use their clout
Cable and wireless ISPs have been steadily increasing the speed of our connection for as long as I've had HSI (just after the turn of the century).  If it costs so bloody much to deliver all this, why do they keep increasing speeds and either decreasing prices or charging the same price?

If these folks cannot make ends meet without extorting NetFlix, Sony, Google and the rest, why do they keep increasing the speeds which only allows us to create the bandwidth Armageddon they've been preaching for the past decade?  It just isn't rational to double speeds every few years and then whine about caps, overages and the need to monetize the plant or lest someday soon, even e-mail won't get through.

It's almost like the looming nationwide cannabis legalization providing everyone ever-cheaper product and then complaining about how our consumption isn't sustainable unless the midnight fast food restaurants share some of their bounty.
Brian.Dean
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Brian.Dean,
User Rank: Ninja
3/2/2014 | 10:46:06 AM
Re: Pollyannas think carriers won't use their clout
Everything should be digitally communicated, movie and games etc, that's the aim. Netflix created a deal with Comcast and maybe in the near future Sony signs are deal as well to deliver their games, the average size of a PS4 game is 40GB. If the system is not monetized then data provides will not be able to finance hardware and labor, and consumers should not be expecting 4k video streaming anytime soon.

All this is entertainment material however, the value that consumers derives from 1MB of email data can have a lot more value at times in the eyes of the consumer, if the hypotheses is that these deals are going to create a situation where for example, 1 MB of data is becoming hard for consumers to access then the value of the internet will decrease creating a disequilibrium.
jgherbert
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jgherbert,
User Rank: Ninja
2/28/2014 | 10:34:03 PM
Re: Pollyannas think carriers won't use their clout
@LornaGarey:

"In fact, LR reported Comcast as saying, "Netflix receives no preferential network treatment under the multi-year agreement."

Come on, if that's so, what are they paying for? To NOT be slowed down? That sounds much like the baseball bat/china shop analogy.

 

As I have read it, Netflix previously peered with Cogent, and Cogent peered with Comcast. Since Netflix streams a huge amount of data in one direction, Comcast can reasonably argue that this is not a reasonable case for the usual peering agreements where it's assumed that data exchange is largely equal in each direction. Oddly then, what I read is that the actual problem with the "throttling" was between Cogent and Comcast, where the connection was saturated and Comcast wouldn't agree to uprate the peering connection bandwidth because they felt it was not a fair deal in both directions in terms of traffic.

What Netflix has done now - for better or worse - is to create a direct peering agreement with Comcast just like a regular customer would buy internet bandwidth, rather than through an SP-style peering agrement. And as I understand it, the definitions of net neutrality only cover what you do to traffic once it's on your network, and don't speak to the peering agreements and how you get the traffic on to it.

Now, where things would get interesting is if Comcast had agreed to let netflix locate their CDN devices within their network, which is really what Netflix wanted.
rradina
IW Pick
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rradina,
User Rank: Ninja
2/25/2014 | 7:00:00 PM
Re: Pollyannas think carriers won't use their clout
Netflix might be playing games too but they offer their CDN devices for free to alleviate the interconnect saturation issues.  Some have said that they ought to have to pay Akamai like others do.  I disagree.  Right now Netflix offers incredible OTT value and they seem to be looking for ways to change the status quo.  They are disruptive and good for consumers tired of paying ridiculously high video bills to traditional video distributors for 200 channels of reality TV with commercials and blasted pop-ups during content!  What I hear is a lot of whining and complaining along the lines of the classic Ed Whitacre quote "They are using my lines for free!  Waaaaa!". That's classic Ma Bell thinking and unless we were all happy with the days of paying for touch tone dialing and a fee to keep a number unlisted, I think we shoud side with the disrupter instead of the monopoly.
Lorna Garey
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Lorna Garey,
User Rank: Author
2/25/2014 | 5:02:22 PM
Re: Pollyannas think carriers won't use their clout
RRadina, Do you hold Netflix harmless here? Agreed 100% on Comcast and competition. When FiOS came to my neighborhood, suddenly Comcast really, really liked us. All those pesky yearly rate hikes? Fuggedaboutit. Expect that when Google Fiber gets to Boston, Comcast will start sending us annual fruit baskets.

However, Netflix is playing games, too. That's what I meant by motives.
KyleS211
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KyleS211,
User Rank: Apprentice
2/25/2014 | 1:48:13 PM
Re: Pollyannas think carriers won't use their clout
Instead of highways and roads, which is a good analogy.  I would point to the Telcom Act of 1934 (amended in 1996) that subsidies the telcos (primarily the Bell Companies) to lay the original last miles (copper wire) and also gave them right of way on roads and train tracks.  Many of which are still part of our infurstrucure today.  The Cable companies have been able to play by a different set of rules due to their timing (Reagan administration).  My hope is that better wireless technology will make this conversation obsolete, but we are not there yet.    
anon4474372251
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anon4474372251,
User Rank: Apprentice
2/25/2014 | 1:46:32 PM
Re: Pollyannas think carriers won't use their clout
The idea that 'the last mile' is serviced by charitble contributions from publically held companies with charitable shareholders is incoherent. ISP's sell two classes of product, consumer grade 'best effort' bandwidth and enterprise grade bandwidth guarenteed by service level agreements (SLAs). Try to find the place on your cable bill where TW or Comcast commit to a course of action if you don't get the bandwidth you pay for. They don't and that is exactly why consumer grade internet is consumer grade internet -- you have no recourse if you don't get 10Mbps other than switching the an alternative ISP. Enterprise grade internet is enterprise grade because of the SLA -- I can measure the speed over time and I can derate my payment acording to a derating clause in the contract I signed. By the way, enterprise grade costs 3-5 times more than consumer grade.

 

About switching ISPs... There are only 3 ISPs (first order) 1. at&t, 2. verizon 3. Comcast+TW. That's it. All the other pipes are leased from these three (first order). Oh, by the way, all three have exactly the same SLA terms. The reason you cannot force Jiffy Lube to service your car in 30 minutes (or what ever they promise) is that you don't sign a contract when you drive into Jiffy Lube that has a price derating curve. That is like the ISP SLA. Domino's Pizza has what sounds like an SLA but try to take Domino's to court if they take 40 minutes to deliver your pizza and still charge you for it. Children. Don't listen to politicians and interests groups -- there is not now and has never been an animal called net neutrality. This is a gift from Santa that we have been fooled into believing.
TerryB
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TerryB,
User Rank: Ninja
2/25/2014 | 1:22:29 PM
Re: Pollyannas think carriers won't use their clout
So has the time come to treat cabling infrastructure, wired or wireless, the same way we do highways and roads? Make that part of what we pay taxes for. Then let the Comcast's of the world use that to provide actual service. Then we might have some actual feasible competition for that last mile.

That's by no means a perfect solution, I'm well aware we have hundreds of bridges in country we can't maintain with government in control. But there is no solution to the last mile issue, what technology is going to be invented to introduce true competition providing that access to each home? Cellular type wireless is only hope and right now I'm paying $30 a month for 3GB. That's certainly not feasible to take over my TV service, with myself, my wife and my daughter all watching HD on separate TVs.
KyleS211
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KyleS211,
User Rank: Apprentice
2/25/2014 | 12:11:19 PM
Re: Pollyannas think carriers won't use their clout
Ideally you are correct. Unfortuntely from a practicle stand point it is not really the FCC that is or can solve the problem.  It is called the "last mile" and that is and always has been the problem.  It cost too much for seven or ten companies to all have "pipes" into your neighborhood.  So the one that does is King Kong.  Just the way it is.
rradina
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rradina,
User Rank: Ninja
2/25/2014 | 11:52:59 AM
Re: Pollyannas think carriers won't use their clout
I don't think the motives are fuzzy.  Comcast provides a service to its customers.  The customers pay for that service.  If the service suddenly changes and customers complain because it no longer meets their needs, it's up to Comcast to make sure their service provides what their customers want.  If resolving the issue requires additional funds, they seek funds from their customers.

Suppose you need your car's oil changed and you visit a quick change store.  They fail to staff sufficiently and stock enough product.  What should take 20 minutes, takes three hours.  Do you visit this store again or take your business elsewhere?  What if it's the only oil change store within 50 miles?  What if customers complain but the store's hands are tied because their prices don't allow hiring additional staff or adequately stocking product?  Rather than raise customer prices, the store manipulates the employees to work for less (cutting benefits, eliminating overtime, hiring less skilled replacements etc.).  On top of that, they extorts local suppliers, whose survival is dependant on the store's wholesale business, for cheaper product.

Competition solves the issues outlined in both paragraphs.  We don't have that and the result is distorted market forces.

If Comcast was losing money and desperately needed more funds to expand it's network and add capacity, perhaps my feelings would be different.  However, it's nothing of the sort.  A few talks, a little money exchanged and suddenly instant improvement.  While every business has the privilege to leverage their assets to the fullest extent for their shareholders/owners, they aren't generally allowed to do so in a competitive and regulatory vacuum.
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