Net Neutrality, Netflix, and Comcast

Net neutrality is weird and complex. It’s been in the news increasingly more over the past few years. Let’s look at an example.

Netflix recently started paying Comcast (info, more info) so that Comcast would provide customers with a better connection to Netflix. Historically ISPs didn’t take money from websites—they only took money from their subscribers.

What was the problem?

Streaming video uses a lot of bandwidth. Comcast subscribers were “saturating” the network connection between Comcast and Netflix. This means 100% of the available connection was being used. When this happens the Netflix player automatically switches to using a lower quality video stream so that it’s still able to download video fast enough to keep up with the playback speed. This is important when you want to watch a video without intermittent rebuffering.

Why did Comcast ask for money from Netflix?

Because they can. The saturated network connection caused lower quality video but it didn’t obviously break anything. If the network connection was obviously broken people would have complained angrily to Comcast. But with lower quality video people just assume that Netflix sucks.

Why is Comcast able to do this?

It’s in Comcast’s interests to provide the best service possible. If subscribers think Comcast’s service is bad then they’ll switch to another ISP. This is the nature of free markets.

However, there aren’t a lot of options for ISPs. In some areas Comcast may be the only broadband provider.

And Comcast has other incentives to make Netflix look bad: Netflix is a competing product to Comcast’s TV service. If Netflix doesn’t work well it means more people will pay Comcast for TV. Comcast is walking the line between alienating their subscribers and extorting money from Netflix.

What should be done?

That’s a hard question. PR spin can play a big role in how the public perceives this.

Netflix does consume a tremendous amount of bandwidth—perhaps Comcast is justified in asking Netflix to help cover the cost? After all, Comcast wasn’t preventing subscribers from using Netflix… they just weren’t enabling them to use Netflix at an extremely fast speed.

Or perhaps the lack of an effective free market in the ISP space is justification for the government to provide protection to consumers?

What do I think?

Comcast has a network and Netflix has a network. Ultimately both of these networks are paid for by the customers. It doesn’t make sense for Comcast to pay Netflix or Netflix to pay Comcast—that’s just shuffling the customers’ money back and forth. There is overhead associated with shuffling money back and forth: negotiations, contracts, lawyers, PR spin, news coverage. This is waste. I’m an idealist. I hate waste. Maybe that means Comcast needs to charge subscribers more to cover their costs. Fine. I’m happy to pay more for a better Internet connection.

Should the government attempt to regulate this? At least partially, yes. The Internet resembles public utilities like water and power (benefit the public good, high infrastructure cost), and I think some amount of regulation is justified.

Transparency is important. Content providers like Netflix should always be allowed to publicly talk about problems like this. Comcast might attempt to get Netflix to agree to stay quiet about the details of their arrangement, and I think that should be made illegal.

ISPs should be required to publicly post details about whether they block traffic to any third parties. Whether they have saturated links to any third parties. Whether certain types of traffic receive worse treatment than others.

With this information consumers can make an informed choice. Entrant ISPs will have more opportunity to complete. It will encourage the free market.

Should it be illegal for ISPs to solicit money from content providers? Maybe. I don’t think it’s an urgent problem. Enforcing transparency is a good first step. I think we can afford to wait a bit longer to decide whether net neutrality should be a legal requirement.

In any case, because of the current dearth in consumer ISP choice Netflix probably made the right move in paying Comcast.

Disclaimer: I own stock in Netflix and I hate Comcast (in case they’re listening: I have reasons that I’d be happy to share with anyone important at Comcast).

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One Response to Net Neutrality, Netflix, and Comcast

  1. Alex says:

    Admittedly, I haven’t dug into the details of net neutrality as much as I should, but I thought the real issue was whether an ISP would be allowed to enforce specific QOS restrictions that would make, for example, traffic to Netflix flow at a different speed than non-video traffic or traffic to Youtube.

    I think what I (and, I guess, most people) are worried about is whether an ISP like Comcast is going to start throttling certain services and then say “Pay up for better speed, or else.” At least, I have a strong negative gut reaction to that.

    That might be happening here, but I just don’t know for sure. If I want to be charitable to the ISPs (it’s hard, but I’ll try), then it could just be that Netflix is filling up whatever pipes they have going into the ISP (either through a direct connection or through an interconnect), and so they’re paying to install more pipes. It seems to me that this is only a problem if the ISP has monopoly power (either because it has a lot of subscribers or because it’s the only way certain subscribers can get access) and then starts limiting the size of its interconnects to force content providers to pay up. Then you’d want some regulation, but I don’t know if that’s what net neutrality advocates.

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