Netflix, Comcast butt heads over net neutrality

Two major telecoms companies, Comcast and Netflix, took to the Web this week to argue in favor of net neutrality.

In doing so, however, they both pointed fingers at the other, claiming each was a menace. Their exchange sets up key points in the debate over Internet regulation and trust issues in the telecom industry that will have far broader implications than whether your “House of Cards” marathon loads.

That being said, “House of Cards” is actually what started this whole fiasco.

A few weeks ago, concurrent with the release of the second season of popular political drama “House of Cards” on Netflix, Comcast customers began experiencing loading delays, long buffer times, and poor video quality from Netflix.

At the same time, Netflix agreed to install new servers that would connect directly to Comcast, rather than use third-party servers from Internet Service Providers. The reason? Comcast asked the third-party ISPs to pay up extra money to stream Netflix, which currently accounts for one-third of American data traffic, according to technology research firm Sandvine. When the ISPs refused, Comcast went to Netflix directly to hammer out a deal. Netflix paid up.

Netflix execs initially said the deal had nothing to do with net neutrality. A short time after the deal, however, Netflix customers stopped experiencing delays. Now Netflix is crying foul.

“Some major ISPs, like Cablevision, already practice strong net neutrality and for their broadband subscribers, the quality of Netflix and other streaming services is outstanding. But on other big ISPs, due to a lack of sufficient interconnectivity, Netflix performance has been constrained,” writes Netflix CEO Reed Hastings on a company blog. “Once Netflix agrees to pay the ISP interconnection fees, however, sufficient capacity is made available and high quality service for consumers is restored.”

Mr. Hastings says that new rules should address the connectivity issues in order to allow equal access to networks without extra charge to customers or companies. Net neutrality is supposed to ensure that online content is accessible for all.

“If this kind of leverage is effective against Netflix, which is pretty large, imagine the plight of smaller services today and in the future,” he adds.

But this is an isolated incident, some say; a correcting measure for the large amounts of data that Netflix and others require to run.

"Anyone who thinks about it appreciates that the Internet operates over very expensive high-tech infrastructure that constantly needs upgrades to handle exploding usage. Someone has to pay for it, it is not free," says Scott Cleland, president of Precursor, an industry research group. "Like any other market, Internet users can buy different types of Internet access based on their different needs, wants, and means.”

"Specifically, a consumer can buy the speed and mobility they want and the amount of usage they want to consume. And like any other rational economic market, those that use more, pay more," he adds.

However, there is another major factor in this debate: the impending Time Warner-Comcast deal.

If approved by antitrust regulators, it could severely limit the amount of choice that consumers have for cable and Internet companies. This, in turn, could drive up prices for cable and Internet services that aren’t already owned by Comcast.

Netflix says the "House of Cards" buffer issues are just the beginning of crossfire that customers could get caught in if the deal goes through.

“Without strong net neutrality, big ISPs can demand potentially escalating fees for the interconnection required to deliver high quality service,” Hastings continues in the blog. “The big ISPs can make these demands -- driving up costs and prices for everyone else -- because of their market position.”

Comcast says it was playing by net neutrality rules (referred to here as “Open Internet,” another term for net neutrality). Connectivity issues are outside of that domain, it says.

“The Open Internet rules never were designed to deal with peering and Internet interconnection, which have been an essential part of the growth of the Internet for two decades,” says Comcast executive David L. Cohen in a blog. “Providers like Netflix have always paid for their interconnection to the Internet and have always had ample options to ensure that their customers receive an optimal performance through all ISPs at a fair price.”

“We are happy that Comcast and Netflix were able to reach an amicable, market-based solution to our interconnection issues and believe that our agreement demonstrates the effectiveness of the market as a mechanism to deal with these matters.”

This disagreement comes after a January court decision that struck down net neutrality rules the Federal Communications Commission adopted in 2010. This has allowed telecoms companies to demand extra pay for content providers with high data loads.

The FCC is in the process of drafting the next generation of net neutrality legislation. Friday is the last day the FCC will hear comments about the new laws.