Netflix to FCC: NBCU + Comcast could bypass net neutrality

In a world where Federal Communications Commission Chairman Julius Genachowski's six principles for net neutrality are enforced, everyone who makes a living on the Internet could conceivably be "unburdened by the unnecessary intervention of network operators or government regulators." The exception would be when a pipeline provider such as Comcast merges with a content provider such as NBC Universal, to make certain classes of content viewable online only when it designates. That's the opinion of attorneys for video rental service Netflix, in a filing last month with the FCC and recently made public.

"Netflix believes that the codification of the existing network neutrality principles, together with the addition of nondiscrimination and transparency, create an effective framework for preserving an open Internet," begins Netflix' filing, written last January 14 (PDF available here). "These rules will allow all parts of the industry -- network operators, consumer electronics manufacturers, and edge providers of content, applications, and services -- to continue to innovate at a rapid pace, unburdened by the unnecessary intervention of network operators or government regulators."

The exception is when a dominant network operator like Comcast puts together a service like TV Everywhere, its lucrative on-demand platform for Internet streaming of content to subscribers. In a strangely familiar sounding refrain, Netflix warns that a bundling of the operating system, so to speak, with content makes it difficult for other distributors of content to compete at the same level.

"By bundling the traditional cable TV offering with Internet delivery of content, vertically integrated MVPDs and network operators are potentially extending and expanding their dominant market position at the expense of competitive online offerings," Netflix' attorneys write. "Moreover, the recent announcement of the proposed merger of Comcast and NBC Universal serves to exacerbate the growing concern that MVPDs will use their control over programming networks to stifle competition, including the growing competition from online video providers like Netflix."

The company's attorneys particularly point to a clause in the FCC's notice of proposed rulemaking last October. There, the commission acknowledged that certain classes of service that use the Internet as their backbone, probably shouldn't be managed the same way as the Web (based on HTTP, just one of the Internet's many applications). So the FCC proposed the creation of a service class called either managed services or specialized services, that it describes as industries unto themselves, and as such, deserving of special recognition and treatment. VoIP service such as what Vonage provides, and multi-channel video offered by AT&T U-verse and Verizon FiOS, are obvious examples.

As the Commission wrote at the time (PDF available here), it was interested in public comment regarding how such services could remain managed while the Internet stays open: "We recognize that these managed or specialized services may differ from broadband Internet access services in ways that recommend a different policy approach, and it may be inappropriate to apply the rules proposed here to managed or specialized services. However, we are sensitive to any risk that the growth of managed or specialized services might supplant or otherwise negatively affect the open Internet. In this section, we seek comment on whether and, if so, how the Commission should address managed or specialized IP-based services in order to allow providers to develop new and innovative technologies and business models and to otherwise further the goals of innovation, investment, competition, and consumer choice, while safeguarding the open Internet."

That's precisely the section to which Netflix' attorneys responded: "Netflix is concerned that network operators will use so-called managed services in a way that harms unaffiliated content or service providers that compete directly with services provided by the network operator, owing either to their vertical integration...or resulting from competitive threats to their legacy 'managed services' business. This concern is heightened in light of the fact that such 'managed services' are offered over the same physical network as broadband Internet access."

The danger, Netflix believes, is that by even creating the exception class in the first place, the FCC could inadvertently create the very "fast lane" for the Internet that lawmakers in 2005, coining the phrase "net neutrality" for the first time, sought to avoid.

As legislative momentum for passing Pres. Obama's ambitious public agenda has slowed, public support for the President's policies as a whole, has waned. As a result, even net neutrality -- something seemingly unrelated to health care, jobs, and the fiscal deficit -- appears to have become yet another can to be kicked down the avenue, as yet another topic tied to Mr. Obama. Last week, as House members discussed the Comcast + NBCU consolidation proposal, even net neutrality's principal backers appeared unwilling to take their own side, enabling Republican opponents to resume their counterattack.

House Telecommunications and the Internet ranking member Cliff Stearns (R - Florida) began last Thursday's hearings by suggesting the entire net neutrality issue was being raised in the context of Comcast and NBCU just to be anti-competitive. Rep. Stearns cited the DC Court of Appeals, which last month indicated the FCC may not have enforcement rights with respect to how Comcast may deploy its Internet services.

"The Court, in fact, seemed skeptical that the FCC even had legal authority to impose these mandates. One of the judges asked the FCC counsel 'whether he wanted to lose on process or jurisdiction.' Unless a condition is narrowly tailored to a transaction's specific harm to competition, it does not belong in this negotiation," stated Stearns. "Since this deal will not materially increase concentration in either the distribution or programming markets, demonstrating such harm would be difficult, especially in light of the robust competition in the video sector...If Comcast and NBCU are right that this deal creates a stronger entity that can better serve viewers, I think it can succeed. If they're wrong, it will fail."

The ranking member of the Energy and Commerce Committee, Rep. Joe Barton (R - Texas, a former chair of the Committee), didn't have much to add besides a smile and a wink: "It's good to see NBC and Comcast sitting side by side. That doesn't break my heart."

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