Netflix CEO Says Comcast Imposed An “Arbitrary Tax” In Interconnection Deal

Will Netflix end up challenging Comcast’s $45.2B deal to buy Time Warner Cable? It didn’t look that way last month when they made what they described at the time as a “mutually beneficial” interconnection deal that involved Netflix payments to Comcast. But the streaming video company’s chief Reed Hastings cast the agreement in a different light in a blog post today. He called the payments an “arbitrary tax” that he had to pay to improve the quality of transmissions which had slowed on the cable company’s systems. “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 says. He also called this a net neutrality issue, even though it involves Netflix transmissions to Comcast — not the ones the cable company sends to subscribers. Without what he calls “strong net neutrality,” major Internet providers including Comcast “can demand potentially escalating fees for the interconnection required to deliver high quality service.” That will drive up consumer costs: “For any given U.S. household, there is often only one or two choices for getting high-speed Internet access and that’s unlikely to change. Furthermore, Internet access is often bundled with other services making it challenging to switch ISPs. It is this lack of consumer choice that leads to the need for strong net neutrality.” Comcast, he says, “has been an industry leader in supporting weak net neutrality.” Netflix “in the short term” will “in cases reluctantly  pay large ISPs to ensure a high quality member experience” while it lobbies “for the Internet the world needs and deserves.”

Comcast’s chief policy exec, EVP David Cohen, fired back that “There has been no company that has had a stronger commitment to openness of the Internet than Comcast.” Due to a 2011 deal to win FCC support for its acquisition of NBCUniversal, Comcast is “the only ISP in the country” bound by the FCC’s Open Internet rules. But they “never were designed to deal with peering and Internet interconnection.” Netflix and other content providers “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.”  Cohen says he’s “happy” that his company and Netflix reached “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.”

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