Netflix Seeks OVD Conditions on AT&T/DirecTV

Without Them, Merged Company Has Incentive, Ability to Harm Competitors

Netflix has told the FCC that without conditions guarding against what it suggests are anticompetitive paid peering and data cap practices, the FCC should not approve the AT&T/DirecTV deal.

In its initial comments on the proposed merger, which were due this week, the online video powerhouse said that AT&T has made it clear it sees OVD's like Netflix as a threat to their own video offerings and could and had used its market power to degrade customers Netflix access until Netflix agreed to pay "a terminating access fee" (paid peering).

It said that without conditions to insure OVD competition, the combined company has the incentive and ability to harm edge providers, practices that will not be "disciplined" by competition in the broadband market.

AT&T has countered that given Netflix's increased volume of traffic to AT&T--by some estimates more than a third of U.S. downloads at peak periods, it should be paying the freight.

"When Netflix delivered its movies by mail, the cost of delivery was included in the price their customer paid," AT&T D.C. exec Jim Cicconi blogger back in March in response to a post by Netflix founder Reed Hastings. "It would’ve been neither right nor legal for Netflix to demand a customer’s neighbors pay the cost of delivering his movie.  Yet that’s effectively what Mr. Hastings is demanding here, and in rather self-righteous fashion.  Netflix may now be using an Internet connection instead of the Postal Service, but the same principle applies.  If there’s a cost of delivering Mr. Hastings’s movies at the quality level he desires – and there is – then it should be borne by Netflix and recovered in the price of its service.

In a blog posting, Fred Campbell, director of the Center for Boundless Innovation, argues that it was Netflix clogging the pipes to push peering as a network neutrality issue in Washington. Asked if the company had any reaction to the blog, a Netflix spokesperson said no:. Our filing speaks for itself." That filing being that it is AT&T doing the clogging to force peering payments.

In its comments, Netflix points out that the FCC has yet to address the terminating access fee issues, and that the fate of the Open Internet rules is unclear.

FCC chairman Tom Wheeler has signaled the FCC needs to look into any potential anticompetitive effects of paid peering, but has also said he does not think the Open Internet rules is the right venue--those rules deal with customer-facing (last mile) blocking and discrimination, rather than traffic exchanges among ISPs and edge providers at their interconnection points.

Given that regulatory uncertainty, Netflix says, the FCC needs to use deal conditions to insure that an AT&T/DirecTV can't abuse" its control of Internet traffic, "whether over its mobile or fixed wireless networks, or whether over the last mile or at interconnection points.