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Netflix to FCC: Kill Comcast-TWC Deal

Alan Breznick
8/28/2014
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Formally joining the chorus of critics to Comcast's proposed takeover of Time Warner Cable, Netflix is loudly calling on the FCC to reject the deal out of hand.

In a 256-page petition filed with the Federal Communications Commission (FCC) late Monday, Netflix Inc. (Nasdaq: NFLX) urged the Commission to block the $45 billion merger of the two largest US MSOs because of the power that the combined company would have over interconnections and the US broadband market.

The filing warns that the proposed new Comcast Corp. (Nasdaq: CMCSA, CMCSK), with control of nearly 40% of the nation's broadband households, would have an even greater ability to block online video rivals and degrade rivals' content than it already has.

"Unsurprisingly, given their dominance in the cable television marketplace, the proposed merger would give applicants the ability to turn a consumer's Internet experience into something that more closely resembles cable television," Netflix argues in the petition. "The combined entity would have the incentive and ability -- through access fees charged at interconnection points and by other means -- to harm Internet companies, such as online video distributors (OVDs), which applicants view as competitors."

In the FCC filing, Netflix also reiterates its oft-stated complaint that both Comcast and Time Warner Cable Inc. (NYSE: TWC) have already shown their broadband market power to degrade online video content and obtain paid peering payments from a reluctant Netflix. The filing notes that Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T), the other two US broadband providers that have struck pay-for-peering pacts with Netflix, have demonstrated the same market power. (See Netflix, TWC Sign Pay-to-Peer Deal.)

"In Netflix's experience, there are four ISPs that have the market power to engage in degradation strategies to harm OVDs," the filing states. "Two of those four propose to merge in this transaction. Consequently, the proposed merger would significantly strengthen the harms to consumers and to Internet content distributors, such as OVDs."


Get the latest updates on the pay-to-peer and net neutrality battles by visiting Light Reading's OTT content channel.


Looking back 14 years for a policy precedent, Netflix notes that the US government intervened in 2000 when the two largest MSOs -- then AT&T Broadband and MediaOne -- sought to strike a similar merger deal. With those two companies then controlling nearly 40% of the nation's broadband households through separate entities, the filing says, federal regulators forced the applicants to divest one of the two broadband businesses before they could combine.

With its filing, Netflix joins such other staunch critics as Dish Network, Consumers Union, Common Cause and the National Organization for Women. New York City Mayor Bill de Blasio is also seeking to block the merger. In all, more than 60 groups are urging the FCC to either halt the proposed $45 billion deal or impose major conditions and restrictions on the new entity.

In a lengthy corporate blog earlier this week, Comcast EVP David Cohen pointed to the support the merger has received from more than 200 groups and brushed aside "negative comments" by deal critics as "the same discredited arguments that we've demonstrated consistently don't have any merit." He reiterated that Comcast "remains committed to a free and open Internet and supports the FCC putting in place strong, legally enforceable open Internet rules" that would "apply to all companies."

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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jabailo
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jabailo,
User Rank: Light Sabre
8/28/2014 | 2:29:33 PM
Re: Netflix
Well, again, many of the large web portals are based on the idea of existing content.  Google provides searches on content created by others.  And the majority of those searches are directed to other portals like Wikipedia.   Netflix remarkes video information.  Amazon remarkets book content.

These players are precipitously perched on claims of value that will be harder to justify as networks do their own OTT but more so if content creators also figure out how to go direct to the consumer.

 
jabailo
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jabailo,
User Rank: Light Sabre
8/28/2014 | 2:26:30 PM
Re: Netflix
Amazon is in the same boat as far as e-content.

Both Netflix and Amazon started their business in the 3D world for media.

They operated physical fulfillment services, one for CDs, the other for books.

But with online media, storage becomes virtually free.  That leaves processes like DRM, payment and organization or cataloging.

But how long before the content creator can simply put his creation up there and call these services in the cloud?

 

 
dwx
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dwx,
User Rank: Light Sabre
8/28/2014 | 12:28:17 PM
Re: Netflix
Netflix operates at a level above the physical infrastructure piece, they have chosen to not play there and it has improved their bottom line.  

However, Netflix has done a lot in the open source community in a variety of ways when it comes to software, databases, infrastructure management, etc.  It doesn't make sense for them to build their own datacenters or colocate with others versus using something like AWS.  They have built some great AWS management tools which are widely used by others today.  They started the whole "Chaos Monkey" paradigm as well and it has helped avance how others look at building resilient system components.  They also do a lot of R&D into streaming, but honestly why look at anything but off the shelf?  

Now they have had some well-known outages due to AWS and the fact it wasn't resilient... 

Build their own network?  Netflix has their own nationwide network when it comes to content delivery.  No one apart from Google is going to look at building access networks, that's just a foolish endeavor at this point due to cost.   

Netflix's future IMHO is in producing their own content and becoming another HBO/Showtime/etc. and also partnering with the access ISPs to deliver additional content.   Unless the FCC intervenes and changes the landscape by making interconnection settlement-free.  
KBode
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KBode,
User Rank: Light Sabre
8/28/2014 | 12:20:06 PM
Re: Netflix
That's a good point. Though if there's clear evidence that peering points aren't being upgraded it seems like it shouldn't take regulators all that long to act to protect competition (then again, it IS the FCC I'm talking about, so I should know better).
jabailo
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jabailo,
User Rank: Light Sabre
8/28/2014 | 11:25:45 AM
Re: Netflix
If the FCC allows these super mergers, and, as we read in Light Reading, carriers are now starting to provide their own OTT content services, Netflix would seem to have two options.  Forever have their profits eaten away by "tolls".  Or use their cash hoard to acquire or build their own Network.  

For a company as pervasive as Netflix they don't seem to have advanced their key technologies -- networks, SDN software, video rendering, streaming protocols -- very much at all.  They aren't doing research or spending money on anything that isn't off-the-shelf (Amazon Cloud, Microsoft Silverlight).

Yes, they have started creating their own content, the front end.  But it seems like they are techno-peasants when it comes to the platform on which they reside!

 
Matt Cramer
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Matt Cramer,
User Rank: Light Beer
8/28/2014 | 11:16:21 AM
Re: Netflix
I don't think paying off an extortionist weakens your right to complain about extortion.

On the contrary: If Netflix had refused to pay and continued with business as usual, the argument could be made that they had not been materially harmed by the ISPs' (allegedly) underhanded business practices.
mendyk
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mendyk,
User Rank: Light Sabre
8/28/2014 | 8:41:09 AM
Netflixed
With friends like these .... I know NFLX is riding very high right now in terms of share price, but its long-term business prospects are far from certain, and not because of any fees it may have to pay to secure premium bandwidth service. Success in online video distribution hinges almost entirely on the quality and quantity of online video there is to distribute, and NFLX will have plenty of competition in this regard. Ironically, it will thrive only if it can severely limit the competitive field -- kind of like what it's accusing broadband providers of doing.
KBode
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KBode,
User Rank: Light Sabre
8/28/2014 | 8:35:08 AM
Netflix
Netflix complains, but I'm still not sure why they'd complain -- and then immediately turn around and pay ISPs for direct interconnection. If they really believe ISPs are allowing peering points to saturate intentionally, they could have continued to highlight this fact while providing continued documentation on what the large ISPs are allegedly doing. By complaining and then turning right around and signing these deals, it feels like Netflix's position is weakened?
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