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Netflix-Comcast Deal Threatens Internet Innovation


There is nothing wrong with the Netflix-Comcast deal. It’s no violation of net neutrality. But it illustrates the fragile nature of innovation on the Internet, and it’s a problem that only government regulation can solve.

Comcast customers who also subscribe to Netflix should applaud a deal between the two companies reported this weekend, wherein Netflix will pay Comcast for bandwidth used. Comcast customers will see faster access to streaming Netflix video as a result of the deal.

In a press release Sunday, Comcast hastened to reassure the public that there’s nothing shady going on. The two companies “have established a more direct connection between Netflix and Comcast, similar to other networks, that’s already delivering an even better user experience to consumers, while also allowing for future growth in Netflix traffic,” the release said. “Netflix receives no preferential network treatment under the multi-year agreement.”

Everything here does seem to be above board. This is not a case where an Internet service provider (Comcast) is giving special treatment to a preferred service to the detriment of that service’s competitors. This appears to be a peering arrangement of a type that goes back decades in Internet history. Two networks of comparable size will exchange traffic for free if each is sending roughly the same amount of traffic to the other. However, when the relationship is disproportionate, the network that sends significantly more traffic will often write a check to the receiving network to cover the costs. It’s kind of like if everybody is going to a potluck dinner. If everybody brings the same amount of food that they eat, that’s OK. But if one person habitually eats more than he brings, everybody else might ask that person to pay some money just to keep everything fair.

So what’s the problem here? The problem is that, with Comcast’s proposed merger with Time Warner Cable, Comcast will control 30 million US customers. That is an awful lot of power in the hands of one company. Comcast has not abused that power — today. But it may well abuse that power tomorrow.

And that is the real problem that neutrality regulations are designed to address. Free markets work well when consumers have freedom of choice. Right now, broadband consumers in America do not have that choice. At best, they can choose between a cable company that provides higher-speed Internet access (but nowhere near the high speeds and low cost available elsewhere in the developed world) or a telephone company that offers lower speeds. Wireless connections are great for phones but prohibitively expensive for home Internet access involving much video streaming.

Internet access is a monopoly. And monopolies require regulation — or breaking up.

One attractive proposal is for government to control the physical fiber-optic Internet lines and open those pipes to any Internet service provider. This is not unprecedented. It’s how the road system works. Roads are run either by government outright or by the private sector under government control. Business vehicles travel those roads and vie for consumer business under the free market. FedEx, UPS, and your local pizza places are all delivering product using public roads. Everybody wins.

The Internet is too important to be left under the control of a few big companies wielding a monopoly power without accountability to the public. Net neutrality is an incredibly complicated issue, and I don’t claim to have the answers. But I know a bad answer when I see it. One bad answer is for the government to keep its hands off the Internet entirely and let the free market work. Because Internet markets today are not free. Government regulation would not stifle the free market. Government needs to step in to create a free market for Internet access.

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, editor in chief, Internet Evolution.

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