Netflix's Hastings makes case for 'strong' neutrality rules

Net neutrality may be down for the count, but Reed Hastings is hoping it comes back even stronger.

In a post Thursday on Netflix’s corporate blog, the company’s CEO criticized the tolls being extracted by Internet service providers such as Comcast from companies such as his that transmit data to their networks. Hastings called on regulators to put in place rules that would bar such toll taking, warning that the fees would result in poor service for consumers, the potential blocking of Internet services they want to access and increased prices.

“Some big ISPs are extracting a toll because they can — they effectively control access to millions of consumers and are willing to sacrifice the interests of their own customers to press Netflix and others to pay,” Hastings said in his post. He added, “Consumers deserve better.”

Net neutrality is the umbrella term for a group of policies that seek to ensure that all traffic on the Internet is treated equally. Generally the provisions would bar ISPs from blocking or throttling any legal content or services sent to their customers or giving preference to any particular content service.

However, net neutrality is in a state of flux. Neutrality rules put in place by the Federal Communications Commission were struck down by a federal appeals court in January. However, the court laid out way for the agency to reinstate the rules, and its chairman has vowed to put some form of net neutrality back in place.

But those rules didn’t cover interactions on the back end of the Internet, between service providers and content providers or content distributors. Even if ISPs don’t discriminate against traffic when it’s delivered to consumers, they can effectively do the same thing via their connections with content providers. By restricting or blocking the flow at the back end of the Internet, ISPs could control what users can access.

Since the early days of the Internet, these back-end connections — called peering — were generally made without either side charging the other; each side paid its own cost of making the connection. The theory was that the amount of traffic sent in each direction would essentially balance out.

But in recent years, as video has become more prominent on the Internet and come to be dominated by Netflix and YouTube, those old peering norms have come into question. According to some reports, more than half of all North American Internet traffic at peak periods comes from Netflix and YouTube — far more than the traffic that the ISPs are sending back to those companies.

ISPs have argued that big Internet companies should pay for the disproportionate amount of traffic they are generating. As the ISPs have gained increasing control over the interconnection points on the Internet, their stance has taken on new force. Content providers like Netflix and YouTube generally can’t reach the customers of the big ISPs without going through their gateways. And because consumers generally have only one or two choices for broadband and are often locked into long-term contracts, they typically can’t simply switch to another provider if their ISP is offering a poor connection to Netflix or some other service they want to access.

Consumers got one of their first glimpses of this budding dispute between the ISPs and content providers earlier this year when Netflix reported that was seeing slower speeds to its customers on certain networks, including those of Comcast and Verizon. According to a report in the Wall Street Journal, Verizon and Netflix in particular were having a dispute about their connection with each other, with Verizon refusing to upgrade the connection to handle more Netflix traffic unless the streaming video provider paid for the improvement.

Netflix last month reached just such a deal with Comcast. Hastings argues that Netflix had little choice and that it will likely have to strike similar deals with other ISPs in the near future to continue to provide high quality streams to its customers. Those deals will likely affect the company’s revenue and profits in the future.

But Hastings argued that the tolls extracted by Comcast and other ISPs affect far more companies than just his. The danger is that the ISPs will start charging all content providers or their distribution partners. The result could be higher prices for all customers or situations like you get in the cable television industry where certain networks aren’t available because of payment disputes, he argued.

Only “strong” network neutrality rules — ones that would cover peering relationships as well as those to end customers — would prevent such situations, Hastings argued.

Meanwhile, Hastings shot holes in the ISPs arguments. Netflix isn’t “dumping data” on the ISPs; instead it’s serving the data that the ISPs own customers are demanding.

Anyway, the dispute really isn’t about unbalanced Internet traffic, he charged. Netflix could balance the traffic by moving away from its central distribution model, where its servers stream video to consumers, to a peer-to-peer system, where individual customers essentially act as distribution points that can both upload and download video at the same time. But the ISPs have shown no interest in that system, he said. And ISPs are pointedly not paying to deliver traffic to online backup services, even though their relationships are decided unbalanced in the other direction, he said.

Hastings’ arguments are obviously self-serving. But that doesn’t make them wrong.

One of the important points to note about Comcast is that even though the FCC’s net neutrality rules are generally defunct, they still cover the company, as a result of one of the concessions it made when acquiring NBC. If it can route around those rules to essentially accomplish the same thing — charging content providers to reach end customers — then others might also if the FCC is able to reinstate the rules more broadly. And while Comcast and friends might not target small Web sites or content providers directly, it’s already shown a willingness to demand tolls from distributors like Level 3 or Amazon, which could hurt small sites who depend on those services.

ISPs ought to serve as conduits for consumers to the information and services they seek — not as choke points. Hastings is right — it’s time for regulators to rein them in.

Troy Wolverton Troy Wolverton (252 Posts)

Troy writes the Tech Files column as the Personal Technology Columnist at the San Jose Mercury News. He also covers the digital media, mobile and video game industries and writes occasionally about Apple, chips, social networking and other aspects of technology. Previously, Troy covered Apple and the consumer electronics industry. Prior to joining the Mercury News, Troy reported on technology, business and financial issues for TheStreet.com and CNET News.com.