Comcast Accuses Netflix of Manipulating Regulators' Review of TWC Merger

Netflix Ratings Final - P 2014
Illustration by: Tang Yau Hoong

Netflix Ratings Final - P 2014

Earlier this year, just days after Comcast announced a $45 billion deal to acquire Time Warner Cable, Netflix came to an agreement to get direct access to Comcast's broadband network to improve streaming speeds. That interconnect deal has been tremendously controversial — mixed up in the whole debate over net neutrality and a focus in regulators' review of the Comcast-TWC marriage. In fact, Comcast is now accusing Netflix of being up to no good with the sentiment appearing to be embraced by at least one FCC commissioner.

Both Netflix and Comcast have sharply different views of what caused the interconnect deal to happen.

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According to Netflix's petition to deny Comcast's takeover of TWC, the video streaming company was working with outside content delivery networks (CDNs) like Level 3 Communications and Cogent Communications, who were able to connect to Comcast's network for no charge. But after these networks began carrying Netflix traffic, Comcast began demanding a recurring fee. So Netflix began working on its own CDN, called "Open Connect." In response, Comcast suggested that Netflix return to using outside CDNs or pay Comcast an access fee, Netflix told the FCC.

Here's how Netflix describes what happens next:

"Despite purchasing transit on all available routes into Comcast's network that did not require direct or indirect payment of an access fee to Comcast, the viewing quality of Netflix's service reached near-VHS quality levels. Faced with such severe degradation of its streaming video service, Netflix began to negotiate for paid access to connect with Comcast. Netflix and Comcast eventually reached a paid agreement. Within a week of that agreement, viewing quality for Netflix streaming video on Comcast's network shot back up to HD-quality levels."

Now compare that to what Comcast told the FCC on Friday in response to one commissioner's question about the potential of a larger subscriber base meaning increased bargaining power by Comcast with CDNs and online video distributors.

The story that Comcast tells is quite different. "It was Netflix, not Comcast, that deliberately created congestion issues that degraded the performance of Netflix for Comcast customers (and customers of other ISPs) in an effort to force Comcast (and others) to provide Netflix with free interconnection services."

Comcast explains that Netflix was using outside CDNs before making a "unilateral business decision" to move to its own CDN. Netflix insisted on free interconnectivity, and when Comcast wouldn't agree, Neflix made a "deliberate choice to route its traffic to Comcast through only a small handful of select transit providers that did not have adequate capacity to handle Netflix’s volume of traffic." Comcast says that Netflix didn't have to do this — that the video streamer could have used less congested routes, but decided to go all in on Cogent, which Comcast adds in a footnote, resulted not only in Netflix suffering worse performance but also other Cogent customers like hospitals.

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To describe Netflix's tactic, Comcast throws around the weighted C-word — "coercion" — and while Netflix ultimately agreed to settle the dispute with an interconnect deal, Comcast appears to believe that Netflix is either attempting to unwind its February agreement or keep it and disadvantage other video providers with conditions on the merger.

Here's the biggest shot that Comcast takes at Netflix:

"Netflix’s decision to oppose Comcast’s proposed merger with Time Warner Cable is opportunistic. Not surprisingly, Netflix would prefer to pay nothing for services it receives from Comcast. Netflix apparently believes that it can achieve this goal by manipulating the merger review process for its own purposes. In fact, Netflix’s CEO expressly said as much in an email to Comcast executives, where he stated that if Comcast did not accept Netflix’s demand for free interconnection, then Netflix would 'have to protest the merger to increase the odds of winning the condition' through regulators. To be sure, free interconnection would be a good deal for Netflix and its shareholders. But it would not be a good deal for Comcast or its subscribers, who would ultimately be subsidizing Netflix’s business, whether they subscribe to Netflix or not."

There are other theories out there about the mystery of what caused Netflix videos to crawl across networks last winter. For example, after one independent researcher seemed to put the blame on Cogent's network, Cogent admitted that it was prioritizing its retail customers over its wholesale ones (like Netflix).

Nevertheless, the Great Netflix Slowdown has seemingly become part and parcel of larger fights.

In March, a month after the Comcast-Netflix interconnect deal was announced, Netflix CEO Reed Hastings wrote on the company blog that "strong net neutrality additionally prevents ISPs from charging a toll for interconnection to services like Netflix, YouTube, or Skype, or intermediaries such as Cogent, Akamai or Level 3, to deliver the services and data requested by ISP residential subscribers."

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Are interconnect deals and net neutrality related? That seems like a loaded question. When the FCC first promulgated its Open Internet Order in 2010 (the one that was knocked by a DC appeals court in January), FCC then-chairman Julius Genachowski commented, "A lot of people seem to think the whole peering and interconnection topic is the same as net neutrality. It’s not, it’s a different issue — it’s a cousin, maybe a sibling, but it is not the same issue."

Despite Comcast's pains in attempting to explain in February that Netflix would receive no preferential treatment from the interconnect deal, the controversial pact still is often put under the umbrella of net neutrality, which in turn, is causing a ruckus in both the ongoing reviews of new net neutrality rules and the Comcast-TWC merger.

Comcast has been blamed by many of being less-than-supportive of strong net neutrality rules. The heat goes two ways, it seems.

On Tuesday, FCC commissioner Ajit Pai wrote a letter to Hastings that mentioned Netflix's support for subjecting ISPs to public utility regulation, then stated, "For this reason, I was surprised to learn of allegations that Netflix has been working to effectively secure 'fast lanes' for its own content on ISPs' networks at the expense of its competitors."

Pai goes on to mention that Netflix's work adopting its own "Open Connect" system, which he says could amount to Netflix's videos running "the equivalent of a 100-yard dash while its competitors' videos would have to run a marathon."

That's about on par with what Comcast is accusing Netflix of doing.

Meanwhile, as this inside game occurs to spin these interconnect deals, the marriage of Comcast and TWC continues to get scrutiny.

On Wednesday, the FCC restarted the merger clock and gave outside parties a couple more weeks to weigh in. Already, a new coalition including Public Knowledge, Dish Network, the Writers Guild of America is stepping forward with their own arguments to block the deal while Comcast reiterates the benefits of a larger company and the support it has mustered.

Twitter: @eriqgardner