As you
know, the D.C. Circuit Court of Appeals has invalidated network neutrality
requirements that impose common carrier requirements. In this blog and elsewhere I predicted an
uptick in disputes between content providers and distributors in the absence of
unquestionable authority for the FCC to intervene if necessary.
To be clear I favor commercial
negotiations that typically resolve interconnection compensation disputes. However, I also suggest that the FCC have authority
to resolve intractable disputes as a referee and mediator.
So along comes another dispute
between Netflix and retail ISPs such as Verizon and Comcast. See Drew FitzGerald & Shalini Ramachandran, Netflix-Traffic Feud Leads to Video Slowdown,
The Wall Street Journal (Feb. 19, 2014); available at: http://online.wsj.com/news/articles/SB10001424052702304899704579391223249896550?mod=WSJ_hp_LEFTTopStories.
This really should not come as a
surprise, even as retail ISPs already receive compensation on both sides of
their two-sided market: 1) 3 digit margin monthly broadband retail
subscriptions; and 2) transit payments from ISPs, particularly Content
Distribution Networks for Netflix such as Level 3.
Retail ISPs want a third revenue
stream on some notion that content sources, such as Netflix, are “bandwidth
hogs” who should be throttled, or alternatively hit up for direct
payments. In particular it must tick off
senior management at ISPs, owned by cable television companies, to see Netflix
offer a $7.99 value proposition when cable content bundles are 10-15 times as
expensive.
I agree that a direct payment
should flow from Netflix if and only if
it directly interconnects with a retail ISP. If Netflix were to stop using CDNs and seek
to interconnect directly with ISPs providing the last mile delivery Netflix
surely should pay including the significant electricity used to power onsite
proxy servers.
But are retail ISPs right to demand
payment from both the directly interconnecting upstream ISP/CDN and even
farther upstream from the content source?
I don’t think so, but there’s
nothing stopping retail ISPs from trying.
Apparently Verizon and others can degrade Netflix traffic delivery—intentionally
or not—without much consumer pushback. When
consumers don’t get high resolution Netflix content, they do not even know whom
to blame. Has Netflix done something wrong,
or has the last mile carrier? Who
operates the weakest and inferior link when multiple ISPs participate in the
complete end-to-end routing of traffic?
Until retail ISPs lose customers or
the debate in the court of public opinion expect more interconnection
compensation disputes to arise and possibly mess with your Internet access experience.