Net Bias and the Treatment of 'Mission-Critical' Bits
47 Pages Posted: 25 Mar 2014 Last revised: 18 Aug 2014
Date Written: March 24, 2014
This paper assesses whether and how ISPs can offer service enhancements for particular types of traffic and customers without harming competition among content creators and distributors. The paper will use the recent paid peering agreement between Netflix and Comcast as a case study. The paper concludes that the Federal Communications Commission (“FCC”) largely lacks jurisdiction to establish anti-discrimination rules so that ISPs will be able to discriminate on price and quality of service with only questionable options for consumer protection. The paper also concludes that network bias does not always serve anticompetitive goals, nor does it always result in an unlevel competitive playing field. Because attempts at network bias may result in beneficial or harmful impacts on consumers, the paper suggests that a regulatory referee remains necessary to offer timely resolution of disputes about what constitutes fair network bias particularly for the carriage of bandwidth intensive video content.
The Internet increasingly provides an alternative distribution medium for video and other types of high value, bandwidth intensive content. While many consumers have become technology agnostic about which wireline or wireless medium provides service, they expect their video service providers to offer access anytime, anywhere, via any device and in any distribution format. These early adopters of new technologies and alternatives to “legacy” media have no patience with the concept of “appointment television” that limits access to a specific time, on a particular channel and in a single presentation format.
Already some video content consumers have “cut the cord” and abandoned traditional video media, such as broadcast, satellite and cable television. A new generation of “cord nevers” will avoid monthly payments, instead opting for on-demand options.
New distribution media have the ability to deliver “mission critical” bits requiring highly reliable conduits for the immediate (“real time”) transmission of video content and their instantaneous display. Internet Protocol Television (“IPTV”) and Over-the-Tope Television (“OTT”) can offer new options for consumers to view “must see” television, such as live sporting events, along with the downloading of files containing less time sensitive and less valuable content.
This paper will examine any publicly available information about the Netflix-Comcast peering agreement with an eye toward assessing the balance of power between content providers and distributors on one hand and last mile, retail ISPs on the other hand. Because Netflix has agreed to pay Comcast a surcharge, the paper suggests that last mile connectivity now provides retail ISP with great negotiating leverage particularly when upstream ventures balk at paying surcharges for “better than best efforts” routing.
Keywords: paid peering, network neutrality, open Internet, bottleneck, next generation networks, information service
JEL Classification: K23, L82, L96, L98
Suggested Citation: Suggested Citation