Netflix's 'anti-competition' charges against telcos a lot of hooey

Jim O'Neileditor's corner
It's been a busy month for Netflix (NASDAQ:NFLX), and we're not even halfway through it.

The company Monday saw its stock price top $300 for the first time ever, despite news that the company could pay up to nearly $2 billion in content acquisitions costs by 2012, more than 10 times what it currently pays. Over the weekend, the company revealed it wouldn't be in the bidding for Hulu, which confirmed this month it was looking for a buyer.

Friday, Netflix's General Counsel David Hyman, in a Wall Street Journal op-ed piece, wrote that the recent adoption of bandwidth caps by some operators in the U.S. was "bad news" for consumers and that it would throw a wrench into the "innovation powering today's Internet economy."

Pay-TV operators, Hyman, wrote, claim bandwidth is a scarce commodity, one that needs caps and usage charges to help ease network congestion. And he calls operators' arguments bunk.

"Wireline bandwidth is an almost unlimited resource due to advances in Internet architecture," he wrote. "Adding more capacity is easy. The marginal cost of providing an extra gigabyte of data--enough to deliver one episode of ‘30 Rock' from Netflix--is less than one cent, and falling."

AT&T's (NYSE:T) new excess charge for its U-verse and DSL customers, about 20 cents per gigabyte, is "20 times the price of providing the service," he wrote.

To a point, Hyman is correct, although he chooses to ignore that AT&T and other operators do have associated costs with providing the service.

But where his argument starts to go awry is when he describes consumption-based billing as anticompetitive.

"With online-content delivery providers like Netflix and voice services like Skype experiencing explosive growth, competitors see consumption-based billing as a convenient way to slow that growth by making the use of online services more expensive," Hyman contended.

What AT&T and other pay-TV providers are doing by raising fees for data usage is simply recouping their investments in their networks and making sure revenue--at a time when subscribers are becoming more fickle and content costs are rising--continues to increase.

As Netflix's content costs continue to rise and they institute tiered-programming rates, it's doubtful that anyone in the service provider segment is going to make a ruckus and call the tiers anticompetitive. They're going to simply call it what it is: business.--Jim

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