There's no joy at Netflix (Nasdaq: NFLX) today: The FCC rejected CEO Reed Hastings' request to regulate interconnects between the various networks that make up today's Internet. The online video provider had pushed for the expanded net neutrality rules so that it would no longer have to pay a toll to access Comcast's (Nasdaq: CMCSA) network.
FCC Chairman Tom Wheeler told reporters that the FCC has no plans to expand net neutrality rules. The commission is reworking its Open Internet Order after a federal court struck down the rules that required Internet service providers to treat all network traffic equally. However, according to the National Journal, Wheeler said essentially that "the government has a critical role to play in overseeing how networks connect to each other."
A spokesperson later clarified to the Journal that: "Peering and interconnection are not under consideration in the Open Internet proceeding, but we are monitoring the issues involved to see if any action is needed in any other context." That opens the possibility that the commission could negotiate interconnection deals between websites and ISPs.
Netflix had agreed to pay Comcast an undisclosed amount for better access to its subscribers who connect to the Internet via the cable operator's broadband network. That agreement happened after more than two years of squabbling over Netflix's ever-increasing bandwidth consumption versus Comcast's valuing of its network capacity.
On March 20, Hastings published a blog post on Netflix's site calling for expanded regulations that would address data traveling along network "backbones," sometimes called the Internet's middle mile, and onto various ISP-owned networks. "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. Instead, they must provide sufficient access to their network without charge," he wrote.
He pointed out that at certain unnamed ISPs, "Netflix performance has been constrained, subjecting consumers who pay a lot of money for high-speed Internet to high buffering rates, long wait times and poor video quality."
The post caused quite a bit of discussion and not a few responses. Comcast EVP David Cohen told C-SPAN that Hastings' comments were "hogwash," saying Netflix pushed for the access deal.
AT&T's (NYSE: T) Jim Ciccone argued that ISPs have to bear the cost of upgrading infrastructure, an expense that ultimately is handed down to their customers.
"(I)f Netflix is delivering that increased volume of traffic to, say, AT&T, we should accept the fact that AT&T must be ready to build additional ports and transport capacity to accept the new volume of capacity as a consequence of Netflix's good business fortune," he wrote. "And I think we can all accept the fact that business service costs are ultimately borne by consumers."
GigaOM's Stacey Higganbotham said that Wheeler's statement was no surprise, given the commissioner's "ambivalence around network neutrality and reluctance to make ISPs too unhappy with new rules that would make ISPs into common carriers (subject to stringent rules about how they carry traffic and interconnect)."
Netflix will release its first-quarter earnings results on April 21.
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