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To Level the Internet Video Playing Field, Must You Dismantle Traditional Pay-TV?

If Netflix CEO Reed Hastings has his way, AT&T’s U-verse TV subscribers could suddenly find themselves having to pay usage surcharges if their monthly TV viewing exceeds a certain amount.

That’s because, according to Hastings’ argument, if a broadband provider applies bandwidth-usage caps to Internet-delivered video — like his company’s service — it should be forced to also apply those to its own IP video services under the FCC’s network neutrality principles.

“It is important for the sake of public access that the rules apply equally,” Hastings said in an interview in the New York Times on Wednesday.

Actually, Hastings for the last several weeks has been trying to pick a public fight with Comcast, which as the largest pay-TV and broadband provider in the U.S. is a useful whipping boy for his purposes (see Netflix Packs On 1.7M Streamers In Q1, Gripes About Comcast’s Xbox App).

Comcast’s alleged crime: It is letting subscribers access VOD on Xbox 360 consoles — but isn’t attributing that usage toward the 250-Gigabyte cap on broadband users (see Hey, Keep Your Hands Off Your Network! and Is IPTV Fundamentally Anticompetitive?). The MSO also is prioritizing IP-based video delivered to customers’ Xboxes over other Internet video traffic, according to this blog by Bryan Berg, founder and CTO of development firm Mixed Media Labs.

Sony, meanwhile, also has complained about Comcast’s policy — see Sony Blames Comcast’s Caps For Holding Off On Broadband TV Service.

AT&T does much the same thing that Comcast is doing on Xbox, and first offered U-verse TV on Xbox consoles in October 2010 (see AT&T Gets Game On With U-verse TV On Xbox 360s). That usage doesn’t count toward the 250-GB cap AT&T put into place last year for U-verse Internet customers. AT&T dedicates a separate portion of the DSL connection to a subscriber’s home for IPTV, while all Internet traffic goes over a separate virtual connection.

The FCC specifically excluded managed services such as voice-over-IP and IPTV services like U-verse TV from its Open Internet order. In his opinion piece today, New York Times reporter Eduardo Porter calls such exemptions “loopholes” that make the FCC’s network neutrality regulation “appear weak.”

Porter argues that cable and telco providers’ Internet services should be regulated in the same way phone service is: “Fifty years ago, consumers were allowed to hook up only Bell telephones to their Bell phone lines. But in the 1960s, the F.C.C. and the courts forced the Bells to accept any device that didn’t threaten the network,” he writes. “The decision unleashed a torrent of innovation — including the answering machine, the fax and the first device that allowed us to explore what would become the Internet: the modem. Innovation online requires an open playing field, too.”

What network neutrality absolutists really want, then, is for broadband services to be treated as “dumb pipes,” and to forbid the companies that built those networks from dedicating any portion of them to private services.

Netflix obviously would benefit, because it would be on the same footing as the facilities-based TV providers. But would consumers be better off? It’s not clear we would.

Let’s say Comcast and AT&T were forced to offer their pay-TV services on the same best-effort basis as Netflix et al., and provide exactly the same bandwidth to the OTT providers as they do to their own services.

What would happen? Besides forcing cable companies to spend billions to move all their customers en masse to IPTV, broadband providers would eventually run out of space because Netflix, Sony, YouTube, Hulu, Apple, Amazon, Intel — any “virtual MSO” — would demand equal amounts of bandwidth for their own video services. That would leave less to go around for all broadband users, and ISPs would move to usage-based pricing tiers and/or time-of-day pricing.

The quality of traditional pay TV also would probably be degraded, since ISPs would be prohibited from prioritizing any traffic at all. And, arguably, such a dumb-pipe policy would give broadband providers less incentive to invest in their infrastructure and services that ride on it, since they would be barred from trying to profit from private, managed services.

Net neutrality fans like the metaphor of the level playing. But there’s another one to keep in mind: the tragedy of the commons.


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