AT&T, the Netflix Compromise, and the Future of Net Neutrality

Eileen Meng Lu |

Netflix stream service, netflix agreement AT&T, Netflix Comcast, internet content providers

After signing interconnection deals with Comcast (CMCSA) and Verizon (VZ) , AT&T’s (T) latest deal with Netflix (NFLX) to make its stream service faster added fire to the already hotly debated issue of net neutrality.

Reluctant Deal

Netflix announced on July 29 that “we reached an interconnect agreement with AT&T in May and since then have been working together to provision additional interconnect capacity to improve the viewing experience of our mutual subscribers.”

Indeed, Netflix requested free broadband service from AT&T in March, but was rejected. With the deal, Netflix can charge higher costs to make sure the company’s streaming videos are delivered to its subscribers with reduced buffering and delay.

After reluctantly signing the deal, Netflix fired back that broadband companies should be responsible for net neutrality. Netflix said it shouldn’t have to pay Internet Service Providers, because consumers already paid for internet access.

Broadband companies’ charging fees to differentiate the quality of internet traffic has been under criticism for a long time.

In July 2014, 36 major web companies in The Internet Association, including Google (GOOG) , Netflix, Amazon (AMZN) , Facebook (FB) and Twitter (TWTR) urged the Federal Communications Commission to ensure net neutrality.

“The Internet is threatened by broadband Internet access providers who would turn the open, best-efforts internet into a pay-for-priority platform more closely resembling cable televising than today’s internet,” the group said.

A Brief History of Net Neutrality

FCC first enacted net neutrality rules in 2010 that ensured broadband providers could not block or discriminate online content services. The US Court of Appeals threw out the rules for the D.C. Circuit in January 2014, following Verizon’s court challenge to the equal equipment rule. Verizon’s winning left companies like Netflix Inc., eBay (EBAY) and Amazon.com the prospect of facing higher charges for faster service.

The newly-enacted rules proposed by FCC’s Chairman Tom Wheeler under section 706 of the Communications Act aroused massive backlash since it could give rise to “paid prioritization.” New rules opened a door to charge websites for differentiated traffic speed to deliver content. Neutrality advocates argue that the new rules fall short of Title II reclassification that prevent net operators from blocking or discriminating against traffic. More than 1.1 million people comments to FCC asking for reclassification. FCC said they would reply some of the comments through September 10.

Net Neutrality Debate Hasn't Cooled Down

Whether net neutrality should be enacted has aroused heated discussion. Supporters include end-users, Internet content providers, and online services like Amazon, Google, eBay, customer rights organizations, as well as non-profit organizations that call for Open Internet Order. Opponents are primarily those large cable and telecommunications companies like Verizon, Comcast, AT&T, and other cable companies who prefer to provide speed lanes based on price.

Although they have been criticized for squeezing money from customers’ pocket, cable and telecommunications companies have another good reason. Companies opposing Title II reclassification said it would allow "unprecedented government micromanagement of all aspects of the Internet economy."

House and Senate GOP leaders also sent FCC Chairman Wheeler a letter warning him not to cultivate a monopoly-era to the Internet. They believe over-highlighting the free and open internet will kill investment in the broadband networks.

On July 30 the FCC sent a strongly worded letter to Verizon denouncing the company’s policy on data throttling for more profits. Addressed to Verizon’s CEO Daniel Mead, Wheeler questioned the company’s recent announcement to slow down some customers’ data speeds on their 4G LTE network starting in October 2014. Verizon hasn’t respond to this letter. 

Critics speculated that Wheeler’s inclination towards Internet openness could be just talking, because for years Wheeler was a lobbyist for cable companies. While users are praying for their voices being heard, it seemed that Internet fast and slow- speed lanes, or the antithesis of net neutrality, would be allowed.

Telecoms Spending Big Money in Fight

On July 28, in a letter to progressive online groups Senate Majority Leader Harry Reid said he would support FCC if decided to promulgate Open Internet Rules again. In his words, he will "lead the fight to protect any Open Internet rules promulgated by the FCC against the inevitable Republican attack against such rules." 

Reid said that because many Republican lawmakers would oppose net neutrality rules whatsoever. For example, according to the statistics of the Center for Responsive Politics, Vice President of the House Energy an Commerce Committee, Tennessee Republican Marsha Blackburn received donations from AT&T and Verizon in the respective amounts of $66,750 and $59,650 for her campaigns. She also called net neutrality rules “socialistic.”

However, some have suspected Reid’s stance could be just for show, because it doesn’t necessarily to be a political flight over the order. Some Republicans said they would be apoplectic if the FCC treated the internet like a utility.

With the white-hot debate continues unabated, all eyes are on the FCC. The final rules concerning net neutrality are expected to be enacted by the end of 2014.

 

 

 

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 115.40 0.30 0.26 25,070,364
TWTR Twitter Inc. 17.93 -0.10 -0.55 12,208,682
AMZN Amazon.com Inc. 740.34 -3.31 -0.45 3,561,307
VZ Verizon Communications Inc. 49.81 -0.06 -0.12 10,650,716
GOOG Alphabet Inc. 750.50 2.58 0.34 1,452,484
NFLX Netflix Inc. 120.81 3.59 3.06 8,953,590
T AT&T Inc. 38.61 -0.27 -0.69 16,102,161
CMCSA Comcast Corporation Class A Common Stock 68.78 -1.08 -1.55 13,361,365
BUF:CX2 Buffalo Coal Corp. n/a n/a n/a n/a

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