Credit: Alan Levine via Flickr, Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)
President Obama recently announced his plan to regulate the Internet under Title II of the 1934 Communications Act. This law nurtured America's telephone monopoly for 50 years. Under the president's plan, Internet service would be treated like a public utility, subject to rate regulation and state utilities commission oversight. The plan Obama proposes to prevent Internet service providers (ISP) from playing favorites with content ironically reveals him to be playing favorites with content providers such as Netflix.
Indeed, Obama's plan includes a goodie that Netflix has been lobbying for: Federal Communications Commission (FCC) oversight of Internet transit and interconnection, an efficient market that has never been regulated since the advent of the Internet.
To create the impression that it is being oppressed by ISPs, Netflix employs a tactic that it might have borrowed from its popular show Orange Is the New Black. In that series' second season, prison guards were given "shot quotas" -- they had to record five inmate infractions per week. Both guards and inmates know that the writing of shots is not an accurate reflection of inmate behavior, but quotas give the appearance that the prison system is doing its job.
The Netflix version of shot quotas is its ISP Speed Index, a pseudo-transparent ranking of speeds that it uses to shake down ISPs that are reluctant to adopt its proprietary content delivery network, Open Connect, rather than alternatives. In truth, speed and quality of streaming video are based on a complex set of factors that have little to do with the broadband package that people buy.
Even more egregious is Netflix's waging of a global campaign under the guise of Net neutrality. It has hijacked the concept's language, using the terms "freedom of speech" and "digital commons" in an attempt to win regulated price controls. What Netflix paid its transit providers for in the past it now wants to get for free. Yet, even as it praises the virtues of the open Internet, it shows a low regard for transparency as it applies to itself. Its covert political spending put it dead last in the 2014 CPA-Zicklin Index of Corporate Political Disclosure and Accountability.
Networks generally exchange traffic on a settlement-free basis, meaning that there are no capacity fees if the amounts exchanged are equal. In rare cases, such as with Netflix (which accounts for 35% of all US Internet traffic), the parties negotiate an agreement so operators can provision extra capacity to manage the load. But here's the rub: by regulating interconnection at the price of zero, instead of Netflix bearing some of the cost of interconnection, all of an ISP's customers, whether or not they watch Netflix, foot the bill. Incidentally the upgraded network is largely idle during the day, since Netflix traffic spikes from 8 p.m. to midnight.
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