Updated: Netflix CFO Says Pressing FCC for Title II Broadband Regs Was Not Its Preferred Option

Updated: Netflix CFO Says Pressing FCC
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Netflix CFO David Wells, in comments at an industry conference, said the company would have preferred that broadband Internet service not be regulated by the U.S. government as a telecommunications utility — but that after some Internet service providers required payment to deliver video traffic, he was happy with the FCC’s recent “Open Internet” ruling.

“I would say we are very pleased with what’s been accomplished,” Wells said Wednesday, speaking at the 2015 Morgan Stanley Technology, Media & Telecom Conference in San Francisco.

At the same time, Wells said that the FCC’s order reclassifying broadband as a telecom service under Title II of the Communications Act was not, in fact, Netflix’s preferred outcome. While the streaming-video company wanted to see “strong” net neutrality measures to ensure content providers would be protected against ISPs charging arbitrary interconnection fees, Netflix ultimately wanted the situation resolved without government intervention.

“Were we pleased it pushed to Title II? Probably not,” Wells said at the conference. “We were hoping there might be a non-regulated solution.” (An archived recording of the session is available here.)

Last year, Netflix urged the FCC to reclassify broadband as a telecom service, under Title II of the Communications Act. In a July 2014 filing, Netflix said that “Title II provides [the FCC with] a solid basis to adopt prohibitions on blocking and unreasonable discrimination by ISPs. Opposition to Title II is largely political, not legal.”

The FCC on Feb. 26 approved new network neutrality rules, by a 3-2 vote, that will treat broadband services like traditional phone services under Title II, although those will restrict the commission from imposing rate regulation, tariffs or limits on bundling. Big ISPs like Comcast and Verizon had argued strenuously against such a reclassification.

A Netflix rep said there has been no change in the company’s stance vis-a-vis Title II regulation of broadband. “Netflix supports the FCC’s action last week to adopt Title II in ensuring consumers get the Internet they paid for without interference by ISPs. There has been zero change in our very well-documented position in support of strong net neutrality rules.”

Netflix’s advocacy of regulating broadband under Title II regs carried a caveat: It had said the FCC could use Title II as a way to adopt net-neutrality protections that were previously struck down in federal court, but that the agency could stop short of using “overreaching regulation” and that it “could go further only in the face of truly troubling actions on the part of Internet access.”

There already is a market-based solution to the issue: for high-volume services to pay Internet service providers (or third-party content delivery networks) fees for guaranteed bandwidth to avoid congestion at interconnection points. And in fact, Netflix has opted to pay ISPs directly, although begrudgingly. Last year, the company cut deals with several big ISPs — including Comcast, AT&T, Verizon and Time Warner Cable — under which it is paying for dedicated interconnections. Those deals are to ensure Netflix has enough bandwidth to deliver high-quality streaming video to its subscribers.

One unintended effect of the FCC regulating Internet services under old-style phone rules is that it might let ISPs demand they be paid by upstream content companies — by default — for “edge services,” Google warned in a filing with the commission last month prior to the vote.

“To the extent the Commission encourages the falsehood that ISPs offer two overlapping access services and instead of just one [i.e., for downstream users], or the fiction that edge providers are customers of terminating ISPs when they deliver content to the Internet, it may encourage such attempts at double-recovery,” Google said.

How the FCC’s new “Open Internet” order specifically classifies the status of edge-service agreements is not fully clear, as the agency has not released the actual order yet. But in a press release announcing the vote, the FCC said, “Under the authority provided by the Order, the Commission can hear complaints and take appropriate enforcement action if it determines the interconnection activities of ISPs are not just and reasonable.”

Last September, Netflix participated in a symbolic Internet “slowdown” to urge the FCC to adopt more robust net neutrality rules that would forbid ISPs to charge for so-called fast lanes.

[Correction: An earlier version of this story quoted Netflix’s David Wells as saying: “We were hoping there would be a non-regulated solution”; in fact, he said, “We were hoping there might be a non-regulated solution.”]

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  1. Enzo says:

    So he had no idea that if he gave the government an inch that they’d take a mile? And he still has a job?

  2. My understanding is that the purpose is to protect citizens, not the bottom lines of Netflix or Comcast.

    • Evan Rogers says:

      If you actually think the government is interested in protecting the citizens, then you haven’t been paying attention for the past 80 years of US history.

  3. vrajavala says:

    I can’t believe a big company like Betglix could be so stupid to teust governmfnt regulation. STUPID

  4. Dondiff says:

    You don’t like your ISP, you change suppliers. You don’ like government intervention You… “Oh never mind.”

    • meka says:

      Change suppliers? You do realize that one of the main things ISPs were doing that warranted this action was shuffling around customers to avoid competition, right? That means you would only have one ISP in your area. That means no options. Take a look at any publicly documented instant where a startup ISP popped up somewhere and provided such better service than say, Time Warner, that everyone started to switch. Time Warner then took that ISP to court and whined non-stop to get their way, which was to unjustifiably shut down the new ISP because it was taking the customers that were fed up with their poor service. These new regulations make sure they can’t do that.

      • Will says:

        The government does not enforce things like the TWC/Comcast monopolies. They agree to that themselves.

        Look up what happens when a local government tries to set up a county/city wide internet… Comcast/TWC sues them!

      • Evan Rogers says:

        … and then you remember that there’s only one or two providers in a given area because of government.

        Government: the obvious solution to government.

      • Mike says:

        Local government protected monopolies of ISPs prevent competition. Get rid of the government protection of entrenched interests instead of allowing bureaucrats to control business decisions.

  5. seannc says:

    This reminds me of how the labor unions all came out SCREAMING for Obamacare. They demanded that it be passed into law. They campaigned hard for it. Then when it passed these same unions were OUTRAGED that Obamacare heavily penalized their “Cadillac” health plans and demanded to be exempt from it. You’re a bunch of idiots Netflix and and all I can say is, “Ahahahahahaha!”

  6. Larry says:

    Reminds me of the old tale about the man who picked up the frozen snake, took it inside and nurtured it back to health only to be surprised when it bit him. However, he knew it was a snake when he picked it up.

  7. Jason MacKay says:

    This all started when people started to cancel their cable television because they could just watch stuff online. Comcast and the rest of them saw that one of their business segments (Internet service) was catering to the destruction of their other business segment (television). In response, they pretended there were congestion issues so they could create an environment of poor quality for anything that competed with their cable TV. This is proven by people who would have their Netflix buffer all of the time when connecting directly to the site, only to have the “congestion issues” miraculously disappear when they streamed the EXACT SAME CONTENT through their ISP while going through a VPN. It’s unfortunate it has come to this, but it’s become a necessary evil.

    What we’ve got here is… failure to communicate. Some men you just can’t reach. So you get what we had here last week, which is the way he wants it… well, he gets it. I don’t like it any more than you men. — Captain, Road Prison 36

  8. Political Girl says:

    Netflix has now learned that in exchange for government protection, you gotta pay the protector.

  9. tlsnyder42 says:

    This is a tyrannical gov’t takeover of private property. It isn’t democracy; it isn’t something that should happen in a constitutional democratic republic worthy of the name. But, this is what you get when you vote for leftist loons like Barack Obama and Hillary Clinton, who only want money and power so they can control us. The “Republican” leaders in Congress are either gutless wimps or traitors. The “press” is neither free, nor objective, much less “fair,” honest, incorruptible, or just. Welcome to Big Brother. Where are Snowden and Greenwald now?

  10. Clement Cherlin says:

    “Were we pleased it pushed to Title II? Probably not,” Wells said at the conference. “We were hoping there would be a non-regulated solution.”

    It seems to me that he was expressing his disappointment with the big ISPs for going to such extreme lengths in an attempt to maintain their ability to abuse their market power to extract economic rent from his company. But he’s not gonna say that in those words, because Netflix still has to work with the big ISPs. He didn’t want to unnecessarily antagonize them.

    He didn’t apologize for fighting and didn’t apologize for winning. He wasn’t pleased that there was a fight over what should be a non-issue: ISPs shouldn’t charge third parties for their own customers’ bandwidth use.

    Netflix pays its colocation hosts for upstream data usage. Netflix customers pay ISPs for downstream data usage. The backbone providers set up peering agreements, which may or may not involve money changing hands. That should be it. There’s no excuse for an ISP to charge Netflix to allow traffic that the end-user has already paid for at both ends! Customers pay ISPs for the ability to receive data at certain rates. Customers pay Netflix to send them data upon request. It’s both unethical and, once again, illegal for ISPs to demand double payment for the same service.

    The big ISPs fought tooth and nail to be able to set up protection rackets on the Internet. We fought back and we won. But in the meantime, Netflix spent time and money fighting legal and technical roadblocks that it wouldn’t have had to if the big ISPs had been willing to negotiate in good faith.

    So yeah, he’s not pleased. Who would be?

  11. Danofive0 says:

    The US and the Net is fuc$%d now.. And your day’s of the good old net are about to be gone.
    When Comcast takes over Time Warner.. That will be it. The Caps on your net use will kick in. Your speed will go t hell.. Your service will suck. Your bill will go up.. And you can that the Idiot FCC & fool’s on the hill for all this….
    Welcome to fuc$#ED up USA..

    • Jason MacKay says:

      You can always tell a Republican in the bunch. It’s odd that something as remote as a post about Internet service would cast light on how a person votes, but the always-loud “the world is coming to an end” speech tends to give it away every time.

      • It’s Danofive0’s post that makes a number of wild predictions with no real rationale presented. Jason is pointing out the obvious — no need for rationale if one has some thinking, working gray matter.

      • Adam Jenson says:

        You can always tell when there is a liberal in the bunch. In addition to a a total lack of logic liberals always favor giving the government more power. Then when the government screws up their solution is to give the government more power and completely ignore the real source of the problem.

  12. D says:

    So, he wanted Title II status (“net neutrality measures”) but not Title II regulation (something-something–ooh-probably-Bad”).

    Okay … In the meantime, he’d do well to read up on the FCC’s frequently stated desire to use “forbearance.” Might help with the ‘ol understanding.

    Last time I checked, Reed Hastings spoke “for Netflix.” Stick to finances, Mr. Wells. Company policy ain’t your thing.

  13. Bill says:

    Too late; you got what you asked for and the Internet (at least in the US) as a whole will suffer as a result.

  14. Too effing late Netflix. Once you surrender control to the government, you Never get it back.

  15. wilb says:

    Aw, naw! Netflix. I backtrack from paying for your services. But you can just lobby government to mandate I pay for your business after I stop with another “shared responsibility charge” and empower the IRS to fine me on my tax forms. Shucks!

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