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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