March 21 (Bloomberg) -- Netflix Inc. called for rules that would prevent Internet service providers from extracting a toll to deliver shows such as “House of Cards” over their networks.
Consumers face poor service if online providers don’t agree to pay companies like Comcast Corp. (CMCSA:US) and Verizon Communications Inc. (VZ:US) for priority connections, Netflix Chief Executive Officer Reed Hastings said in a blog post yesterday. His commentary was filed to the Federal Communications Commission, according to Jonathan Friedland, a spokesman for the Los Gatos, California-based company.
With the post, Hastings staked out a position that could save the world’s largest subscription-video service millions of dollars a year in fees it recently agreed to pay.
“Without strong net neutrality, big ISPs can demand potentially escalating fees for the interconnection required to deliver high quality service,” Hastings wrote. “The big ISPs can make these demands -- driving up costs and prices for everyone else -- because of their market position.”
So-called net neutrality gained attention after Comcast’s agreement to buy Time Warner Cable Inc. (TWC:US), which would concentrate Internet access. While Hastings didn’t mention the deal, which was announced on Feb. 13, he cited Comcast as one of the companies that supports weaker rules.
“Comcast has been an industry leader in supporting weak net neutrality, and we hope they’ll support strong net neutrality as well,” Hastings said.
The issue Netflix is highlighting is outside the open access rules that Comcast has openly supported, David Cohen, a Comcast executive vice president, said in response to Hastings’s comments. Instead, the handling of Internet traffic is part of the normal business between companies that own broadband networks and companies that want to use them, he said.
“Providers like Netflix have always paid for their interconnection to the Internet and have always had ample options to ensure that their customers receive an optimal performance through all ISPs at a fair price,” Cohen said in an e-mailed statement.
Dallas-based AT&T, in a response today, said Hastings is trying to push the cost of the bandwidth used by Netflix customers onto all Internet users, not just his subscribers.
“Mr. Hastings’s arrogant proposition is that everyone else should pay but Netflix,” Jim Cicconi, a senior executive vice president at AT&T, said in a blog posting. “That may be a nice deal if he can get it. But it’s not how the Internet, or telecommunication for that matter, has ever worked.”
Netflix in February agreed to pay Comcast millions of dollars annually for more-direct connections that ensure improved speed and reliability for its video service.
By doing so, Netflix freed itself to lobby for stronger protections without endangering service to its customers, said Andy Hargreaves, an analyst for Pacific Crest Securities in Portland, Oregon.
“You pay to do the deal so that when you start rattling the cage they can’t screw you even more,” Hargreaves said.
Netflix’s service improves once it agrees to pay ISP fees, Hastings said in his posting. He also said intermediaries such as Cogent Communications Group Inc. (CCOI:US) and Level 3 Communications Inc. (LVLT:US) face similar costs.
Consumers already pay for fast Internet service so providers such as Netflix, Google Inc. (GOOG:US)’s YouTube or Microsoft Corp. (MSFT:US)’s Skype shouldn’t also have to pay, Hastings said. For a given U.S. home, there are often only one or two choices for high-speed access, which makes it hard to switch, he said.
“While in the short term Netflix will in cases reluctantly pay large ISPs to ensure a high-quality member experience, we will continue to fight for the Internet the world needs and deserves,” Hastings said.
In January, Verizon won an appeals court challenge to U.S. equal-treatment rules for the Internet, a decision that predated Netflix’s deal with Comcast.
In yesterday’s posting, Hastings didn’t call directly for government intervention. The company is taking its fight to the consumer in an attempt to get them to seek change from lawmakers, said Daniel Ernst, an analyst at Hudson Square Research in New York.
“This is a battle for public opinion that’s going to take a very long time to play out,” Ernst said. “Rather than futilely attempting to wage battle in court, they trying to get consumers to push Congress to make reforms to net neutrality.”
Netflix fell 4.3 percent to $405.99 at the close in New York. The stock has gained 10 percent this year. Comcast fell 1.2 percent to $50. AT&T rose 0.6 percent to $34.30.
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