Verizon, Netflix Clash on Service Issues - Analyst Blog

After Netflix, Inc.'s NFLX accusation of Verizon Communications Inc.'s VZ clogged broadband network affecting the former's video streaming services, it was Verizon's turn to lash out at Netflix.

Verizon retaliated on an alleged error message: "The Verizon network is crowded right now” sent across to Netflix customers while streaming sluggish online videos.  

The conflict between the two companies heated up after a screenshot of this message was posted on Twitter's TWTR social networking site. While both Netflix and Verizon are engaged in a war of words, it is expected a negative propaganda on Verizon's broadband quality would likely hurt its reputation as an Internet provider in the U.S. in turn, potentially forcing the company to enter a legal battle.

Reportedly, Verizon has already sent a letter with a 5 day-notice to Netflix demanding an immediate stop on accusations related to the poor quality of video streaming, failing which Netflix might face a lawsuit.

The company has demanded from Netflix a list of those users who were shown the error message. Furthermore, Verizon has also asked Netflix to provide solid evidence to validate its charges on Verizon's poor service which supposedly caused a slow down in content delivery. 

However, this “cease-and-desist” letter sent out by Verizon hardly made an impact on Netflix. Netflix's spoke person Joris Evers blames Verizon of not entertaining any discussion, while Netflix tries to be more transparent on this issue.

While the relation between the two companies currently stands on a discordant note, in April this year, both had agreeably entered into a pact to bring more fluidity in delivering online video content. Verizon had reportedly stated to stand by the agreement in the coming months.

Apart from Verizon, Netflix has similar network enhancement agreements with broadband service provider, Comcast Corp. CMCSA, which was forged after experiencing issues in content delivery to customers using Comcast's Internet services.

However, Netflix still lists Verizon's FiOS service below all major cable companies in its ISP (internet service provider) Speed Index, though FiOS services offer speed that matches cable modem download speeds in many key markets.

In the context of content delivery, Verizon and Comcast both have unanimously stated that cost of speedy Internet service should be borne by the video delivering companies such as Netflix, in this case. However, Netflix has a different stance on this as it asserts that the cost should be borne by Internet companies as consumers who are using broadband for viewing online videos are not being catered with what they have been promised.

The latest battle between one of the largest Internet service providers and a content delivery company highlights the complex network arrangement in the Internet world. Given the rise of data consumption and increasing demand for online video streaming, we can only expect things to become worse in future if no transparency is maintained between the carrier network and the online video streaming company's internal network management.

We believe a proper solution to this issue can be obtained through appropriate agreement between companies. However, a defined structure formulated by governing bodies can help ease out such unwanted tensions arising between network operators and content providers as well as aid end users, who are the ultimate victims of such constant fiasco.

Verizon currently has a Zacks Rank #3 (Hold).