Netflix CEO Calls Interconnection Fees An "Arbitrary Tax"
Hasting’s blog post stems from the deal Netflix inked with Comcast (NASDAQ: CMCSA) this past February in which Netflix agreed to pay Comcast for faster broadband delivery of its streaming content. The practice is known as an interconnection fee.
According to Hastings, interconnection fees are nothing more than an "arbitrary tax" companies like Comcast force providers like Netflix to pay in order to provide adequate service to their customers.
In the post Hastings said, “The Internet is improving lives everywhere – democratizing access to ideas, services, and goods. To ensure the Internet remains humanity's most important platform for progress, net neutrality must be defended and strengthened.”
In addition to Comcast, Hastings cited AT&T as an example of companies that support “weak” Internet traffic rules that result in the interconnection fees.
In the post, Hastings referenced a recent Wall Street Journal article he said “chronicled this degradation using our public data.”
The article discussed the conflict between Netflix and Verizon regarding who should pay for infrastructure upgrades necessary to carry streaming services like Netflix. This debate lies at the heart of the interconnection fee conflict.
Netflix said its average prime-time speeds dropped 14 percent in January as customers tried to watch the new season of the provider’s hit series, House of Cards.
As The Wall Street Journal pointed out, the “who pays” discussion would only become more intense as regulators mull over the proposed merger between Comcast and Time Warner Cable, two of the country’s largest providers of broadband signals.
Hastings’ point, that free interconnection was key to ensuring "net neutrality," brought up the government’s “Open Internet” rules, to which Comcast said it had a strong commitment.
In fact, an appeals court struck down the rules in January, but Comcast said it would follow them anyway as part of an agreement with the government when it acquired NBC Universal.
Comcast executive VP, David Cohen told Reuters the “Open Internet” rules were not meant to cover so-called “interconnection fees.”
And therein lies the conflict.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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