Bad Timing: Comcast, Netflix, NN, Cable Modems, and NBCU
[Source: Susan Crawford Blog, by Susan Crawford, November 29, 2010]
Comcast, the largest broadband provider, largest pay-TV company, and third-largest telephone company in the country, distributes communications services to more than a third of the country. Today Comcast’s existing overwhelming market power was on display in major public battles with (1) Level 3 and (2) cable modem manufacturer Zoom.
The takeaway from today: No market forces are constraining Comcast - or any of the other major cable distributors, none of which compete with each other. How will consumers and innovation be protected from their machinations? The FCC is currently facing two defining moments in US telecommunications policy, and it’s unclear what the Commission is going to do in either case. Will the FCC act to relabel high-speed Internet transmission services, reversing the radical Bush-era deregulatory turn? Will the FCC block the Comcast/NBCU merger? Can we expect that anything will happen (at all) to ensure that local monopoly control over communications transport isn’t leveraged into adjacent markets for devices and content?
What will the legacy of the FCC be, as the looming cable monopoly stops looming and starts muscling levers into place?
Brian Stelter has an excellent overview of the Level 3/Netflix issue here. Briefly, relationships between the big pipes that travel between cities aren’t regulated by the FCC. The assumption has been that there is enough competition to keep everyone working well together - and that they can make their own arrangements for “peering” (free exchange of traffic) and “transit” (asymmetrical traffic that costs money to pass through the gates) without oversight.
There are sharp limits to this competition that can no longer be ignored. Level 3 just ran into a wall with Comcast and felt it had no choice but to cave. Until November 19, Level 3 was treated as a peer by Comcast - no payment exchanged, the two networks just sent traffic back and forth. On November 19, Comcast demanded that Level 3 pay for transit to Comcast’s subscribers. No big deal, right - a private arrangement. But the Comcast demand happened hard on the heels of Netflix’s announcement that it was going to be moving its streaming business from Akamai to Level 3. Just eight days after that announcement, Comcast lowered the boom on Level 3.
Then, three days following Comcast’s request for payment from Level 3, Netflix announced it was moving to a $7.99/month streaming plan. (I immediately signed up.) Comcast then apparently said the demand for payment from Level 3 was take-it-or-leave-it. No negotiation.
Now, there are different versions of what happened here. The crucial, undeniable core of all this, though, is that Level 3 didn’t feel it was being treated fairly but also felt it had no choice but to knuckle under. If it wanted to reach Comcast’s 25 million subscribers, it had to do the deal on Comcast’s terms.
Comcast, for its part, has an undeniable motive to serve its TV Everywhere plans (described here) by making it expensive for Netflix to reach its subscribers.
Comcast is now wearing more hats than any terrifying Hydra - if a Hydra wore hats.
So it isn’t surprising that another one of Comcast’s market-powerful dimensions came into play today. Zoom, a competitive maker of cable modems, has had enough - so it has filed a petition before the FCC. Have you noticed how much it costs each month to rent your cable modem from your carrier?
Zoom would like to be able to sell you a cheaper modem at Best Buy or any other retailer. But it keeps running into testing issues. And then more testing issues. And then a final set of tests run by Comcast itself, for which Comcast charges $25K, that can only happen when Comcast says they can, and that take nine weeks. It took Zoom five months to introduce a DOCSIS 3.0 modem this year - much longer than they had planned.
And when it wanted to introduce a new DOCSIS 2.0 modem (for slower speeds, for people who don’t want to pay as much), Comcast dragged the process along and raised innumerable hurdles. Zoom maintains that Comcast is requiring all kinds of things that have nothing to do with preventing harm to Comcast’s network or theft of Comcast’s cable signals. Zoom says that’s against the law.
Maybe Comcast just doesn’t want cheaper devices out there.
Look, these may sound like small things. So Comcast doesn’t want to connect to other networks or other devices without its terms being met - big deal. But these are precisely the kinds of schemes that the old pre-divestiture AT&T carried out with aplomb and great seriousness of purpose for decades.
This is how companies that don’t face competition act.
It may be that transmission service is so expensive to install and needs to be at such a large scale in order to be maintained that it is, indeed, a natural monopoly. If we have gotten to that point (and I think we have), then regulatory oversight needs to be in place to protect consumers and innovation.
