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Guest Host: Marc Fisher
We take it for granted: the Internet as the great equalizer. We can read email, visit websites and watch videos without any one activity getting preferential treatment in the way its data is delivered to our computers. But a recent court ruling involving Verizon and the FCC and a deal between Netflix and Comcast are raising fears that so-called net neutrality could be in danger. Tech Tuesday explores the reality behind the headlines and the landscape for Internet service providers.
- Dan Rayburn Principal Analyst, Frost & Sullivan; He writes about the streaming and online video industry
- David Cohen Executive Vice President, Comcast
- John Bergmayer Senior Staff Attorney, Public Knowledge
MR. MARC FISHERFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. I'm Marc Fisher of The Washington Post sitting in for Kojo. Coming up this hour, it's something we take for granted. For two decades, the internet has been wide open, with every site available on equal terms. It doesn't cost anymore to surf YouTube videos than it does to read email or stream radio shows like this one. And internet service providers, like Comcast and Fios, don't favor one type of content over another in how quickly they deliver it to our screens.
MR. MARC FISHERBut equal treatment of internet traffic may be at risk after a recent court ruling involving Verizon, as well as a new business deal between Netflix and Comcast. On this "Tech Tuesday," we'll look at net neutrality and the emerging competition between different kinds of digital content, each fighting for prime access to your phone and computer. Are the salad days of internet service coming to an end? And what is the right role for government regulators? Joining me in studio to talk about this is John Bergmayer.
MR. MARC FISHERHe is Senior Staff Attorney for Public Knowledge. Good day to you.
MR. JOHN BERGMAYERThanks for having me in here.
FISHERAnd Dan Rayburn joins us by phone. He is a Principal Analyst for Frost and Sullivan, a market research firm in New York. Welcome.
MR. DAN RAYBURNThanks for having me.
FISHERWell, John Bergmayer, let's start with you. Net neutrality is, generally, I think, accepted as an awful name for something that can really change how users experience the internet. So, what is it? And what's the looming problem out there?
BERGMAYERYeah, exactly. To try to explain to people what net neutrality is -- my organization even started a website that just has one sentence on it, which is, whatisnetneutrality.org. And the idea is basically that, your internet service provider, the person who provides you broadband access to the internet, shouldn't pick and choose and influence what you do on the internet. They're providing you just a basic communication service, and what you do with it is your own business.
FISHERSo, it's a pipe into your house, and the pipe ought to be open to anyone on an equal basis. Dan Rayburn, when we call up a website, it's not so simple as the communication coming from, say, YouTube directly into your home. Rather, it goes from the content producer to the internet service provider. It then delivers it to our computer, like through Comcast or Verizon Fios. But there's also a third party involved, and who is that? And what do they do?
RAYBURNWell, there's lots of third parties involved. There's a couple different ways to deliver content directly into your internet service provider that you see. One is you can use a third party content delivery network, what we call a CDN. So, folks like this radio show, Fox, Disney, Viacom, Major League Baseball -- almost all the major sites out there, they use third party CDNs. What they're doing is...
FISHERAnd CDN stands for...
RAYBURNContent Delivery Network. So companies like an Akamai, Edgecast, the Limelight Networks, they offer service where they will deliver content owners' content to the ISPs, and they've already set up servers and bought other network resources that connect the ISPs. That's the way most video today is delivered. However, if you are a large company like Netflix, Microsoft, Google, there's only a handful of them, they actually go out and build their own content delivery networks. And then what they do is they either connect to the ISPs directly, like we just saw with the Comcast/Netflix deal.
RAYBURNOr they connect through third party companies that are called transit providers.
FISHERAnd so, is the nature or quality of that third party what determines how quickly and well the content comes into the user's computer, or, I mean, what's the variable here?
RAYBURNWell, there's many factors. That is one of the factors. But, there's a lot of different pieces behind the scenes that determine the a consumer's gonna get. So, the first thing is just, on the consumer's end, the type of computer you're using, the platform they're on, whether they're having issues over Wi-Fi. Are they connected via Ethernet? Then you have the actual capacity of the ISP, locally, that they're using. Then you have the capacity between the ISP and the transit providers. And then you have, between the transit providers and CENs.
RAYBURNSo, there's a lot of pieces there. It is one of the major connection points between networks, which is, that's what's called transit. So, the whole reason Netflix decided to skip the middle man and go directly to Comcast is an improved quality for the end users, and it's a cheaper cost for Netflix overall.
FISHERSo this deal that was just signed between Comcast and Netflix, John Bergmayer, this eliminates that middle man. Netflix content goes directly into the Comcast pipeline. So, what -- how will that work and what impact is that likely to have on consumers?
BERGMAYERYeah, that's right. I mean, at some point, there are physical, actual networks. There are computers that need to be attached to each other and there are real costs associated with that. So, the idea of that -- Netflix is paying Comcast or Comcast would pay Netflix -- from a consumer perspective, it doesn't really matter. What does matter, and what worries me, is the fact that Comcast is so large that they currently control about 20 million broadband providers. If, after, if the merger between Comcast and Time Warner Cable goes through, it will upwards of 30 million.
BERGMAYERThen, when you're looking at the market in the United States for high speed bundled video and cable content, you'll have a single provider with access to more than half of the households, and it will be the top provider in 19 of the 20 top markets in the United States. So what I'm saying is that company has a lot of leverage. So, then the worry is not that Netflix is paying for the right to connect. It's paying the cost to the electricity in servers and labor to make those connections happen.
BERGMAYERThe worry is that Comcast or another large ISP might start selling access to its customers. In other words, we want ISPs to be in the business of selling internet access to users, not selling user access to other internet companies.
FISHERIs there -- is that a theoretical worry, or are there cases where providers have actually favored large companies over mom and pop websites?
BERGMAYERThere have been an increasing number of complaints and rumblings from the people who need to connect with end user networks like Comcast over the past several years. Now, I don't think, you know, just for the record, that this particular deal between Netflix and Comcast -- it certainly has drawn a lot of peoples' attention to the issue, but especially given the fact that Comcast has to go before regulators to get its merger approved, I think it is very likely, though we don't know the terms of this deal, that they're not so bad for Netflix.
BERGMAYERHowever, there are other network companies like Cogent Communications, who have been very vocal and complaining that Comcast is trying to extract uncompetitive rates. We don't know, because these deals are all secret, so there's no way to judge. We just have one company -- one company's word against another's.
RAYBURNWell, we do know that the information is out there. I've actually put an estimate on it on my blog. We do know the size of Comcast network. We know the size of Netflix traffic on any given night, based on Sandvine statistics. And we know what the average cost is for transit. So, if we use transit as an example, it'll cost Netflix around 12 million dollars this year, based on three gigs of -- three terabytes of through put. So, there is a lot of talk out there by people saying these deals are secret. They're new. No one knows how they work. This is how the internet's worked for 20 years. In 1998, you had Yahoo and AOL cutting deals directly with ISPs.
RAYBURNSo, you know, it's interesting that nobody complained when Google cut a deal with Comcast many years ago. They're only just now complaining when Netflix does it. So, I think a lot of it has to do with the TWC merger, and that's okay.
FISHERThat's Time Warner Cable.
RAYBURNRight. Time Warner Cable. That's a good discussion to have, but it's really a separate discussion from the Comcast and Netflix deal.
FISHERWell, we can bring our audience in here. If you'd like to join our conversation, if you think the Comcast and Time Warner Cable deal is one that should be allowed to go forward, let us know. What's your biggest concern about equal access on the internet? Give us a call at 1-800-433-8850 or email us at email@example.com. You can also send a tweet to @kojoshow. And John Bergmayer, this explosion in the number of people streaming videos -- I've read some accounts that Netflix accounts, during some hours of the day, for 30 percent of the traffic on the internet. This has obviously fueled interest among service providers in making deals like the one we saw between Netflix and Comcast.
FISHERWhat does it mean for competition when you have these companies pushing out the middle man and working together?
BERGMAYERYeah, that's right. I mean, I think that the reason this Comcast/Netflix news has gotten a lot of publicity is not just the merger. It's also the FCC's recent court loss on net neutrality, and it's also the fact that Netflix itself has become very prominent in cultural consciousness with original programming like "House of Cards." People can't stop talking about how many people are streaming Netflix video all at the same time. And an interesting things about Netflix is, if you remember a few years ago, they tried to spin off their DVD plan.
BERGMAYERAnd they changed their pricing plan, and there was a lot of customer outrage and they lost a lot of customers, and their stock tanked. And they've only recently recovered. Now, that shows that on the online side, it's a competitive market, and if you don't do the right thing, your customers can just abandon you. And now, contrast that with your broadband provider, where if you're not happy with your Fios service or your Comcast service, you might not even have any options to switch to.
BERGMAYERSo when I'm looking at competition, I look at the online space where competition isn't perfect. You have some companies that have a lock on a lot of users and it's hard to switch away from. But for the most part, competition online is quite vibrant, while in the internet access space, your broadband, your cable TV space, there never really has been very much competition, and there still isn't. We had a brief period in the 1990s where people had a lot of dial up ISPs that they connected to over the phone network, which was the neutral network at the time. We've lost all that.
FISHERAnd so, John Bergmayer, is there, as you look at what consumers are going to face, do you have concern that they will have to pay more as providers will use this deal to move toward more usage based pricing? In other words, the more you eat, the more you pay. And why shouldn't that be the case? Why shouldn't you have to pay more if you use more data?
BERGMAYERWell, there's really nothing wrong with charging different people different rates for access to the internet. Most of the usage based plans we've seen, the actual ones that have been introduced in the marketplace, are -- we have no idea how they're set and they don't seem to be tied to any actual constraints on the network. However, charging people different speeds -- if you want faster internet access, you pay more. That makes sense to people. That's immediately apparent when your video is streaming faster.
BERGMAYERThe problem with usage based -- cumulatively, over a month, is you're charging people using the internet at three AM -- you're counting that against the tally. They might find that they go over two weeks in and not really understand why.
FISHERLet's turn now to David Cohen. David Cohen is Executive Vice President of Comcast, and he's joining us by phone. Welcome.
MR. DAVID COHENGood to be on.
FISHERWell, we're talking, obviously, about still a relatively new technology here, but if we look back to what happened in the evolution of cable TV, which started out as a kind of utopian ideal of niche choices, elite arts channels, a whole range of sort of flourishing democracy and weird backwaters. And then it gradually kind of homogenized and consolidated -- more control in the hands of a small number of companies, and ever increasing prices. Is that a reasonable analogy to what we're now seeing happening in the world of internet service providers?
COHENSo, I'm not sure -- I mean, in fact, I know I would not agree with that as an accurate characterization of the history of cable. I think you're mixing distribution with content. In fact, I think the most important channel for the launch of cable television was not a niche foreign channel. It was HBO.
COHENThat's ultimately -- and remember, the birth of cable was all about bringing broadcast television into communities and towns where they had imperfect access to over the air broadcasts. I actually view the growth of the cable industry as, you know, a great American success story. An industry that has absolutely fostered diversity of voice, diversity of opinion. All of those niche networks that people like to watch. I think the cable industry has done more to generate diversity of voice on television than any industry in America. And I think that continues to be the case.
COHENIt is clearly an odd industry, because the cable -- the television and the cable industry do not compete against each other. That is, Comcast -- let's take the current transaction as the example. Comcast has no competitive overlap with Time Warner Cable. There isn't -- people in America don't have a choice of buying Comcast or Time Warner Cable and after this transaction, as a result, there won't be any reduction in choice from the perspective of the consumer. There is a lot of competition in this space, however. It's just that the competition does not come from cable company to cable company. It comes from cable company to satellite to Telco to online video distributor. That's where the competitive dynamic plays out, and this transaction does not affect any of those competitive dynamics.
FISHERWell, what are the advantages then? I mean, obviously to Comcast you've determined that it's advantageous for you, but what would this mean for Internet customers of both Time Warner Cable and Comcast?
COHENRight. So I think that's the great question, and I've got to start from the proposition that -- start from the negative, which is there's no adverse competitive impact from this. But the answer is, there is a lot of pro-competitive and pro-consumer upside, and it falls in a number of different buckets. Four to be precise. So let me start with consumers. You know, people like -- some people like to say that big is bad, but there are some places where big is really good, and in high investment, high capital intensity industries with high levels of R & D, big can be a huge advantage.
COHENIt's the scale that Comcast is on that has enabled it to innovate and to build out its networks faster and more robustly than any other cable company in America. It's why we offer faster internet speeds today across the country than in virtually all Time Warner Cable markets, and Time Warner Cable is a good cable company with a lot of investment, and they've done a lot of enhancements too. But our additional investments in the network have provided faster internet speeds across the country than what exist in Time Warner Cable markets.
COHENSo by accelerating that investment in the Time Warner Cable footprint, making Time Warner Cable all digital and Docsis 3.0 compliant faster than it could be otherwise, consumers in Time Warner Cable systems will see more channels, more high definition channels, and more internet speed than they would see without the benefit of this transaction. And, by the way, and Comcast customers will see some of the technological advances from -- on the Time Warner Cable side like Start Over, while Time Warner Cable customers will see the next generation products that Comcast is rolling out years ahead of the rest of the cable industry like our X1 platform and cloud DVR.
COHENSo customers are going to get a better experience, more advanced products, they're going to get them faster, more channels, more high def channels, and more internet speed. Then you go to bucket two, to small or medium size businesses. This is a market where cable is the upstart, and our entry into that market has resulted in competition in that market for the first time, lower prices, more responsive service, more imaginative and creative services for small or medium sized businesses. And this transaction will broaden our ability to compete in that market, particularly for regional and superregional business...
COHEN...who may cross our footprint or the Time Warner Cable footprint. Those businesses still only have one choice typically for their high speed data, telephone, and video service, and that is a Bell, and by introducing us as a competitive force in that market, we expect to be able to bring the same competition that we have brought on the small side of the small- and medium-sized business market. The third bucket is advertising. This transaction will put together another national advertiser, which we think injects additional competition into the national advertising market, and would have consumer benefits through driving down the cost of advertising through the additional competition.
COHENAnd the last bucket is the extension of Comcast's substantial community investment programs and our public interest benefits that we committed to in the NBC/Universal to the Time Warner Cable footprint, and those commitments include commitments to localism, to children's programming, to CVOD and additional VOD programming.
FISHERVideo on Demand.
COHENVideo on Demand. And to diversity and broadband adoption. And I just -- we're having a big day in Washington today. We just announced the extension of our Internet Essentials Program which is the nation's largest and most comprehensive broadband adoption program. We've scheduled it to expire at the end of this summer, and we have announced that we are extending the program indefinitely, and we have previously said that we will bring that program into the Time Warner Cable footprint, and so by the way, this is the other place where big is really good, because we'll be able to extend the benefits of this incredible program which is making a real impact on internet access for lower income Americans to 19 of the 20 largest cities in America.
FISHERWe're talking with David Cohen. He's executive vice president of Comcast. I'm Marc Fisher, and this is "The Kojo Nnamdi Show." And David Cohen, I want to turn to the deal that Comcast signed with Netflix, and why this is a good business decision and what it will mean for Comcast customers who watch Netflix movies and TV shows.
COHENSo I'll -- we should probably have a separate call on this, but I'm going to give the 30,000-foot answer to that, which is you got to the bottom line right at the end, which is this deal will mean a much stronger and enhanced customer experience for Comcast customers who are viewing Netflix. The reasons for that is because of the direct arrangement between Netflix and Comcast, we'll be able to cooperate, and we'll know when there are increases in traffic flow. We'll be able to design the network to be able to accommodate that, and so our customers should now have a superior Netflix viewing experience to what they were experiencing before.
FISHERAnd so does that mean that, I mean, there have been folks who have said that Comcast demanded that Netflix agree to this. How did the deal actually come about?
COHENRight. So there's a, you know, there is a -- there has been a vast amount written about this, mostly by about people who have no understanding whatsoever of the network or the internet or the way the internet works. So this may be headline news, but since the internet started, businesses like Netflix and Google have paid for traffic, have paid for transit of their traffic to the network. This is not about charges to Comcast customers for viewing Netflix over the internet. It's not about charges over Comcast's last mile. This is about how does Netflix get its traffic to the network.
COHENAnd since the beginning of the internet, companies like Netflix have paid to have their traffic transmitted to the internet. Once it is on the internet, then that is where so-called principles of net neutrality and open internet come into play. So Netflix has been paying transit providers since the beginning of the service to transmit their traffic to the network. All this deal involved was Netflix, instead of paying transit providers to transmit their traffic to the internet, they are paying Comcast instead of the transit providers.
COHENAnd the direct relationship, Netflix believes is in their interest and Comcast believes it is in our interest, simply because Netflix is such a large contributor of traffic to the network. By having the direct relationship, we can better work together to make sure that all of the Netflix's traffic needs are met by our network, and that our customers get the full advantage and the ability to be able to enjoy their Netflix experience.
FISHERBut why would it not be reasonable to conclude that if you're charging Netflix for this access, then you would see that it might be a good business model to then charge lots of other even smaller providers?
COHENEveryone pays. There isn't anyone who gets traffic on the internet without paying. They're just not paying us. They're paying Akamai, Level 3, Cogent, a wide variety of transit providers. Large, small, medium-sized businesses, when you're talking about transmitting your traffic to the internet, everybody pays.
FISHERSo is this...
COHENThat's what people don't understand. So this -- and that has been true since the beginning of the internet.
FISHERSo is this ultimately...
COHENAnd it is an intensely competitive market because you -- if you're paying Level 3 -- if you're paying Level 3 something, Cogent can come along and trying and steal your business. So there are multiple transit providers and what are called CDNs, content delivery networks, out in the marketplace. They all charge for their services. Everybody who delivers traffic to the internet pays somebody.
FISHERAnd so is this likely to be the model for the future, that Comcast and other internet service providers will strike separate deals with these companies rather than having them go through those third-party companies you were just talking about?
COHENI would doubt -- I would doubt that except in the case of mega-traffic deliverers like a Netflix, I would doubt that those are deals that would -- I mean, we're not in this business, and so -- and there's an administrative friction to our being in this business. So -- and it's not like the internet's broken. The internet's working. This transit model and traffic delivery model has worked. So unless you are a mega deliverer, like has been publicly reported, Netflix is responsible for 30 percent plus of the traffic on the internet.
COHENSo unless you're -- unless you are a mega provider, the existing system of operating through CDNs and transit providers is working perfectly well and I don't -- I don't think that the Comcast/Netflix deal is a precursor of any type of a shift in the way in which internet traffic is delivered to the internet.
COHENYou may see Netflix entering similar deals with other ISPs, but that's because, again, that's for the same reason that Netflix wanted to have a deal with Comcast.
FISHERAnd very quickly, because I know you have to go, but there is concern about how to keep the internet open to everyone with equal access to all content, no price differential for different kinds of data. Do you think that in argument over net neutrality is legitimate, one, and is it a legitimate fear that there will be some players who are -- whose content is favored others down the road?
COHENSo, I think it is a legitimate concern. I don't think there's any real risk that anyone's traffic is going to be favored over anyone else's. I think that that's been mostly a concern that has proven not to be correct in the real world, but not withstanding that, I mean, I think there is a need, and there is an appropriate need to enforceable open internet regulations. Comcast has been in favor of that. We supported the FCC's open-internet rules at the time they were negotiated. We were a part of the negotiation.
COHENWe supported them when they were enacted. We did not join the Verizon litigation challenging them, and we continue to support the appropriate placement of legally enforceable open internet rules by the FCC. Because -- and I say appropriate, because things like no blocking and not discrimination, which were the two things you mentioned we think are wholly appropriate. I note that Chairman Tom Wheeler has started a proceeding to put in place after the DC circuit decision, new enforceable open internet rules, and as a company we came out on the day of that announcement saying we support that effort and we look forward to be a constructive participant in that process to put in place enforceable open internet rules.
FISHERDavid Cohen, executive vice president of Comcast, thanks very much for being with us.
COHENThanks very much for having me, and I appreciate your fitting me in.
FISHEROkay. When we return after a short break, we'll talk with the rest of our panel about the Netflix and Comcast deal and take some of your calls as we talk about net neutrality and concerns about what comes in to the internet and who gets favored over whom. I'm Marc Fisher, and this is "The Kojo Nnamdi Show."
FISHERWelcome back. I'm Marc Fisher of the Washington Post sitting in for Kojo Nnamdi, and we are talking about net neutrality on this Tech Tuesday with Dan Rayburn of Frost & Sullivan, a market research firm in New York, and John Bergmayer, who is senior staff attorney for Public Knowledge. And let's get right to your calls. Here is Mark in Herndon. Mark, you're on the air. Mark, are you there?
MARKYes, I'm here.
MARKSo, I started working in the internet business in 1994 when probably nobody had email, or very few people. We were hooking up entire companies with fractional T1s and ISDN lines. So I've been in it, and seen a lot of changes over of the years. The internet was found -- the commercial internet was founded upon a principle of equal treatment of packets, both source and destination. The change that's going on now as a result of a, you know, modification of the internet, and really the crushing the all the small guys who started the internet like UUnet, like, PSINet, like Netcom, and over the years those companies have gone.
MARKAnd when UUNet/Worldcom was finally bought by MCI, the last company that had the monetary clout to combat the larger companies like Verizon, like Comcast, to change the rules of the internet went away. And so really what happens here is the basis of the internet, which is a free-flow of packets between networks, without, you know, you can't throttle, if you will, you know, source and destination and type of packet is now going away. And what will happen in the end, this is a slippery slope that ultimately leads to content providers being held at gunpoint by delivery networks.
MARKIn addition, the end users are going to be completely subject to just a few players, and when you have only a few players and no competition, what happens to the consumer? They pay through the nose for it.
MARKSo ultimately this is the change of the rules of the internet by the large companies, the basis of the internet is being changed as we speak.
FISHERDan Rayburn, is it as dramatic as that?
RAYBURNWell, no. I'd have to disagree. Because remember, you know, he mentions Worldcom, and I agree there were some large companies back then, but Worldcom also filed for one of the largest bankruptcies ever in the history of companies. They had $41 billion in debt when they filed for bankruptcy. So just because they're a large company, they don't get credit. They have to be a large company and also have a sustainable business model which Worldcom didn't. When you're losing that much money, tens of billions of dollars, and you have to file bankruptcy, that's not a result of the small man being squeezed out of the market. It's the result of a very large company not having a business model that can survive.
MARKWell, but there you're talking about a confusion of a particular company with net neutrality. I mean, the commercial internet exchange was formed around a dining room -- and they said we will agree to exchange information and packets from network to network and not change or charge based upon, you know, where it's coming from, where it's going. It is net neutrality which says our networks will interconnect, which, by the way, is the only reason the internet works.
MARKSo now what you have is a change in the rules to say, if you want to connect to us, that's fine, but if we're gonna -- we may or may not deliver you good traffic of customer A or content provider B based upon who's paying us and who are customers are and what kind of exclusive arrangement we might have set up with them.
MARKSo I understand what you're saying about a business model, but what we're talking about here is the core essence of internet exchange of TCP IP packets and how you move information from one point A to point B, whose network it's on, who is the content provider, et cetera.
FISHEROkay. Thanks for the call, Mark. John Bergmayer, is that a legitimate fear?
BERGMAYERI think it is. Because we need to be cautious that large ISPs don't start to abuse the key position that they have in the marketplace. When you control access to so many millions of customers, you have leverage to demand deals that smaller ISPs, you know, back in the earlier days of the internet, did not have. I mean, it's absolutely true, like, you know, like Comcast says that Netflix could, instead of paying it, pay a transit provider, but now we have some transit providers complaining that Comcast is asking them to pay at rates that are too high.
BERGMAYERSo you can pay Comcast or you can pay a transit provider to pay Comcast, but Comcast is going to get paid either way. And this is the worry that I have is that it is the key player here. It is the one with all the users, and if it -- I'm not saying that this is true of this current deal that's under discussion, but it has the potential given its place in the marketplace to behavior anti-competitively.
FISHERAnd John, your organization, Public Knowledge, has filed a complaint with the FCC against Comcast. What's the issue there?
BERGMAYERYeah. So, I mean, in the Comcast/NBC merger, Comcast pledged to treat all packets equally. Now, this is totally different than the internet intraconnection issue we were talking about. But Comcast has a broadband video app that you can access on the XBox which doesn't count against your data cap, but then if you used Netflix or Hulu or Vimeo or any other broadband video, it does count against your data cap, and that is a classic net neutrality violation where you're treating different internet applications differently, in this case, by discriminatory billing as opposed to blocking or degrading your competitor's product.
FISHERWe have an email from a listener, says, "Given the planned merger of Comcast and Time Warner Cable, there are really only two major players in American broadband. How does concentration in the broadband market complicate net neutrality? Are there arguments in favor of ending that neutrality that these arguments assume competition in the marketplace? But is there any really?" And, Dan Rayburn, what's your sense of that?
RAYBURNWell, that's really hard to answer. I think this all comes down to one thing, though, is consumers are basically saying that they'd like more choice. And they're saying -- at least some consumers are saying they feel or they think that Comcast merging with Time Warner Cable will give them less choice. I don't see how that's actually the case considering in many cases where people only have access to Time Warner Cable, and now it'll be Verizon. It's not removing choice from the market, so a lot...
FISHERThey never had choice to begin with. Right.
RAYBURNRight. They never had choice to begin with, and I understand that's a concern. I understand consumers don't like that. But what is their alternative? The amount of money that you need to compete in the market when it talks about -- when you're talking about building, you know, buying fiber, laying the fiber, look at how much money Verizon has spent on FiOS to roll out, billions of dollars.
RAYBURNIt's not as if there's 10 companies, you know, just waiting to do this, but they can't get into the market because the market's too competitive and these other companies are too big. I don't see any new ISPs trying to enter the market. So I get consumers are frustrated, but we don't have options.
FISHERAnd is there, John Bergmayer, a possibility that down the road a solution is found to foster competition by having different companies share the same technology as with phone companies?
BERGMAYERYeah. There's a lot of things that you can do about the problem of broadband competition. For example, that's called an open access policy where you separate out the company that owns the wires versus the retail company that uses the wires or leases them. And then you have those companies compete, and that's adopted in many places around the world. And it's similar conceptually to how we had it in the 1990s with ISPs that you accessed over a neutral telephone network.
BERGMAYERI got to point out, though, this is something that comes up a lot, this notion that Comcast and Time Warner, they don't overlap and therefore they don't compete. I mean, just last night, Dish Networks, which is a pay TV provider, secured a deal which could allow them to start offering an online video service themselves.
BERGMAYERSo, number one, there is the potential that these different companies could start competing with each other online. But, second, that's not even the major problem with this merger. The major problem with a merger, when you have a single company that controls so many millions of customers is it has an outsized influence on the entire rest of the Internet economy, on the programming economy.
BERGMAYERThink if you're an independent cable channel, and you have a program. And, you know, if the local cable monopoly in Alexandria, Va. or whatever town chooses not to air it, okay, no big deal. I mean, you'd rather reach those viewers, but you're not out of business. By contrast, if you're a programmer and you're trying to sell and Comcast doesn't want to air your programming, you're toast.
BERGMAYERSo that is the problem when you have these very large companies. And the fact that they don't overlap, it is bad that we don't have individual consumer choice for different broadband options in a lot of places. But that's not the only problem that we're concerned about. We're concerned about the effect on programmers, on Internet services, and the outsized influence that the new company will have on the rest of the marketplace.
FISHERWith this merger between Comcast and Time Warner Cable, Comcast would have a subscriber total of about 30 million households which would give it well more than a third of the business in the country. What would you do about that? Would you set an arbitrary limit on how many customers a company could have?
BERGMAYERI think having -- it's not arbitrary. You know, you use economics, and you determine a limit of how large you want a single company to be compared to the rest of the marketplace. I don't think that would be arbitrary at all.
FISHEROkay. Let's go quickly to Richard in Cheverly. Richard, you're on the air.
RICHARDHi. How you doing? I've heard a lot of talk about competition. But I want to bring up something I haven't heard in the day so far. And that is that a company like Verizon that rents me bandwidth for 50 megabits per second might also charge a content creator for some type of bandwidth, so they're getting paid for the same pipe twice. And now they want to get paid a third time by saying, okay, Mr. Content Provider, you're already paying me for the pipe to get into the Internet. And your end user is already paying for a pipe to get into the Internet.
RICHARDBut I also want to charge you an additional fee because you're, for whatever reason, whatever the characteristic is, you're using too much bandwidth, you're not politically the -- an organization that I agree with, or you're not the religion that I agree -- that you agree with or whatever. The ability to be able to get paid three times for the same pipe seems to me to be excessive. And this idea that competition, that we're not -- now, I'm sorry. In Europe, it's a lot cheaper. That's what I'm trying to say.
FISHERSure. Dan Rayburn, is...
RAYBURNI don't understand what the statement is. Nobody's getting paid three times. You know, Comcast is charging a subscriber for access to the Internet. Comcast is then also charging an interconnection fee, not inside the last mile, an interconnection fee where Netflix connects to their network and takes a certain amount of ports with a certain amount of speed and capacity and is providing Netflix with three different SLAs to guarantee that quality that's coming into their network. So that's two different ways, but not three.
FISHEROkay. When we come back after a short break, more of your calls at 1-800-433-8850. I'm Marc Fisher, and this is "The Kojo Nnamdi Show."
FISHERWelcome back. I'm Marc Fisher of The Washington Post sitting in for Kojo Nnamdi. And we are talking about net neutrality and the proposed merger between Comcast and Time Warner Cable and the deal between Netflix and Comcast that just recently got made with Dan Rayburn who is an analyst at Frost & Sullivan, a market research firm in New York, and John Bergmayer, attorney at Public Knowledge. And, John Bergmayer, what do Netflix and Comcast get from this deal? What does it really mean for consumers?
BERGMAYERWell, I think that it probably is a mutually-beneficial deal based on the information I've seen, which is, you know, third-, fourth-hand. So I think, you know, Comcast customers that watch Netflix will have a better experience. And, you know, Comcast itself will get the benefit, you know, in terms of its merger review and in terms of fewer customer complaints.
BERGMAYERI am worried not about -- I'm worried that this could set the precedent for -- now that Netflix is paying Comcast, now the question is, how much? And this is when we start to get into the double-dipping kind of question where, if Netflix is having to pay not just for the reasonable cost of what it costs to attach the networks together, but if it's starting to pay for access to Comcast customers, then that is a problem that -- and this deal could portend that happening in the future. But it's a multi-year deal, so that would be a few years down the line.
FISHERYou say that users will see a better quality of service from Netflix. Does that imply that Netflix's competitors will have a slower or not as high quality picture coming in?
BERGMAYERIt could very well mean that if they don't have similar traffic arrangements. There's choke points on the Internet, and the main one is, you know, this on-ramp that we keep talking about, the interconnection point on to the last mile network, the Comcast network or the Verizon FiOS network. That's where the choke point is. And that's where all these deals are being done. So if a competitor has not done a deal to get easy access, then its service might be -- might not look as good. It might not be as crisp, or it might stutter or buffer or something like that.
FISHERDan Rayburn, David Cohen from Comcast told us earlier in the hour that this deal is no different from the ways in which providers have always paid to have their content pushed through. Is that -- do you agree that there may now be significant differences that viewers will be able to see between the Netflix quality coming in versus that of some other video provider?
RAYBURNAbsolutely. Netflix was previously paying third-party providers who weren't providing the service that they agreed to to Netflix. So as a result, Netflix cuts out the middle man, goes direct to Comcast, pays less money, and gives consumers a better quality of video. That's a good thing. Also, let's talk real numbers here. You know, there's all this talk again about secrecy. This is a big business. We don't know how much everyone's paying.
RAYBURNComcast has publicly gone on record and said last year they earned between 30 and $60 million in revenue from interconnection agreements, like the one that they've just signed with Netflix. So we're not talking hundreds of millions of dollars. That's 30 to $60 million of all the content owners that they've done interconnection deals with. So numbers should actually be used when we're talking here as opposed to speculation.
FISHEROkay. Let's go to -- I'm sorry. Let's go to Steve in Ashburn. Steve, you're on the air.
STEVEHi. I wanted to talk a little bit about the net neutrality that -- and that most ISPs have de facto monopolies and, at best, duopolies that most customers can't deal with the Internet provider of their choice if they don't service their area. And it seems like the thing to guarantee net neutrality is to provide more competition.
STEVEAnd I know one of the speakers there, you know, was really doubting the ability to introduce more competition. But I lived in the U.K. And at least there, I believe, BT owned the infrastructure. But -- and I don't understand all the legal aspects of it or the technical aspects, but it seemed like BT was required to sell large packets of data, if you will, to other -- their competitors.
STEVEAnd those competitors could, indeed, undersell them in the retail market. And just tying it back to net neutrality, it seems like the best way to guarantee net neutrality is to provide competition in that consumers will vote with their feet or their landlines or whatever, their cable connections, if they cannot be provided with net neutrality by a particular provider.
FISHEROkay. John Bergmayer?
BERGMAYERYeah, absolutely. It's difficult to have what are called over-builders where you have multiple infrastructure sort of built on top of each other where you have, you know, multiple fiber networks, multiple cable networks. It happens in some places with population density or because of the history of that area. But for the most part, the countries that have gone the competition route for broadband, unlike the United States, have done it through these different open access policies.
BERGMAYERAnd, you know, we have to actually contrast this. We keep talking about how Netflix has all these choices for companies it can buy service from, from Cogent, from Level 3, or maybe Comcast directly. You know, that's in stark contrast to the average consumer who has maybe cable, maybe a slower DSL connection at best, or, if he's lucky or she's lucky, maybe Google Fiber or Verizon FiOS. Most people don't really have that many choices of broadband, and that really informs all of this discussion.
FISHERWe have an email from Robin in Arlington who says that, "The U.S. has the slowest Internet speeds at the highest prices in the developed world. There is no free market. There is no competition. Further consolidation of the industry will simply exacerbate that.
FISHER"The so-called free market has brought us high prices and poor service. And anyone who believes that the cable companies want to continue net neutrality should ask themselves, why do these companies spend so much time and money fighting net neutrality unless they saw for the potential for massive profits?" Dan Rayburn, is that too much fear going on there?
RAYBURNNo. I don't disagree that, I mean, we pay a lot of money for Internet access in the U.S. compared to other countries. There's no question about that. You know, the thing I would ask consumers is -- I don't have Time Warner Cable or Comcast. I don't live in those markets. But for consumers who do have Time Warner Cable and that's their only option, Time Warner Cable has some of the slowest speeds around and gets some of the worst marks when it comes to customer service and quality of their service.
RAYBURNSo would they rather stay with Time Warner Cable, or would they rather have Comcast and hopefully have a better service? I can't say. I'm not that consumer. But that's really the choice that's being offered to them here. Outside of that, they have no other choices.
FISHERWell, another question, another email from a listener who says -- about consolidation, says, "My wife, who's worked in publishing, said the consolidation of magazine distributors caused the demise of most magazines that had niche markets. Does anyone think that increased consolidation of distributors will price niche content providers out of the market?" John.
BERGMAYERYeah. That's exactly the worry I'm alluding to where Comcast or people who support the merger say, well, since they don't overlap, they don't compete, therefore there could be no harm to consumers. But when you have a consolidated distribution channel, even if that distribution channel doesn't even directly deal with consumers, like a magazine distributor, there can be profound consumer effects in terms of loss of choice in diversity because that one distributor is able to dictate terms to the rest of the industry. And ultimately consumers feel the impact of that.
FISHERHere's Paul in Alexandria, Va. Paul, you're on the air.
PAULHi. I wanted to address a couple points I've heard in the last few minutes. Number one, I've been both a Time Warner and a Comcast customer, and I can tell you Comcast customer service is -- it's the worst there is in the U.S. That's why there's been a rise of Internet sites like ComcastMustDie.com.
PAULIt -- don't laugh about it because Comcast actually started approaching those people who post on that site to address their comments individually so they would remove their comments because -- and that's what brought the rise of the brand (unintelligible) because the Comcast brand name took such bad hits three, four, five years ago.
PAULI just want to say competition is good. And even if they don't share a footprint, just the risk that another competitor might come into their market is enough to push a vendor to try and be more responsive to customers. I might also point out that Comcast does a lot of PR work, like their network essentials. Salon Magazine, back in July 2013, did a whole article about how their whole Internet network essentials program is really just a marketing ploy. It only is offered in areas they already have the infrastructure.
PAULAnd they're still profiting off the people who get the reduced rate because they're still working on existing infrastructure. It's not a great giveaway by any means.
FISHEROkay. Thanks, Paul. Dan Rayburn, there was a lot of frustration in the emails and calls we're getting about this question of, without competition, how can we hold these companies to account? Is there any way that consumers can be proactive on this?
RAYBURNThere isn't really. I mean, you know, here's the problem. When you look at reports -- and a report just came out last month. It showed AT&T and Time Warner Cable were ranked number one and number two -- terms of worst customer service in the country, Comcast was ranked number six, so a little better, but not that much better. The problem is, you really have to decide as a customer -- let's say, you know, okay, Comcast isn't allowed to acquire Time Warner Cable, and you're stuck with Time Warner Cable.
RAYBURNWell, if Time Warner Cable decides then it's not going to invest in the infrastructure that maybe a competitor would that would take them out, is that better for you or worse for you? Well, maybe it's better in the sense you might get a better quality service. But it's still bad for you no matter what happens with this deal because you're not going to have choice on the market.
FISHEROK. We'll have to leave it there. Dan Rayburn is principal analyst for Frost & Sullivan. It's a market research firm in New York. He joined us by phone. And John Bergmayer is senior staff attorney for Public Knowledge. He was here with us in the studio. Thanks very much for being here.
BERGMAYERThanks for having me.
FISHERSo what we'll have more about net neutrality as this argument continues. And I'm Marc Fisher of The Washington Post sitting in for Kojo Nnamdi. Thanks for being here.
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