"No material impact" if Strong Net Neutrality Rules Go Away: Netflix

“Weakening of US net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality,” says Reed Hastings, Netflix CEO. Oddly enough, cable TV companies said the same about common carrier regulations: they did not prevent those firms from investing in faster access services. Telcos clearly reduced capital investment.

But the incentives and behavior arguably fall into a couple of buckets. Netflix believes it clearly benefits from rules that mandate “best effort only” access, in large part because that prevents creation of quality of service (QoS) mechanisms that could raise Netflix costs of doing business.

Telcos believe they clearly are harmed, because they cannot create new QoS tiers of service that could create new revenue models (business services, with QoS assurances, have higher gross revenue and profit margins, for example).

Cable companies, positioned to gain market share because they could quickly improve speeds, were in position to do so even if no QoS were possible, simply because their networks could rapidly and affordably be boosted into multi-hundreds of megabits per second ranges, plus gigabit speeds. Despite the rules, cable was able to justify new investments.

So there is no easy way to assess the impact of the net neutrality rules in some uniform sense. Netflix arguably benefited, but no longer needs the rules. Cable companies also benefited, despite the rules. Telcos, already losing the market share battle, arguably were dissuaded from investing.

The point that might be made is that network neutrality has been a blunt instrument with different impact on different participants in the market. Going forward, and without arguing for imposing new rules on app providers in advance of demonstrable problems, a more nuanced approach could work.

Competition in access markets, for example, would be enhanced if telcos were convinced they could do something--especially in the quality area--to compete more effectively with cable companies, and would invest to do so.

The new perspective that will at least get a hearing is that net neutrality or other rules designed to protect consumers from abuse of market power--the sorts of policies normally the domain of the Federal Trade Commission--might need to be symmetrical. That is to say, they perhaps should apply to edge providers (app providers) and access providers alike.

Netflix continues to favor” strong net neutrality” rules (no QoS). That arguably will not happen, which is why Netflix reassures its investors that it can thrive even without the rules.
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