Prior to carrying Netflix’s traffic, Level 3 had a “peering agreement” with Comcast—meaning Level 3 could reach Comcast’s subscribers at no charge and in turn Comcast could connect with all of Level 3 customers at no charge. These agreements work when the amount of traffic flowing between the two networks is generally balanced.
However, in 2010, after Level 3 signed up to carry Netflix’s video traffic, Level 3 informed Comcast that it would need more interconnection capacity with Comcast to bring Netflix’s streaming content to Comcast subscribers’ homes. In response, Comcast told Level 3 that it had to pay for that access.
The ability of Comcast (and presumably other ISPs) to extract these fees has grown as streaming video and other types of data-heavy traffic have created increasingly asymmetric traffic patterns—and as cable companies more generally have substantially increased their market share of Internet subscribers.
What’s the harm? For many, Comcast’s response would seem reasonable given the increase in traffic flowing onto its network. The problem is that Comcast has what we call a “terminating access monopoly”—that is, Comcast has the only direct line to a Comcast customer. This imbalance means that companies like Comcast already function as gatekeepers in these peering debates, and they have a tremendous amount of leverage to dictate the terms of such arrangements.
Comcast also has another incentive to make it more difficult for CDNs to transport over its network. When the Comcast-Level 3 dispute occurred, Comcast was in the process of purchasing the cable content company NBCUniversal. That merger was approved, and the resulting Comcast/NBC entity is now an incredibly powerful, vertically integrated behemoth that owns not just the pipes, but also a large portion of the content flowing over those pipes. Meanwhile, online streaming video services like Netflix drive an increasing number of customers to cut the cord and give up traditional cable television service in favor of Internet-only plans.
That means Comcast has every incentive to discriminate against companies carrying Netflix’s traffic, or the traffic of any present or future content provider that might be a direct threat to Comcast’s cable television revenues.
Keep in mind that what we’re talking about so far happens even with the Open Internet rules in place. The Open Internet rules were designed to focus on the issues of priority and discrimination—or the ability of cable providers to disrupt or restrict a subscriber’s ability to access content online, either by throttling traffic, charging subscribers additional fees for access, or otherwise limiting their ability to consume the content of their choosing.
The two-way payment schemes that Wheeler mentioned in his Q-and-A represent a clear example of where priority and discrimination would occur—precisely what the Open Internet rules were designed to prevent. And when examined in the context of the concerns about interconnection, that would allow ISPs like Comcast to further leverage their gatekeeper status once again to extract additional fees from Internet content companies.
Basically, two-way payment schemes mean that ISPs aren’t just leveraging fees from CDNs like Level 3 and collecting monthly payments from subscribers. Now, they want to collect a third fee directly from the content providers themselves. Viewed in this light, it may be more accurate to call these arrangements “triple-dipping schemes” rather than two-way payment schemes.
So, what’s next? Wheeler’s clarification of previous remarks at the House hearing and public commitment to the FCC’s Open Internet rules is reassuring. But those rules are being challenged in the D.C. Circuit Court of Appeals, and an adverse decision by the court would not only invalidate the rules but could also put the FCC’s authority in jeopardy. This could make it impossible for the FCC to implement any future policies to prevent harms that arise beyond those contemplated by the current rules.
Wheeler points to interconnection as a key historical policy that drives innovation and competition. But those outcomes did not happen without some government intervention. So the question is how Wheeler will defend the historical principles he’s identified if the court invalidates the FCC’s ability to implement the Open Internet rules in whole or in part. The chairman has said that “regulating the Internet is a nonstarter,” which suggests he is already considering specific ways in which the FCC might step in. Yet determining the best regulatory path forward must be underscored by an examination of the Internet ecosystem in its entirety, and ensuring that ecosystem leads to the types of effects we would expect in a competition-driven market.
This article is part of Future Tense, a collaboration among Arizona State University, the New America Foundation, and Slate. Future Tense explores the ways emerging technologies affect society, policy, and culture. To read more, visit the Future Tense blog and the Future Tense home page. You can also follow us on Twitter.