

Inside The Netflix/Comcast Deal and What The Media Is Getting Very Wrong - sxp
http://blog.streamingmedia.com/2014/02/media-botching-coverage-netflix-comcast-deal-getting-basics-wrong.html#

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ergoproxy
While the author is correct to admonish the news media for its incorrect use
of words like 'speed', 'throughput', 'bandwidth', etc., the author has much to
learn about the economics and law at play here.

He says, "While I don’t know the price Comcast is charging Netflix, I can
guarantee you it’s at the _fair market price_ for transit in the market today
and Comcast is not overcharging Netflix like some have implied."

Well, there is no "fair market price" in the absence of perfect competition.
Where I live, Comcast is the only game in town. Verizon won't compete. So,
Comcast is a monopoly. There's a monopoly price, and that price is
significantly higher than what the price would be if we had a competitive
market. In places where consumers have a 'choice' between Verizon and Comcast,
there's a duopoly, with duopoly prices. Duopoly prices aren't much different
from monopoly prices as far as consumers are concerned. The difference here is
that Comcast/Verizon are making somewhat smaller duopoly profits, rather than
higher monopoly profits.

 _Monopoly /duopoly, either way, consumers are getting screwed, whether that
consumer is a household like me or a business like Netflix._

The author emphatically insists these deals have "NOTHING TO DO WITH NET
NEUTRALITY." As a reminder, Net Neutrality was struck down by the Federal
Courts on Tue 14-Jan-2014. So its funny we're seeing a tidal wave of deals
between Netflix and the big three ISPs (Comcast, Verizon, and AT&T) just 6
weeks later, after numerous accusations of throttling. I know Comcast
'promised' to respect Net Neutrality until 2018. But Comcast has made me many
promises they've broken, e.g., quoting me one set of prices, then charging me
much higher rates when I get my bill. So why should I believe them now?

For a detailed economic analysis, I highly recommend looking at the 2010 paper
"The Economics of Network Neutrality" by Nicholas Economides and Benjamin E.
Hermalin. The paper finds that "network neutrality is welfare superior to
bandwidth subdivision (granting or selling priority service)." See
[http://faculty.haas.berkeley.edu/hermalin/net_neutrality_v17...](http://faculty.haas.berkeley.edu/hermalin/net_neutrality_v17.pdf)

I also recommend reading the 2006 testimony of Lawrence Lessig at the Senate
hearing on Net Neutrality. He concludes that the loss of Net Neutrality will
stifle innovation, damage the economy, and take away our freedom. See
[http://www.commerce.senate.gov/pdf/lessig-020706.pdf](http://www.commerce.senate.gov/pdf/lessig-020706.pdf)

I wish Lessig had expanded on his comments on freedom. We've seen illiberal
countries like Iran, Libya, etc. block their citizens' access to internet
sites that officials disapprove of. People think it can't happen in the US.
But we see Arizona in the news today considering a law that allows firms to
discriminate against gays. What if a major ISP's conservative CEO decides he
doesn't want his customers accessing websites with content about gays,
abortion, porn, gambling, alcohol, the big bang, evolution, islam, and so
forth? Does his freedom of religion take precedence over my freedom of speech?
It would be one thing if I could switch to a competing ISP, but as I've
stressed, there's a real lack of competition. So, this scary scenario is
becoming a real possibility now in the US.

