For Charter Spectrum and other Internet service providers (ISPs), the debate over net neutrality is once again in the spotlight. In 2017, the new Trump administration has made it clear that it’s no fan of net neutrality, and new FCC Chairman Ajit Pai has made overturning net neutrality one of his primary strategic goals.
The very fact that the Trump administration is going to do all the dirty work of clearing away net neutrality will give cover to the cable companies to continue business as usual, all while secretly hoping for the day when they can start to monetize their vast broadband infrastructure. Already, articles are appearing in the media, suggesting that the cable companies are chipping away at net neutrality after giving lip service to it for several years.
Case in point: in April 2017, a controversial article in New York magazine – “We Already Know How Internet Providers Will Screw Us Over, Because They Did It Before” – basically outlined how the big cable companies were going to try to squeeze online video providers like Netflix, which now account for a huge proportion of total bandwidth provided by ISPs.
For Charter Spectrum, the article was particularly explosive because it featured the behind-the-scenes machinations of Time Warner Cable, which Charter Spectrum acquired in a massive $55 billion mega-merger. As the article pointed out, legal memos and correspondence have been leaked from the former Time Warner Cable, showing exactly what the company’s executives had in mind. The goal was to get content providers like Netflix to “pay up” for a direct connection to their customers.
If Netflix didn’t pay, then all their video traffic would be sent to the slow lane of the Internet, something that Time Warner Cable executives referred to as “through transit.” As long as Netflix didn’t pay up to use the TWC broadband infrastructure, Netflix customers would experience very slow buffering times for videos, and would probably conclude that this bad overall experience was the fault of Netflix. Time Warner Cable, of course, never planned to divulge its role in slow video speeds.
So let’s back up for a second and set the stage for Charter Spectrum in terms of the upcoming debate over net neutrality in 2017. The huge cable company – which now accounts for nearly 15 percent of all cable and satellite TV subscribers and 22 percent of all broadband customers – will likely direct its efforts in two directions:
- Making sure that it abides by its net neutrality commitments agreed to as terms of the huge Charter-Time Warner Cable merger
- Making clear that it is still publicly committed to net neutrality, even as the FCC moves to dismantle the open Internet
At a quick glance, you can see that framing the debate around (1) is much easier than framing the debate around (2).
Before Charter Communications was allowed to merge with Time Warner Cable, it had to abide by some fairly onerous net neutrality commitments. The logic was simple: if you want to buy up a company for $55 billion, then you better play nice with everyone else on the Internet.
And, to be fair to Charter, the company was a model citizen ahead of the merger. In June 2015, a noted net neutrality advocate (Martin Ammori) outlined in WIRED magazine all the ways that Charter was committed to a free and open Internet. In fact, he says that he personally advised Charter on the right language to use, and that he was satisfied with Charter’s approach.
He offered a glowing recommendation of Charter as a model net neutrality advocate: “Charter is offering the strongest network neutrality commitment ever offered – in any merger or, to my knowledge, in any nation.” He followed that up by saying, “Charter is offering commitments that go further than any before.”
However, there was one little caveat, and that was the duration of the commitment. Charter was offering to abide by network neutrality commitments for 3 years. So you do the math – assuming the clock started in early 2016, when the merger was finalized, then that means Charter would be free to re-think its network neutrality commitment by 2019. That would give the FCC plenty of time (two years) to dismantle network neutrality, and provide plausible cover for Charter to change its stance. In doing so, Charter could simply point to changing competitive conditions in the industry.
- No blocking or throttling Internet traffic
- Not engaging in paid prioritization
- Not charging consumers additional fees to use third-party apps
- Not imposing data caps on consumers
- Not charging interconnection fees to edge providers (like Netflix)
Most notably, Charter went out of its way to embrace Netflix, saying that, “Foreclosure is the exact opposite of the strategy Charter has been pursuing.” Moreover, Charter noted that its plan to upgrade the speeds of its Internet customers acquired from Time Warner Cable would actually be in the best interests of Netflix – it would mean faster video playing times for all streaming content.
By all intents and purposes, then, Charter handled the net neutrality debate by showing that its interests were firmly aligned with Netflix’s. Charter wanted to grow its broadband infrastructure and boost speeds, and that favored Netflix. And Charter recognized that Netflix was the type of edge provider that it had to be careful with.
Remember – Netflix had opposed an earlier Comcast-Time Warner Cable deal, and had used net neutrality as a key part of its argument. Thus, from the perspective of Charter, Netflix was a very strong adversary that had to be respected. If Charter tried to take on Netflix directly, then it would mean the end of its merger with Time Warner Cable.
In April 2015, in fact, the popular tech blog Mashable wrote, “The Comcast-Time Warner Cable merger died because of Netflix.” The online video streaming giant directly petitioned the FCC to block the merger. Netflix CEO Reed Hastings told Wall Street analysts that his major goal was to “block” Comcast’s proposed $45 billion merger with Time Warner Cable. When Comcast eventually walked away from the deal after losing the support of the FCC, U.S. Attorney General Eric Holder called it a victory for “providers of content and streaming services who work to bring innovative products to consumers across America and around the world.”
So the writing was on the wall for Charter in 2015 – play nice with Netflix, or there’s absolutely no way you’re going to get the merger done.
Which brings us to 2017. Charter’s merger with Time Warner Cable has been completed, and the final rebranding as Charter Spectrum is now a done deal. Heading into the merger, Charter met all of its commitments, and was a model citizen in terms of driving forward the net neutrality debate. But now what?
The role of the FCC in the Trump administration obviously looms large. If you think about it, the FCC is giving ISPs like Charter the “perfect out.” If Charter sees that the public debate around network neutrality is shifting, then it makes it much easier to adapt its own business practices accordingly.
In terms of net neutrality, it now may make sense for Charter Spectrum to co-opt service providers like Netflix by providing its own competing services. And, indeed, that’s what we’re starting to see with all of the biggest cable giants. They are introducing their own streaming services, making it easier to share content across devices even when out of the home, and making it highly advantageous to bundle cable TV with Internet due to all the possible synergies involving streaming content.
And, if anything, Netflix’s dominant role in the world of streaming video is eroding. When Netflix took on Comcast, it was close to its peak in terms of market strength. It could dictate the terms of any deal. But now look around you – there are so many flourishing streaming services that Netflix can no longer say that cable companies are responsible for anti-competitive market practices. In addition to Netflix, there’s Sling TV, Hulu, Amazon Prime Now and a whole host of specialty streaming services.
This new, shifting competitive landscape is going to change the debate around net neutrality. For one, it will make it easier for Charter Spectrum to make the case that it is a champion of net neutrality. And it will make it easier to appease the regulators: anyone questioning the Charter-Time Warner deal will have a tough time proving that the merger was bad for consumers.
The true test will come when Charter Internet and other ISPs begin to invest heavily in new infrastructure. How can they get companies like Netflix to help pay some of the costs, without actually charging them for it directly? In many ways, it’s like asking Mexico to help build a border wall – and then asking Mexico to pay for it. Nobody is going to do that unless there’s an awful lot of arm-twisting. But since the battle over net neutrality plays out in public, all of that arm-twisting is going to be up to the lobbyists in Washington.