Netflix vs. Comcast: A “Ma Bell” Moment?

Do you remember Ma Bell? Do you miss her?

Ma Bell, as you may recall, was the colloquial name for AT&T’s national monopoly, a business that controlled virtually every telephone in the United States. From the time that the Justice Department granted it that franchise in 1913, until the time that the government launched a lawsuit in support of spunky upstart MCI’s antitrust case in 1974, AT&T possessed what might have been the most lucrative unchallenged legal monopoly in American business history.

Throughout that period, AT&T owned and operated every telephone pole, every phone line, and every piece of voice transmission equipment in the United States. It also provided service to each citizen and each organization that needed a telephone. But once MCI introduced a competitive plan to deliver voice services over AT&T’s system, the Justice Department decided to require AT&T to provide the same level of access to any external service provider that it provided to its own service division.

It remains a topic of conjecture as to whether the innovative threats of mobile phone service and the internet would have brought down the AT&T monopoly any way, had AT&T not voluntarily agreed to a break-up under Justice Department auspices in 1984. Amazingly, though, a very similar debate erupted last week between a cable television company and a pair of internet service firms.

Comcast: The New AT&T?

Comcast, like the old AT&T, is a communication transmission company, albeit one that enables customers to receive cable television service. In each of its communities, Comcast has been granted a monopolistic license to maintain the television transmission cables under (or over) the public streets, and to sell access to those transmissions to the general public. They have also been granted an exclusive license to provide the public with cable-based internet access as well.

Recently, however, a relatively new service firm named Netflix has begun streaming Hollywood films and shows to the television sets of Comcast customers through Comcast’s transmission cables. At first, Comcast did little or nothing to oppose that practice. But now that the Netflix movie streaming service has grown to the point where it utilizes over 20% of America’s internet bandwidth traffic during the peak evening hours, Comcast is suddenly paying attention.

Once Netflix agreed to rely on the internet service firm Level 3 Communications to help it grow even further, Comcast suddenly demanded that Level 3 pay it special fees for the privilege of using its transmission cables. But will the federal government permit Comcast to charge independent providers special fees for competing with Comcast’s own cable television service?

Net Neutrality Under Fire

Negotiations between Netflix, Level 3 and Comcast are now in progress. The federal government is looking on as a highly interested observer, due to the importance of a general principle known as net neutrality.

To put it simply, net neutrality means that an internet service provider cannot “play favorites” by providing one web based service with preferential transmission rights over another. It cannot, for instance, stream its own movies at full speed over the internet while slowing down or halting the streaming activities of rival firms. Likewise, it cannot transmit the email messages of its own customers more quickly than the email messages of others.

The problem with net neutrality, of course, is that internet service providers appear to be the only firms that are being held to the principle. Apple’s iPad, for instance, plays streaming videos in the HTML5 format but refuses to play videos in Adobe’s Flash format. And Facebook’s new email service initially places the messages of each user’s Facebook friends in a more easily accessible box than the messages of others.

To force full neutrality on all of these parties would be an overwhelming task; no one is currently suggesting that the federal government enforce such a standard. That being the case, though, can the government selectively enforce the net neutrality principle on Comcast and other cable television firms?

The Future: Web 2.0

One vision of the future, dubbed Web 2.0, is that the very concept of net neutrality will fall victim to the evolution of the communication medium itself. Facebook, for instance, seems to be evolving into a private password-protected version of the internet, with its users maintaining “walls” that function like web pages, and with email, text chat, and other communication capabilities available as well. And Iridium provides the entire earth with its own privately owned transmission service, operating via a network of 66 planetary satellites.

As such firms continue to grow in size and power, it will become progressively harder to force them to provide equal access to upstarts like Netflix. What may eventually emerge is a bimodal internet system, with a theoretically “net neutral” world wide web that relatively few people continue to use, and a number of private, proprietary services that represent the future of the medium.