American Comcast-Netflix deal may have consequences in Canada

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On Feb. 23, the Internet video service Netflix announced that it had reached an agreement with American Internet service provider (ISP) giant Comcast, whereby it would pay for direct access to Comcast’s network and subscribers. Widespread fear among net neutrality proponents spread that the agreement may herald the beginning of the end. Net neutrality is a term for the idea that ISPs shouldn’t make some content or services on the Internet more accessible to its end users than others. For months, Comcast had been throttling Netflix traffic, arguing that it cost too much to deliver and that Netflix ought to bear some of the financial burden for delivering its enormous flood of Internet video—Netflix blinked.

However, the Comcast-Netflix deal is less insidious than it seems. Traditional ISPs form “peering” agreements in which they agree to trade traffic for free and allow their customers to access computers on each other’s networks without the exchange of money. One of the underpinning assumptions of this free peering, however, is that the traffic flow in each direction is about equal and both parties benefit. It’s not uncommon for unequal peers to trade money along with data. Netflix, as a delivery service for video content, sends vastly more data than it receives, a fact that has long upset peering partners who feel they are forced to absorb significant costs of delivering Netflix’s services.

This sudden collapse by Netflix, and the long-term costs of its about face, which remain unknown, could be the result of a recent decision by the U.S. Court of Appeals for the District of Columbia. On Jan. 14, the Court struck down the American Federal Communications Commission’s broadband neutrality rules. Those rules, enacted in 2010, ordered that ISPs ”shall not block lawful content, applications, services, or non-harmful devices, subject to reasonable network management” and “shall not unreasonably discriminate in transmitting lawful traffic over a consumer’s broadband Internet access service.”

Is this likely to have an effect on Canadian consumers? It’s too early to say directly. If content delivery services like Netflix raise their rates to compensate for increased costs, secondary effects from the large American market are possible.

On the other hand, the Canadian regulatory landscape differs significantly from the American one. For example, section 27(2) of the Telecommunications Act states that Canadian ISPs cannot “unjustly discriminate or give an undue or unreasonable preference.” By implementing the Telecommunications Act, the Canadian Radio-Television and Telecommunications Commission (CRTC), the agency responsible for regulating Canadian ISPs, released rules in 2009 for ISP “traffic management” policies. These rules generally treat content-specific policies such as those that target one application, like Netflix or Skype, as in violation of the law. However, broader economic policies, such as billing per gigabyte downloaded, are considered reasonable.

Could Canadian ISPs set their sights on Netflix? What would the CRTC’s response be? Some dispute over what kind of traffic policies are really acceptable makes a conclusive statement troublesome; not all traffic is the same. Certain applications, such as Internet gaming and video-conferencing, are highly influenced by latency, or the round-trip time for traffic on the Internet. The difference between a tenth-of-a-second delay and a half-second delay could change a video conference from perfect to useless, whereas other applications, like Internet surfing or email, are much less influenced by delays in traffic delivery.

Latency also depends on where the traffic is on the Internet. From a user’s perspective, no difference is apparent between a website hosted in Japan and one hosted in Vancouver. From an ISP’s perspective, however, undersea cables may be more congested and more expensive to send data over.

A system that treats all traffic identically (such as on a first-come, first-serve, basis) therefore hurts both users and ISPs. On the other hand, conflicts like the one that led to the paid peering agreement between Netflix and Comcast can only harm consumers, especially when they’re negotiated in secret. The announcement of the agreement was preceded by months of inexplicable slowdowns and huge levels of customer frustration. More concerning still is competition between an ISP’s own services and third-party services on the internet. The ISPs’ own services, of course, can be located closer to consumers and use less-expensive links than third-party services. However, by allowing ISPs to offer their own services at reduced cost, while charging competitor services for access, we risk a highly fragmented Internet, in which your access to Google or Netflix depends entirely on whether your ISP has cut a deal with that particular company.

These concerns may seem distant and hypothetical at the moment, but undoubtedly, large Canadian ISPs are watching the playing out of the drama to the south with considerable interest.