Net neutrality and Netflix

25 August 2015 | Cheng Lim and Ian Ranson, King & Wood Mallesons

Very shortly after the US Federal Communications Commission's (FCC) decision early this year to pass new net neutrality regulation in the US, it emerged that one of the most prominent supporters of net neutrality, Netflix, was signing up to agreements in Australia that arguably violate the principle of net neutrality.

Netflix had agreed with a number of internet service providers (ISPs) in Australia to exclude Netflix streaming video traffic from customers' data usage allowances. A number of commentators criticised Netflix for being hypocritical, while others defended Netflix on the basis that these agreements are part of the market reality in Australia. Netflix ultimately backed down from its agreements in Australia, saying that it "should have avoided [them] and will avoid [them] going forward".

These events serve to highlight some of the commercial drivers behind the net neutrality debate, which is yet to heat up in Australia. They also illustrate some of the similarities and differences between Australia and the US that will play into the Australian net neutrality debate.

Netflix's support of net neutrality

Net neutrality refers to the idea that all internet traffic should be treated equally and that no lawful traffic should be blocked, given preferential treatment or cost more than any other traffic.

In particular, net neutrality requires that ISPs not:

  • block access to particular sites, content or services;
  • shape (throttle or slow) particular internet traffic;
  • charge more for particular internet traffic; and
  • prioritise some internet traffic over other traffic.

Treating all internet traffic equally also requires that customer usage allowances apply to all traffic. The practice of excluding particular internet traffic from usage allowances is often referred to as "zero rating" and is discussed further below.

Netflix is a subscription-based online streaming video service that provides customers with access to a catalogue of thousands of TV shows, movies and documentaries for a flat monthly fee.

Netflix has taken a strong stance in favour of net neutrality regulation in the US, for example:

  • In May 2014, Netflix, along with a number of other large technology companies including Google, Facebook and Amazon, signed an open letter to the FCC in support of net neutrality regulation.
  • In July 2014, Netflix made a submission to the FCC's public consultation on net neutrality, urging the FCC not to permit discrimination on the internet and to "adopt clear and strong open Internet protections that prevent blocking, interconnection access tolls, unreasonable discrimination, and paid prioritization".
  • In September 2014, Netflix and a number of other popular websites including Mozilla and Reddit participated in a symbolic protest which involved displaying boxes with a loading icon and the words "If there were Internet slow lanes, you'd still be waiting".

The net neutrality debate in Australia

Australia currently has no net neutrality regulation.

Net neutrality has historically been much less of an issue in Australia than in the US. This is primarily due to a number of significant differences between the internet access market in the US and that in Australia.(1) The key difference is that it is common for ISPs in Australia to impose data caps on customers. Data caps allow ISPs to manage increased data usage due to services like Netflix and reduces the need to seek to recover these costs from elsewhere (such as from the online content providers). The second major difference is that there is much stronger competition in the internet access market in Australia than in the US. The vast majority of customers in Australia have a choice between a number of ISPs and can choose an ISP whose practices are net neutral or an ISP with non-net neutral practices that meet that particular customer's needs.

However, the recent introduction of Netflix into the Australian market has created a number of significant challenges for ISPs. Speaking at the recent CommsDay Summit in April, iiNet chief technology officer Mark Dioguardi mentioned that the company had seen Netflix's traffic increase from about 3% to 25% of iiNet's total traffic in the span of about 4 weeks following the official launch of Netflix in Australia. He said the levels of traffic they are seeing were "projected to occur well over six months from now". A number of customers have claimed that this dramatic rise in data usage has resulted in problems with the quality of their internet service during peak viewing times. ISPs are being driven to make significant investments to improve their networks to handle this increased traffic.

At the Summit, Optus chief executive officer Allen Lew said that Optus was considering introducing a premium service allowing content providers like Netflix to pay a fee to ensure higher quality streaming to end users. He went on to say that: To ensure the best customer experience that is cheap for the user, we need to ensure that [providers such as Netflix] understand that to preserve the network quality and to give you a HD video in the home, they need to work collaboratively with us.

These comments show that Australian ISPs are looking at non-net neutral practices in addition to zero rating as a means of recovering some of their costs from content providers. Comments like these could well be the beginning of the net neutrality debate in Australia. Stay tuned.

(1) See C Lim and I Ranson "Net neutrality: the Federal Communications Commission's new Open Internet Order" (2015) 2(4) Australian Media, Technology and Communications Law Bulletin 40.

Note: This is an extract from Australian Media, Technology and Communications Law Bulletin, August 2015, Volume 2 No 5

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