No, Comcast is not breaking the Internet...again

Comcast annoyed media activists last week by announcing it wouldn't count television programming retrieved through a customer's Xbox console against a monthly "excessive use" threshold for Internet access.

As with any change to existing Internet services -- even one that sounds like a good thing -- the response in Washington was to sound the doomsday alarm. "The reports that Comcast is offering a video product through the Xbox 360 without the data counting toward the customer's data cap," Public Knowledge said last week, "raises questions not only of the justification for the caps but, more importantly, of the survival of an Open Internet."

How's that again? The new service, first announced in October, simply allows existing customers of Comcast's Xfinity digital cable TV service to access on-demand programming through their Xbox instead of a set-top box. There will be no charge for the new service, which is available only to customers who are already paying for both Comcast cable TV and high-speed Internet access. The Xbox will either supplement existing set-top boxes or could be used to replace one or more of them.

Apparently, self-proclaimed consumer advocates would prefer that use of the service count against Internet access thresholds, or perhaps that Comcast not offer the service at all, requiring customers to lease additional set-top boxes instead.

That wouldn't seem to be the kind of advocacy most consumers would appreciate. But offering the service for free, it seems, violates a purist interpretation of the open Internet, or what is sometimes referred to as the "Net neutrality" principle.

According to Columbia Law Professor Tim Wu (who coined the term), the goal of Net neutrality "is to try and guarantee that similar content gets treated similarly." Wu believes the new service violates that goal. "If you think about it for a second," he said in an interview with Marketplace Tech Report, "if something doesn't count against your cap, obviously it's getting a preferential treatment. You're more likely to stream that instead of someone else's."

Well, let's take Wu's advice and think about it for a second. In no sense is Comcast's on-demand content getting "preferential treatment" over Internet video service such as Netflix, Hulu, or YouTube (known as "over-the-top" services). Like all television programming, it is similar to Internet video services only in that it uses the same cable infrastructure the company maintains for customer Internet access and digital voice services.

Using an Xbox instead of a set-top box for on-demand programming (some of which is included in the monthly fee and some of which is pay-per-view) doesn't change the fact that the programming in question is not Internet content to begin with. It's television content.

In the black-and-white world of legal academics and apocalyptic advocacy groups, video is video. But in reality, the difference is much more than semantic. Cable providers are still subject to extensive FCC and local regulations that constrain their business in hundreds of different ways, large and small. Just to gain approval of its merger with NBC Universal, Comcast had to accept dozens of detailed and often unrelated conditions on specific channels and content, as well as on-going FCC oversight.

The same rules don't apply to over-the-top video services -- one of the reasons these services have become so popular. (Hulu, it is worth remembering, is partly owned by Comcast through its NBC Universal subsidiary. Indeed, it is the largest single shareholder of this "competing" service.) Internet video gets the real "preferential treatment," and it's a much more meaningful advantage than the theoretical possibility of excessive use thresholds.

That difference aside, are you more likely to watch the Comcast programming than that of an over-the-top video service just because the former doesn't count toward an excessive use threshold? Well, maybe so, but of course on-demand cable programming never counted against the threshold for Internet access. All Comcast is doing now is adding a new device through which you can select it.

You might watch on-demand, some of which is already included in your cable fee, or you might watch an Internet video service. You might use your set-top box or your Xbox, or any of a fast-growing set of Internet TV applications that connect your broadband connection with game consoles, DVD players, or the TVs themselves. These days, you're likely to do some of each.

Besides the all-you-can-eat feature of cable television, there are other factors that influence consumers and their rapidly changing consumption habits for video. The Comcast on-demand service offers different content than the over-the-top services, many of which also now offer a combination of free and subscription-based services. The user interface, and other accessibility features, are also different. The ability to watch without commercials varies depending on the provider and the level of service selected.

Comcast's excessive use policy, on the other hand, may play little if any role in customers' decisions about which services to use and when. According to the company's Web site, the current 250-gigabyte limit still allows Internet customers to stream between 100 and 800 hours of online video a month, depending on the quality. If you aren't close to that, the threshold doesn't matter.

No violation of existing rules
Regardless of the likely business impact of the new Xbox feature, it's perfectly clear that Comcast's new service does not violate the FCC's Open Internet rules, passed at the end of 2010. (The FCC wisely avoids using the term "Net neutrality," which has proven to mean whatever its supporters want it to mean at any particular moment.) The rules, for one thing, apply only to how an Internet service provider handles Internet traffic. Television programming and phone service, even when it travels over the same cable, is explicitly excluded.

(The existing rules are already the subject of a legal challenge brought by Verizon and others, who argue that the agency lacks the authority to regulate broadband Internet access in the first place. The case is before the same court which, in an earlier case involving Comcast's handling of BitTorrent traffic in 2008, agreed. The court is likely to reach the same conclusion when the 2010 rules are reviewed, perhaps later this year.)

The only rule that could possibly apply to the new service says only that Internet providers "shall not unreasonably discriminate in transmitting lawful network traffic over a consumer's broadband Internet access service." Those objecting to the new service fear that by not charging users extra for on-demand programming through the Xbox, Comcast is indirectly disfavoring over-the-top video services. Since the threshold doesn't apply to television programming, the argument goes, offering some of that programming through the Xbox, which also hosts the over-the-top services, discriminates against the other applications.

But television programming is explicitly excluded from the definition of "broadband Internet access service." And even if the discrimination rule did apply to television programming, there's nothing "unreasonable" about applying the threshold only to over-the-top video services and other Internet content. Comcast's programming content, whether accessed through a set-top box or the Xbox, uses the same cable infrastructure as its Internet access service. None of the programming, however, is subject to the excessive use threshold for Internet content, because, as the FCC acknowledges, it is not Internet content.

If the Xbox service unreasonably discriminates against over-the-top services, then all cable TV unfairly competes with Internet video. That, however, is not the view of the FCC's Open Internet rules, nor its extensive regulations of cable TV providers. Nor should it be.

'Anticompetitive tricks'? Hardly
Media reform group Free Press, which also objects to the new service, disagrees. It acknowledges that the new service doesn't violate the existing rules, but it argues that the exception for television and telephone traffic shouldn't have been part of the rules to begin with. "Unfortunately, such anti-competitive tricks may be allowed by loopholes in the FCC's Open Internet rules," they said last week, "proving once again that the FCC failed to deliver on the promise of real Net Neutrality."

The new service is not anticompetitive, nor is its exception from the rules some kind of legal "trick" to avoid "real Net neutrality." Indeed, the FCC's final report identified over a dozen exceptions to the new rules, grandfathering in a wide range of important and longstanding network management techniques.

In addition to television and voice traffic using the same infrastructure as Internet content, for example, the FCC also excluded from the rules content delivery networks, which replicate frequently accessed content on servers often co-located at ISP facilities, virtual private networks for businesses, which may use the same infrastructure the ISP uses for consumer broadband Internet access, peering arrangements, backbones, hosting and data storage services, and others.

These exceptions are hardly loopholes. Quite the opposite. ISPs, content developers, hardware and software providers have regularly introduced hardware and software that prioritizes some packets over others, giving them "different" treatment despite the supposed neutrality principle. These innovations keep the public Internet fast and efficient -- if not "open" in some purist sense.

In the course of its year-long Open Internet proceeding, rather, the FCC learned that the idea of a neutral Internet is largely a romantic construct of academics and advocates with little appreciation for actual engineering. To its credit, the agency correctly concluded that each of these tools is essential to the smooth operation of the Internet. The neutrality principle, it seems, is and remains more honored in the breach.

Taken together, the long list of exceptions should have made clear just how misguided the new rules were in the first place. Unable to give up the ghost, however, the FCC struck an inelegant compromise between the ideal of neutral packet delivery and the reality of a carefully engineered Internet that actually works.

The FCC was right to carve out these exceptions to its rules, in other words, but missed the big picture. The Internet was never "neutral." Efforts to force it to be so as a legal principle enforced by a federal bureaucracy would do far more to threaten the survival of the open Internet than anything an individual ISP might do to manage network traffic.

The only problem with the list of exceptions is that it failed to acknowledge the certainty of future network management tools equally beneficial to the overall performance of the public Internet. By naming only specific technologies, the FCC set itself up as the gatekeeper for new network management innovations and techniques invented after the rules were set in stone. Or, as the rising chorus of exaggerated objections to Comcast's Xbox service suggest, as the referee of first resort for any new service, no matter how trivially it varies from long-standing practice.

Rather than waiting to see how such changes actually affect the open Internet, advocates simply run to the FCC claiming real or, as here, imagined violations of the limited rules that were passed. As long as the regulations remain on the books, expect them to be the regular subject of similar efforts at revisionist history -- both by the agency and those who wish a different set of rules had been written.

Which is not to say that over-the-top video services have no recourse if ISPs make truly life-threatening changes to their policies or engineering. Existing law already covers such behavior. In the event ISPs manipulate their infrastructure to favor their own Internet content over that of third-party services, for example, existing antitrust law stands ready as the established and appropriate arbiter of "anticompetitive" behavior.

Under law settled long before the Open Internet rules were first contemplated, business practices that demonstrably harm consumers were already illegal under antitrust. They can be stopped through private enforcement or by actions initiated through the Department of Justice or the Federal Trade Commission.

Unlike the FCC's rules, antitrust focuses on harm to consumers, not other competitors, from new products or services. Of course no such harm is anywhere to be found in Comcast's new Xbox service. Existing customers are simply being given the option to reduce their costs by substituting an Xbox console for a set-top box to receive on-demand content to which they already subscribe. Internet-based video services become no more or less attractive as a result.

Complaints about the new service, at the same time, prove more than they intend to. They demonstrate both the danger and futility of turning regulation of the Internet over to the FCC, and of the agency's folly in passing the Open Internet rules in any form. Better to have left well enough alone, and trusted to the existing and adaptable law of antitrust to determine the difference between real and imagined harms.