Netflix Under Fire for CFO's Net Neutrality Comments

The comment showed Netflix’s true motivations in the net neutrality debate, wrote CBIT Director Fred Campbell in a blog post Thursday. While championing net neutrality rules, the company had “assumed the FCC was unlikely to reclassify broadband as a Title II service, but hoped that its vocal support for Title II would create enough buzz to pressure ISPs into making voluntary concessions on interconnection,” Campbell wrote. “But, like most everyone else, it appears Netflix didn’t foresee the White House’s political plan to overrule FCC Chairman Tom Wheeler on Title II.” It’s no surprise “Netflix is unhappy about full-blown Title II regulation of the Internet,” Campbell wrote, saying the classification “is also likely to have an adverse impact on Netflix and other so-called edge providers.” He said Netflix will offer zero-rating in Australia, a practice expected to be scrutinized by the agency under the net neutrality order’s new conduct rule (see 1502250064).

Also leaping on Wells’ comment, Jim Cicconi, AT&T senior executive vice president-external and legislative affairs, said in a statement: “Netflix has spun a lot of tales during this FCC proceeding. But it’s awfully hard to believe their CFO would go into a major investor conference and misspeak on an issue supposedly so crucial to their future. More likely he had an attack of candor. At least ’til his company’s lobbyists got hold of him.” Free State Foundation President Randolph May chimed in: “Are you kidding me? Or was Netflix kidding FCC Chairman Tom Wheeler? Everyone knows that Netflix was a leading -- if not the leading -- proponent of Title II regulation. This must be a storyline for a very bad Netflix movie -- I don't know whether it's a comedy or a tragedy.”

Former FCC Commissioner Robert McDowell, now at Wiley Rein, emailed us that he and others have “warned 'tech' companies’ for years that Title II would be a supremely bad idea for them and America's world-class tech sector,” but the “pied pipers of Title II for the Internet have sold Silicon Valley a bill of goods. They simply don't understand that they've got a tiger by the tail named Title II that's going to whip around and bite them.” The order won’t prevent small startups from being excluded from volume discounts similarly situated large bandwidth users can negotiate from telecom companies, he said, saying edge providers also could be ensnared by Title II regulations under the Supreme Court's 2005 Brand X decision, which classified cable as an information service.

There “has been zero change in our very well-documented position in support of strong net neutrality rules,” Netflix said in a statement. A spokeswoman told us Thursday that Wells in making the statement was “giving a sense of the evolution of our position in recent years. Back in 2010 we thought [Section] 706 was a good solution, in January 2014 our earnings letter said we'd like an industry solution if possible, and when one wasn't possible we sought a regulatory one. So he was explaining that we didn't start at Title II like some folks did; however since mid-2014, we have been very consistent in our advocacy for the FCC to use all the tools at its disposal including Title II and have said we think Title II provides the strongest legal basis for FCC authority.”

Wells, in response to a question about net neutrality, began by saying the net neutrality debate has grown from focusing on differential treatment by ISPs on their network, but had grown to include interconnection issues like paid prioritization, according to the recording. “So, over the last year, we've been very pleased that we've been able to raise the issues beyond that narrow piece out into the public consciousness. … Were we pleased it pushed to Title II? Probably not, right? I mean we were hoping that, there might be a non-regulated solution to it. But it seems like companies that are pursuing the commercial interests have to arrive at something like that, so we're super pleased that there is now a notion, at least a vehicle for a complaint.”

Wells also made a statements backing the order and reclassification: “I would say we are very pleased with what's been accomplished. … Essentially the Internet has become a utility.” Wells said studies have shown people are willing to forego other costs including buying milk before dropping their broadband: “That’s a pretty strong indicator that you've got something that has become, you know, a utility and in our opinion.”

Title II proponents like Free Press Policy Director Matt Wood backed Netflix. The company’s position should be judged on its filings and statements, “not the desperate ramblings of opponents,” he said. “We’re supposed to believe that the companies' chief financial officer just changed the company's well-documented legal position on the fly? It's ludicrous, but then again so are most of the arguments being thrown at the wall by the ISPs lately.”