For OTT Providers, the Real Net Neutrality Fight is Just Beginning

This week’s net neutrality hearing by the House Communications and Technology Subcommittee was remarkable on several levels. The nearly four-hour marathon featured testimony by all five members of the Federal Communications Commission, a rare group appearance meant to signal the hearing’s importance.

The hearing also drew nearly the full complement of subcommittee members, along with a few members of the full Energy and Commerce Committee — another rarity in Washington. With net neutrality emerging as a political flash point, the issue promises to become a magnet for campaign cash heading into 2012 and everyone on the committee wants to be seen as a “player” on the issue.

Yet for all the hot air, the hearing did produce a few moments of genuine substance for those who managed to stay alert, particularly for those concerned about the development of the over-the-top video market. One such moment came in a fleeting exchange between FCC chairman Julius Genachowski and Rep. Marsha Blackburn (R-Tenn.) over whether the new non-discrimination rules included in the commission’s net neutrality order apply to peering agreements between Internet backbone providers.

Genachowski said they did not.

Blackburn’s question was prompted by a letter to the FCC released on the eve of the hearing by AT&T and the National Cable and Telecommunications Assn. (NCTA), which urged the commission to “swiftly, clearly and publicly affirm that arrangements for Internet peering and other Internet backbone services are not subject to the net neutrality rules, and that the agency will decline efforts to become involved in these commercial disputes.”

The letter, in turn, was prompted by a complaint filed with the FCC by Level 3 Communications against Comcast over Comcast’s demand for payment for Level 3 to account for the huge spike in traffic the CDN is sending Comcast’s way since landing the Netflix account last year.

In their letter, AT&T and NCTA complain the FCC’s silence on the dispute has encouraged other Internet backbone providers such as Global Crossing to bring similar, unwarranted complaints against last-mile broadband access providers.

Genachowski’s answer at this week’s hearing seemed to satisfy Rep. Blackburn, but it’s unlikely to settle the issue. Indeed, following the hearing, Level 3 issued a statement claiming his comments settled nothing:

It would be inaccurate to take Chairman Genachowski’s statement that the open Internet order is unrelated to peering agreements and turn it into an implication by Chairman Genachowski that the open Internet order does not relate to the Comcast/Level 3 dispute. In fact, Chairman Genachowski took great pains to avoid such an implication, correctly stating that the Comcast/Level 3 dispute is not yet before the FCC and that the FCC has gathered no facts about it.

The exchange opens a window onto what is likely to be the next major flash point in the ongoing battle over network-management practices. As Internet traffic spikes, driven largely by increased downstream video traffic, unequal data flows between networks are likely to lead to more disputes, disrupting the once chummy and still largely unregulated world of Internet peering. And over-the-top video providers responsible for most of that traffic could easily find themselves caught in the crossfire, as Netflix has been in the Level 3/Comcast dispute.

As I read Genachowski’s comments, his demurral fell short of what AT&T and NCTA were hoping for. Though he described the dispute between Level 3 and Comcast as a “private business matter” that he hopes the parties “settle and resolve” themselves, he stopped short of saying the commission will always decline efforts to become in involved in such disputes, or that the FCC lacks the authority to regulate peering agreement should it choose to.

As I’ve argued elsewhere, the point of contact between wholesale data haulers like CDNs and last-mile access providers is where the OTT rubber will really hit the road. If the goal is to encourage competition among video providers, the FCC may not be able to stay out of it forever.

Question of the week

Should the FCC seek to regulate last-mile peering agreements in the interests of preserving net neutrality?