Netflix Lobbies Against AT&T/DirecTV, Says OVDs Could Suffer

Netflix pressed concerns to the FCC about AT&T's planned buy of DirecTV and the deal's potential market fallout. The combined company would have "increased incentive and ability to harm online video distributors (OVDs) and other edge-based Internet content" that it sees as competitive threats to its broadband and video services, Netflix said in a Monday ex parte filing about a meeting Thursday. Netflix said the FCC should reject the deal "as currently proposed," without making recommendations for conditions. Many believe the deal is likely to be approved by the FCC and the Department of Justice (see 1504270065), and AT&T said it expects the transaction to be completed this quarter (see 1504220069). With the abandonment of Comcast/Time Warner Cable, Netflix said AT&T would become the largest multichannel video programming distributor and, after making further investments, the largest ISP. "These two dynamics create a powerful incentive for AT&T to protect its investment in DirecTV's bundled programming by using its ability to harm OVDs to prevent or delay cord-cutting and cord-shaving," Netflix said. Netflix said AT&T has shown it can damage OVDs by "leveraging its control over interconnection to degrade its own customers' access to Netflix's service." AT&T also seems interested in using data caps and usage-based pricing methods, which it could apply "discriminatorily" to favor its own services, Netflix said. If AT&T can exploit interconnection or data caps to slow OVD development and the shift away from traditional video/broadband bundles, it could preserve its market advantage, Netflix said. Netflix disputed AT&T's April 21 filing that said the telco lacks incentives to harm competitors. AT&T's planned $48 billion purchase of a DirecTV satellite-TV business that profits by selling programming bundles "will result in a powerful incentive to protect that model from a shift by consumers toward on-demand, over-the-top content," Netflix said. AT&T declined to comment. Its April 21 filing blamed network congestion on Netflix and its backbone provider Cogent, not on AT&T capacity limits. "Netflix insisted on funneling its traffic to AT&T through only a handful of peers, including Cogent, because, as Netflix has stated, these few providers offered the best bids in terms of price and service," AT&T said. "As one network analyst has explained, 'Netflix chose to create, and use paths that [it] knew were congested, simply because they were cheaper than using paths that were less congested.' This strategy apparently overwhelmed Netflix’s chosen low price providers, causing congestion and impacting service quality for its customers." The American Cable Association and the Writers Guild of America, West also expressed various concerns about, and recommended conditions for, AT&T/DirecTV (here and here).