Weekly Update

Verizon takes the Netflix bait

The war of words that erupted this week between Netflix and Verizon over who was responsible for low quality of service some Netflix subscribers were purportedly experiencing on Verizon FiOS escalated sharply Thursday when the telco sent Netflix a letter threatening legal action if the video company doesn’t cut out the trash-talking.

“There is no basis for Netflix to assert that issues with respect to playback of any particular video session are attributable solely to the Verizon network,” Verizon’s general counsel Randal Milch wrote to his counterpart at Netflix, David Hyman. “Netflix’s false accusations have the potential to harm the Verizon brand in the marketplace. This potential harm is broader than only the experience of a customer viewing Netflix content. The impression that Netflix is falsely giving out customers is that the Verizon network is generally ‘crowded’ and troublesome…In light of this, Verizon demands that Netflix immediately cease and desist from providing any such further ‘notices’ to users of the Verizon network.”

Netflix quickly brushed off the legal saber rattling. “This is about consumers not getting what they paid for from their broadband provider,” a Netflix spokesperson said in a statement provided to various media outlets. “We are trying to provide more transparency, just like we do with the ISP Speed Index, and Verizon is trying to shut down that discussion.”

The likelihood that Verizon would actually follow through on its threat of legal action, in truth, is not very high. The discovery process involved in any sort of litigation would inevitably turn up a lot of laundry that Verizon would not want publicly aired concerning its dealings with various peering partners. Netflix, moreover, would likely welcome the lawsuit. It would give the video provider an opening to counter-sue and possibly give it leverage to renegotiate the terms of the interconnection deal the two companies recently signed on more favorable terms as part of any settlement agreement.

Yet even by threatening legal action Verizon is likely playing into Netflix’s hands. Netflix has been trying for months to get the Federal Communications Commission to put the government’s thumb on Netflix’s side of scale as it negotiates direct interconnection deals with ISPs, doing its best to conflate the technically and legally separate issues of peering and net neutrality in hopes of riding net neutrality’s regulatory coattails. So far, FCC chairman Tom Wheeler has played his cards close to his vest on the issue,acknowledging that peering bears looking into while remaining non-committal as to his timetable or how far he might be prepared to go to regulate peering agreements. If Netflix can bait one of its new ISP peering “partners” into threatening legal action through its incessant trash-talking, it would bolster its case that there is some live, adjudicable controversy around peering beyond ordinary business disputes, increasingly the pressure on the FCC to act.

In its initial response to reports of Netflix’s provocative error notices, Verizon seemed to be hip to the game, accusing the video provider of “deliberately mislead[ing] its customers so they can be used as pawns in business negotiations and regulatory proceedings.” By sending the cease-and-desist letter, however, Verizon may have fallen into the precise trap Netflix had set for it.