The practice of charging Internet customers by how much data they consume took center stage in a House hearing Wednesday, pitting Web firms such as Netflix against cable and telecom companies in a debate over whether such billing policies are anticompetitive.
The practice known as data caps, or usage-based pricing, was among a
broad set of issues debated in the House Communications and Technology Subcommittee hearing Wednesday on the “Future of Video.”
Highlighting the swift changes of the industry, where new battles lines are being drawn and competition is shifting, Dish Network chairman Charlie Ergen expressed concern over Verizon Wireless’ spectrum and marketing deal with cable firms.
“We certainly would have a concern where two vicious competitors might get together and agree not to compete with each other and preclude others from competing with them," Ergen said to lawmakers.
Verizon Wireless has agreed to promote cable services by Comcast, Cox, and Time Warner Cable as part of its purchase of spectrum from the cable firms. The deal has some critics afraid Verizon won’t be as interested in promoting its rival FiOS television and Internet service.
Ergen’s comments were part of a broad reexamining of cable industry rules that haven’t been updated since 1992, when cable television dominated American homes. Lawmakers also discussed whether new laws should be created to protect Internet video providers — questions that are expected to set the stage for lobbying and legislative battles for months ahead.
“This bipartisan interest in reforming the pay TV laws suggests 2013 is shaping up to be a major battle among pay TV distributors, content companies, broadcasters and (online streaming) providers,” said Paul Gallant, an analyst at Guggenheim Securities.
Netflix and public interest group Public Knowledge argued to lawmakers that data cap policies have the potential to hinder online video streaming providers, especially if cable and telecom companies only count competing video viewing as part of monthly bills and not their own.
“When you couple limited broadband competition with a strong desire to protect a legacy video distribution business, you have both the means and motivation to engage in anticompetitive behavior,” said Netflix general counsel David Hyman.
Lawmakers disagreed over the role of Congress in the fast-moving online video industry. Cable providers, which in 1992 had a 92 percent share of paid television viewers, now capture about 57 percent of the market.
“The last thing we want to do is shackle everyone's entrepreneurial spirit with one-size-fits-all rules,” said Subcommittee chairman Greg Walden (R-Ore.).
But Rep. Henry Waxman (D-Calif.) said current practices by cable and telecom firms have raised concerns that new Internet rivals aren’t going to get a “fair shot” at reaching consumers.
“Independent creators need rules that prevent discrimination against carriage of their programming,” Waxman said.
Netflix has been the most vocal opponent of data caps and discrimination by Internet service providers.
“If you do data caps, it should be equally applied to all,” he said.
Public Knowledge president Gigi Sohn noted that Comcast offers its Xfinity streaming video over the XBox gaming console without counting data streams against monthly limits.
That practice is currently under investigation by the Justice Department, which is broadly reviewing whether such “most-favored nation” agreements with partners is anticompetitive.
Comcast has refuted that argument, saying its Xfinity XBox streaming service doesn’t go over the Internet and should be treated just like its cable television channels.
Cable firms say data caps are needed because of the costs associated with expanding and maintaining networks. Besides,
the heaviest users should be paying more than those who use less, they say.
The idea that cable firms want to harm rivals is “flatly wrong and belied by the facts,” said Michael Powell, CEO of cable trade group National Cable and Telecommunciations Association.
Amid the swift convergence of media and technology, companies are grappling with decades-old program-access and retransmission consent rules for cable and television broadcasters.
Analysts said lawmakers may introduce bills that would deregulate aspects of the the cable and broadcast industry. The likelihood of such changes increase if Republican candidate Mitt Romney is elected, they said.
“A win by Romney would probably reduce the disruptive threat of the Internet to the cable and satellite TV companies. And a Republican administration likely would facilitate more extensive deregulation of the cable sector,” Gallant said.
DOJ’s investigation of the cable industry is expected to set the course for future billing practices by the cable and telecom industry. Rules on data caps are unlikely, analysts said.
FCC Chairman Julius Genachowski last May said he supported pricing models that include usage-based pricing by Internet service providers.