Netflix said it opposes Comcast's $45 billion bid for Time Warner Cable, no longer pulling its punches toward the company it recently agreed to pay for smoother video streams.
In its first-quarter letter to shareholders, Netflix chief executive Reed Hastings and chief financial officer David Wells said the merger would create a single company with too much power over the broadband Internet market. Combined, Comcast and Time Warner Cable could control as much as half of all broadband Internet subscriptions, with most of those homes having no alternative options for broadband service providers, the executives said.
"Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services as Netflix," the executives wrote. "The combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers. For this reason, Netflix opposes this merger."
Netflix is the first major Web company to criticize Comcast's acquisition plans. The company fears other ISPs will follow Comcast's demands of the video streaming service to pay for more direct connection with its home Internet users. In February, Comcast said it reached a deal with Netflix to pay "interconnection" fees so that the Web firm's servers connect closer to Comcast's network. By doing so, consumers see smoother streams without the interruptions Comcast consumers had complained about before the deal.
In a statement, Comcast spokeswoman Jennifer Khoury, a senior vice president, responded: “Netflix’s opposition to our Time Warner Cable transaction is based on inaccurate claims and arguments. There has been no company that has had a stronger commitment to openness of the Internet than Comcast.”
She also argued that the deal to stream Netflix videos at high speeds had little to do with a recent decision by Netflix to raise prices.
She added: “Netflix should be transparent that its opinion is not about protecting the consumer or about net neutrality. Rather, it’s about improving Netflix’s business model by shifting costs that it has always borne to all users of the Internet and not just to Netflix customers.”
In its letter to shareholders, Netflix executives also criticized AT&T for the poor quality of video streams. Netflix attributed the poor quality to AT&T's reluctance to connect to Netflix servers. The company said AT&T's ultra-fast fiber network performed worse than DSL providers including Frontier, CenturyLink and Windstream.
Netflix's insistence to freely interconnect to the networks of ISPs has raised a debate over the financial demands of telecom firms to reach consumers. Comcast and other ISPs say Netflix should pay for interconnection costs just like any other content delivery networks do, such as Cogent, Level 3 and Akamai.
But Netflix said Comcast, with its competing video product, was using its broad reach into U.S. homes to unfairly pressure Web companies like it for access to consumers.
"In addition, we are lobbying for the idea, that we think is natural, that interconnection is part of net neutrality," Hastings said in a call with analysts after the earnings release.