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| Low-cost online movie and television services from the likes of Netflix and Hulu are slowly drawing customers away from cable's ever-more-expensive bundles of channel |
Rapid technological advances have helped cable TV operators become the country's leading providers of broadband Internet connections. Yet "cable modem" service poses an existential threat to the pay-TV business that has been cable's bread and butter since its inception. Low-cost online movie and television services from the likes of Netflix and Hulu are slowly drawing customers away from cable's ever-more-expensive bundles of channels. So when leading cable TV operators started penalizing customers who downloaded unusually large amounts of data — a practice that seemed to target the heaviest users of online video services such as Netflix — it raised a troubling question: Are the penalties a legitimate effort to reduce congestion and offer a better online experience for most cable modem customers, or just a pretext to hamper cable's online rivals?
That's the backdrop for a new inquiry launched by antitrust enforcers at the Justice Department. Beyond the penalties for heavy bandwidth users, they're exploring a number of steps that cable operators and programmers have taken that effectively protect the pay-TV business against the new generation of rivals online. The scrutiny is warranted because of the cable operators' dominant position in broadband; if current trends continue, they could become the only providers in many communities capable of meeting the growing demand for bandwidth. Yet the results of the department's investigation aren't a foregone conclusion.
Take, for example, the bandwidth penalties that Comcast temporarily imposed. The company initially set a monthly "data cap" of 250GB, or enough to stream about 125 hours of high-definition video. After customers complained, it announced plans in May to experiment with higher and more flexible caps. Comcast argued that the data cap was designed to relieve traffic jams on its network during peak hours, a problem that regular users of the Internet know only too well. And consumers should welcome solutions that require heavy users to pay more. Nevertheless, data caps aren't the only way to do that; instead, they may simply be the approach that poses the greatest threat to Netflix and its ilk. If the result is that Comcast's Internet customers are deterred from using Netflix, that's an antitrust problem.
Comcast didn't help its cause when it exempted its own broadband video-on-demand service from the data cap when it was delivered through Microsoft's XBox 360 gaming console. The company argued that the videos delivered to the XBox came from the cable system's internal servers, not the Internet. But that's a distinction within Comcast's control; it could take the same approach with Netflix's videos if it wanted.
Cable operators have the right to compete aggressively, but not to use their power in the broadband market to compete unfairly for video customers. We welcome the Justice Department's efforts to determine whether the cable companies' practices are just aggressive or unduly discriminatory.
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