By Sanjay Sanghoee
FORTUNE -- Netflix's (NFLX) deal this week with Comcast (CMCSA) has sparked fears that powerful Internet service providers could block or slow down access to content providers that won't pay a toll to reach consumers. However, the deal could actually be good for net neutrality, at least under the right conditions.
That's because the real hurdle to the principle that Internet service providers should allow users access to all content, regardless of the source, is not that they could potentially play favorites but rather that U.S. networks lack bandwidth. The World Economic Forum ranks the U.S. 35th in the world in broadband capacity even as sites like Netflix grow rapidly (as you can see in the graph below) and require more bandwidth.
Bandwidth, which is essentially capacity, is a finite resource and impacts speed. When Netflix users watch House of Cards in large numbers at the same time, they use up a large amount of network capacity, which can slow down traffic for other sites (think of broadband as a road and data packets as cars on that road which jostle with each other to reach their destination). That hurts average users whether Netflix pays for delivery or not.
Historically, Verizon (VZ), Comcast, and other providers have dealt with this by imposing usage-based payment plans, whereby users who take up more bandwidth (for example, by watching streaming video) pay for that privilege. This does not make the net more neutral but it does provide some protection for average users from the data-hogging habits of a few. But with Netflix alone accounting for nearly a third of all domestic Internet traffic, it should be clear that tiered payment plans alone cannot solve the problem of insufficient bandwidth.
In order for the net to be really neutral and for users to be able to access all sites with the same fidelity, we need an upgrade of our broadband infrastructure. Network providers want sites that utilize a lot of network capacity to share in the cost of expanding that infrastructure. That has failed to happen so far but the Netflix-Comcast deal could be a sign of a positive shift. If content providers and distributors are willing to share the expense, our broadband capacity might get the boost it needs.
Of course, this can only succeed if Comcast applies the money that it receives from delivery fees toward an upgrade of its network. The same goes for Verizon, which is in talks with Netflix for a similar arrangement, and other network providers, since without their commitment to add infrastructure, smaller websites and users will wind up with the worst of all worlds. Let's hope for the best.
Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator, and has an MBA from Columbia Business School. He is also the author of two thriller novels. Follow him @sanghoee
As competition deepens, the online video streaming company could look extra attractive to investors.
By Sanjay Sanghoee
FORTUNE – The future of Netflix (NFLX) could soon change dramatically, now that Comcast (CMSCA) has agreed to buy rival Time Warner Cable (TWC) in a $45 billion deal that would combine America's two biggest cable companies.
With 44 million subscribers, Netflix has established itself as a leading player in the market for online on-demand video programming, MOREFeb 14, 2014 8:47 AM ET
As 2013 draws to a close, it's time to tie up a few loose ends and put a ribbon on this year's top stories.
FORTUNE -- Different people mark the end of the year in different ways. One of my traditions is reviewing my work for the year, owning up to mistakes that I haven't already corrected, and following up on some of what I've written. It's not as much fun MOREAllan Sloan, senior editor-at-large - Dec 23, 2013 5:00 AM ET
Verizon bulks up its content delivery business with Edgecast purchase.
FORTUNE -- Verizon (VZ) this morning announced an agreement to purchase EdgeCast, a Santa Monica, Calif.–based provider of content delivery networks for such clients as Twitter (TWTR) and Hulu.
No financial terms were disclosed, but Fortune has learned that the purchase price is around $390 million. This apparently includes some cash that Edgecast still hasn't spent from a $54 million funding round that MOREDan Primack - Dec 9, 2013 12:46 PM ET
It's a classic Wall Street game: Build a feeding frenzy to drive up a deal. And like most hype, it'll leave investors little to chew on in the end.
FORTUNE -- When you've gone hungry for a long time, even mediocre takeout dishes can look like something scrumptious from a five-star restaurant. That explains the stampede by buyers to gobble up Verizon's record $49 billion debt offering.
For years investors, especially big MOREAllan Sloan, senior editor-at-large - Sep 18, 2013 5:00 AM ET
Verizon launches largest corporate bond offering of all time.
FORTUNE -- Verizon Communications (VZ) today formally launched a $49 billion bond sale to help finance its $130 billion acquisition of Vodafone's 45% stake in Verizon Wireless. It would be the largest investment-grade corporate bond offering of all time, easily topping Apple's (AAPL) $17 billion issuance from this past spring:
Verizon's offering also could help turn around the entire corporate bond market's fortunes, MOREDan Primack - Sep 11, 2013 11:31 AM ET
Will Vodafone pay taxes in the U.K. for its wireless sale to Verizon or won't it? Bankers with $600 million on the line should rest easy.
By Cyrus Sanati
FORTUNE -- The massive $130 billion Verizon/Vodafone deal is a boon for Wall Street, reportedly netting some $600 million in fees for the legions of bankers, attorneys, and accountants who worked (and continue to work) tirelessly to make the deal a reality. But MORESep 4, 2013 10:01 AM ET
|AT&T cuts prices again|
|Winners and losers of the bull market|
|The medical marijuana ad that never aired, despite contrary media headlines|
|Can Fox's reboot of 'Cosmos' find an audience?|
|Chrysler Group orders donated Vipers destroyed|