AT&T Responds To Netflix, Says Degrading Video Makes No 'Business Sense'

Netflix recently warned the Federal Communications Commission that AT&T's proposed $48 billion takeover of DirecTV could pose a threat to online video distributors.

The streaming video company said in a filing that it was opposed to the merger -- at least without additional conditions placed on AT&T. Netflix specifically reminded the FCC that AT&T degraded customers' access to Netflix's video streams in 2013 and 2014.

AT&T fired back on Wednesday, arguing that Netflix has no reason to complain about the telecom.

“Amid all its recent protests, Netflix neglects to mention an important fact -- Netflix has entered into a long-term agreement for direct access to AT&T’s network on terms that will allow Netflix to continue to thrive in the marketplace,” AT&T writes in a letter to the FCC.

AT&T is referring to its interconnection deal with Netflix. The precise terms of that arrangement -- and similar ones that Netflix forged with Time Warner, Comcast and Verizon -- have never been made public. But the deals broadly involve Netflix paying extra fees to broadband providers in order to interconnect directly with their networks.

Netflix entered into those arrangements to improve the quality of its choppy streams, but wasn't happy about making the additional payments. The company accused broadband providers of double-dipping by charging Netflix additional fees to reach subscribers, while also charging subscribers to access Netflix's streams.

“We'll never realize broadband's potential if large ISPs erect a pay-to-play system that charges both the sender and receiver for the same content, ”CEO Reed Hastings wrote in Wired last year.

Despite its history with Netflix, AT&T now insists that the video company's concerns are not founded. The telecom says it wouldn't make “economic or business sense” to degrade the quality of streams from online video distributors.

“Providing high quality broadband services aimed at attracting and retaining profitable broadband and bundle customers is, and will remain, at the heart of AT&T’s business,” the company says.

AT&T adds that customers who drop broadband “almost always” also cut the cable cord. “Thus, a degradation strategy would risk losing not only broadband profits, but also associated, and much greater, double and triple-play revenues and profits,” AT&T says.

Of course, this argument assumes that subscribers who experience degraded broadband service will cancel their plans, as opposed to putting up with choppy streams. But people in some parts of the country tolerate poor broadband service simply because they don't have any better options. In fact, many of Netflix's customers obviously remained with their broadband providers in 2013 and 2014, despite experiencing poor quality streams during those years.

The latest filings are coming just two weeks after Comcast withdrew its bid to take over Time Warner Cable. Consumer advocates who opposed that deal haven't been nearly as vocal about AT&T's planned merger with DirecTV, although that acquisition also could have a dramatic effect on broadband in the U.S.

Regulators have yet to indicate whether they're inclined to approve the merger.

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