Netflix’ Deceptive Throttling Will Have Lots of Unexpected Repercussions

For the last several years that Netflix has relished the role of Grand Net Neutrality Inquisitor accusing ISPs of throttling Internet traffic in alleged violation of net neutrality, Netflix actually has been secretly throttling its Internet-leading traffic in ways that it never disclosed to either its users, the public, or to the FCC/FTC.

This incredible net neutrality revelation could have lots more repercussions than many appreciate at first glance.  

We learned of this extraordinary duplicity from a WSJ story this week where Netflix was forced to fess up “that for more than five years it has limited its video speeds to most wireless carriers across the globe, including AT&T and Verizon…  Netflix said it doesn’t limit its video quality at two carriers: T-Mobile and Sprint because “historically those two companies have had more consumer-friendly policies.”     

Consider these under-appreciated repercussions.

1.  Has Netflix misrepresented its service to users in violation of the FTC’s Section 5 authority against deceptive or unfair business practices?

First, if one reads Netflix’ Terms of Use Policy, Netflix did not disclose to its users that Netflix itself throttled the speed available to users and that it discriminated in throttling based on its own non-disclosed assessment of what is best for users.  

Netflix in Section 6f of its Terms of Use, states: “…Please check with your Internet provider for information on possible Internet data usage charges. Netflix makes no representations or warranties about the quality of your watching experience on your display. The time it takes to begin watching a movie or TV show will vary based on a number of factors, including your location, available bandwidth at the time, the movie or TV show you have selected and the configuration of your Netflix ready device. …”

In making it clear there are a variety of factors that can affect the service’s quality, Netflix never discloses, however, the highly material information that Netflix’ own purposeful throttling of a users’ Internet downstream speed from an ISP could be one of the factors that affects movie/TV loading time. And Netflix never discloses that it discriminates in throttling AT&T and Verizon users’ traffic, but not T-Mobile’s or Sprint users’ traffic, so the user could choose to use an ISP service that Netflix streams to fastest.     

On its face it appears Netflix has deceived its users for over five years that they should be worried about ISPs throttling their traffic in violation of net neutrality, when Netflix was actually the entity really throttling traffic in a non-transparent, discriminatory manner.

Second, it appears that Netflix’ secret throttling was an FTC unfair business because it appears to have overridden a consumer choice that Netflix’ represented to users they had and they controlled. See here where Netflix on one hand gives users a choice of how they want to manage their own Netflix usage, yet on the other hand Netflix secretly thwarted some users’ choice to use more data, by secretly throttling their traffic. It is not an FTC fair business practice to represent to a customer they can do x, and then secretly deny them the relative speed choice they thought they could chose.  

Third, Netflix touts its ISP speed index as trustworthy public source of competitive information. Now we know from Netflix’ own admission they have rigged the relative competitive speeds of wireless ISPs for five years, secretly streaming video faster to T-Mobile and Sprint and slower to AT&T and Verizon. How can the public trust that Netflix has not, or is not, selectively and secretly rigging its wireline ISP speed index when it has long secretly rigged its wireless streaming speed?

Fourth, the FTC should investigate if Netflix’ non-transparent, manipulation of different ISPs speed/consumer-quality in a manner which neither the user nor the ISP was ever aware of, is anti-competitive?

Simply, is it anticompetitive for Netflix to clandestinely ensure that some ISPs will underperform competitively on quality of streaming, relative to others, to the detriment of what is best for users and users’ ability to control their own destiny?     

2.   Netflix’s throttling proves edge platforms have the power and incentive to throttle traffic.

As America’s largest pay video subscription network service, Netflix’s public admission of its non-transparent throttling of Internet traffic for tens of millions of American users over five years, proves that ISPs are not the only entities that have the ability and economic incentive to violate net neutrality, and thwart the FCC’s purported “virtuous cycle of innovation.”

The FCC cannot be happy with Netflix over this debacle.

In the spring of 2014, Netflix was a ringleader of the net neutrality mob that bullied the FCC into banning fast lanes/paid prioritization and into including interconnection under net neutrality over the Chairman’s objections. Now Netflix publicly admits it has long secretly delivered a “fast lane” to T-Mobile and Sprint mobile users and a “slow lane” to AT&T or Verizon users.

This Netflix confession also adds to the arbitrary gunk and smell stuck to the FCC’s reclassification of only broadband ISPs as telecommunications providers -- in the challenged 2015 FCC Open Internet Order.

3. Netflix’ high-profile duplicity here complicates FCC’s net neutrality enforcement going forward.  

Until now no one knew that a large edge platform provider had the capability and economic incentive to non-neutrally, throttle Internet traffic and discriminate to create faster and slower lanes on the Internet.

Until now, the expectation was if there was traffic throttling detected on the network, it was presumed to be the work of an ISP. Now the FCC knows that is not necessarily true.

Now when an edge platform seeks to accuse an ISP of a net neutrality violation, the FCC’s investigation should responsibly cast a wider net than before we learned of Netflix’ duplicity, and investigate if an involved edge provider has been throttling or blocking the Internet traffic in question and not the ISP.

Importantly, Netflix’ tacit admission of throttling guilt here, could change the enforcement dynamic, because the FCC can no longer assume that only an ISP is a potential threat to net neutrality and Internet openness.

In sum, Netflix screwed up big time. They purposely misled their users and misrepresented their business practices in ways that the FTC could find were deceptive and unfair under their Section 5 enforcement authority.

Lastly, it will be telling if the FCC continues to remain silent about Netflix’ duplicity going forward.

Will the FCC stand for the principles of transparency and consumer choice?

Or will they give Netflix a pass?




Netflix Research Series

Part 1:  Level 3 & Net Neutrality - Ignorance Unleashed! [11-30-10]

Part 2:  Level 3-Netflix Expose their Hidden Agenda [12-3-10]

Part 3:  Sinking Level 3 Seeking FCC Internet Regulation Bailout [12-8-10]

Part 4:  Netflix' Open Internet Entitlement Hubris [2-1-11]

Part 5:  Fact-Checking Netflix' Net Neutrality WSJ Op-ed [7-8-11]

Part 6:  Netflix' Glass House Temper Tantrum Over Broadband Usage Fees [7-26-11]

Part 7:  Netflix Crushes its Own Momentum [9-20-11]

Part 8:  Netflix the Unpredictable [10-10-11]

Part 9:  Is Netflix the AOL of Web Streaming? [3-9-12]

Part 10: Netflix' Net Neutrality Corporate Welfare Plan [5-9-12]

Part 11:  Is Net Neutrality Trying to Mutate into an Economic Entitlement? [1-12-14]

Part 12:  Exposing Netflix' Extraordinary Net Neutrality Arbitrage [1-24-14]

Part 13: Net Neutrality is about Consumer Benefit Not Corporate Welfare for Netflix [3-21-14]

Part 14: Exposing Netflix’ Biggest Net Neutrality Deceptions [6-14-14]

Part 15: FCC’s Netflix Internet Peering Inquiry – Top Ten Questions [6-17-14]

Part 16: For Now… Netflix Has Mastered Regulatory Arbitrage