Did the Cable Guys Just Give In to Netflix's Demands?

The Internet is always a moving target.

Not too long ago, cable giant Comcast (Nasdaq: CMCSA  ) found itself under fire for some of its broadband policies. Netflix (Nasdaq: NFLX  ) CEO Reed Hastings complained that watching digital videos should count the same against your Comcast traffic caps whether you're using HBO Go, Netflix Streaming, or Comcast's own Xfinity service to get the job done. Even if the 250-gigabyte monthly cap is pretty roomy, Hastings argued that applying a different set of rules to Xfinity is unfair.

It looks like Comcast was listening.

Exhibit A
Last week, Comcast suspended that hard bandwidth cap. A new, softer cap will replace it. Comcast will test out the customer response on two different models, either scaling data caps along with the speed and level of service you're paying for, or else just letting you pay extra if you break through the cap. In both cases, the lower limit becomes 300 GB.

In layman's terms, Comcast will let you download as much as you want. Just be prepared to pay for the extra allowance.

The company also insisted that all traffic is being treated exactly the same, no matter what video service you might be using -- "over the public Internet." That important caveat is designed to give Comcast wiggle room to handle Xfinity separately after all, because that data never touches networks outside Comcast's own.

Nice try, Comcast!
Netflix called it "a small step in the right direction," but pointed out that Xfinity still gets special treatment. In return, Comcast said that the change had nothing to do with Hastings' complaints. "This is not the call to debate about the cap. It's not a call about Netflix," executive VP David Cohen said on a conference call. And that's not all it isn't: "We are not doing this because all of a sudden we have large numbers of customers who are approaching the 250GB cap," Cohen pressed on.

Instead, Cohen wanted journalists to conclude that Comcast's network is robust enough to handle today's traffic demands. Fair enough, and I don't doubt that the systems can handle it. But I think it's also a money grab, designed to squeeze revenue out of a politically tricky situation. If you also get to look like the good guy while doing it, that's just a bonus on the side.

Meanwhile, Sony (NYSE: SNE  ) is delaying its own plans for a digital video service because of it, and that's explicitly because the Japanese entertainment and electronics giant isn't comfortable selling that service while Comcast's Xfinity holds an unfair advantage.

So that's the dark side of Comcast's Internet services. Whatever you call these caps, and no matter how generous the traffic limits might seem today, the company is laying the foundation for potentially more damaging and anticompetitive practices down the road. Push your customers down that slippery slope nudge by nudge, and they might not even notice when it's too late to say no.

But it ain't all bad news
The cable giant is also making some genuinely positive changes for its broadband customers. The company will share Wi-Fi hotspots across the country with three of its largest cable rivals.

Starting with some 50,000 access points in a few key markets, subscribers to Comcast, Time Warner Cable, Cablevision (NYSE: CVC  ) , and Cox Communications get free access to wireless hotspots managed by all of these cable companies. Sure, it's a self-serving phalanx against the assault from telecom and satellite rivals who are siphoning away cable subscribers left and right. But it might work because the cable industry just joined hands to launch a solid selling point for their services.

The cable guys sure can't afford to stand pat. Telecom and satellite services are stealing TV and broadband customers from the cable industry. It's getting easier to walk away from your cable contract now that fiber-optics and satellites can offer many of the same services at competitive prices and quality levels. In the long run, I think Reed Hastings will get what he wants -- simply because Comcast can't afford to sell draconian data plans that push disgruntled customers away to rival services.

Fat data pipes are changing the business world, and Comcast needs to fight for its juicy role at the consumer end of online transactions.

Fool contributor Anders Bylund owns shares of Netflix and has created a bull call spread on Netflix, but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Netflix.The Motley Fool has sold shares of Sony short. Motley Fool newsletter services have recommended buying shares of Netflix. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (5) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 22, 2012, at 10:15 AM, MINNION wrote:

    What Planet do you live on. Direct TV just launched direct tv anywhere for FREE....cell phone, Computer(lap top, tbalet device).

    The pay for streaming business is over.

    I get to watch TV in my car, at the ariport, road trip.

    Maybe you don't havecable and all you can afford is paying $ eight bucks a month for NFLX.

  • Report this Comment On May 22, 2012, at 12:53 PM, ShrikeTheFoolish wrote:

    Minnion,

    There's no need to be immature and trollish by passive-aggressively commenting about a person's income. Many people have realized they don't watch enough television to justify spending more on cable than they do on basic utilities. The value just isn't there. This comes from somebody who has Verizon FIOS, but can see the flip side of the coin.

    Please, go to another website to post, because your comments as they exist are not wanted here.

  • Report this Comment On May 22, 2012, at 1:09 PM, BMFPitt wrote:

    Cap or no cap, $100+ per month for video service can't compete with $8 or so for video service. Comcast's business model cannot survive long term, and sooner or later they'll realize they're just an ISP that also sells video.

    The networks, the cable channels not directly owned by cable companies, HBO, and all of the major sports networks are setting themselves up for the point where they can completely bypass the middleman of subscription TV services.

    The real problem is all the local monopolies that Comcast is granted, preventing anyone else from being a more competitive broadband carrier in many areas.

  • Report this Comment On May 22, 2012, at 2:13 PM, BioBat wrote:

    BMFPitt,

    I don't know anyone that's paying anything close to $100+ for just video service. As a bundle with internet service, sure but not just the cable/satellite on it's own. So it begs the question, what's more valuable the $100+ cable/internet bundle or the $30-50+ internet + Netflix 'bundle'. If you're the least bit interested in sports, one wins out over the other, if you just casually watch TV, you're probably going the cord cutting route.

    Time Warner (a cable company) owns HBO, Comcast (a cable company) owns NBC and all their cable affiliates. One isn't about to go p!$$ing in the others backyard by offering a direct to consumer internet broadcast at the expense of the local cable monopoly. No how, no way.

  • Report this Comment On May 22, 2012, at 11:29 PM, crca99 wrote:

    Wish I could drop Comcast. Service is subpar and rates jump up without warning. Where I live, you pay for it whether or not you use it.

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