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5 Warnings on the Future of the Internet, Courtesy of Netflix

If you believe Netflix (NASDAQ: NFLX  ) , the Internet is in serious jeopardy. On Tuesday, the company joined the chorus of commenters submitting opinions to the FCC on the issue of promoting the open Internet. In the comments Netflix says that nothing less than the integrity of the Internet, "this country's, if not the world's, most important platform for economic growth, innovation, and competition," is at stake. 

The topic is one of the FCC's most controversial in years, having attracted over 1 million comments to date. And, as Netflix is responsible for up to 30% of peak-time Internet traffic to homes, it is uniquely exposed to any changes that might bring the Internet closer to what it calls a "pay for prioritization" model, where service providers charge companies fees for faster access to their customers.

Source: Netflix.

Here are five dire warnings for the future of the Internet taken from Netflix's comments. They paint a dark picture for consumers should the FCC's proposed rules be adopted, and they also explain why Netflix's expenses would jump at the same time.

1. The Internet will become like cable. Broadly speaking, Netflix argues that the FCC's proposals "turn the objective of Internet openness on its head -- allowing the Internet to look more like a closed platform, such as a cable television service, rather than an open and innovative platform driven by the virtuous cycle" of cooperation between "broadband networks and the information and services they carry."

2. Internet service providers will be kings. Instead of consumers having completely free choice over the content that they want to see, prioritization will allow ISPs like Comcast (NASDAQ: CMCSA  ) and Verizon (NYSE: VZ  ) to "choose what their subscribers see and do on the Internet and from whom they get their content." 

3. Internet service will be slower. Despite all of that new power for ISPs, paid prioritization would set up a "perverse incentive" for them to "forego network upgrades" in order to make their fast lanes more valuable, Netflix says. After all, if there wasn't any network congestion at all, then there would be no need to pay extra for faster access. 

4. Video delivery will be sluggish. "When an ISP like Verizon fails to upgrade interconnection points to its network, Netflix data enters the network at a drip-like pace, and consumers get a degraded experience despite already paying Verizon for more than enough bandwidth to enjoy high-quality online video services." This scenario has already happened, "particularly on Comcast's and Verizon's networks," Netflix says.

5. Netflix (and other companies) will have to pay more. Still, there is "one and only one way to reach Comcast's subscribers: through Comcast," Netflix points out. Its deal with the cable giant back in March was comparable to an access fee, "without which Comcast has refused to provide sufficient capacity for Netflix movies and TV shows to enter its network and to reach our mutual customers efficiently and without degradation." By paying Comcast more, Netflix only was able to bring its customers' experience back up to high-definition quality from the VHS quality they were seeing immediately before.

Image source: Netflix.

Do you agree with Netflix's predictions? Sound off in the comments box below.

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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 July 17, 2014, at 7:44 PM, AceInMySleeve wrote:

    Innovation is at the software layer, and not at the transmission layer. Add in natural monopoly characteristics and the ISP business needs substantial regulation.

    Things are ugly already. It is not expensive relative to revenue to fix the interconnection points. Already AT&T UVerse and Verizon FIOS have deteriorated to Comcast's level pre-Netflix deal. I experienced Comcast during that period and it is a very poor experience.

    Nevertheless Netflix's goal of Title II application appears unlikely. I'd wager they are going to be forced to cut deals as given their growth rate and the rate of decay of these services, there is material damage being done to Netflix and its customers. Where this leads may end up not being such a big deal, but I don't see the angle where it's better for the country or economic efficiency than fulfilling the more strict regulations requested by Netflix in their comments.

  • Report this Comment On July 18, 2014, at 9:42 AM, mcampbell8 wrote:

    What ISP's are doing is wrong. We already pay for the highest consumer speed available from our ISP. My gut tells me once they secure these fees, they will push for GB fees on top of that. They have a bad incentive to squeeze funds from content suppliers and consumers. And it will only get worse under the new rules.

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Demitrios Kalogeropoulos

Demitrios covers consumer goods and media companies for, as well as broader moves in the economy.

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