Netflix Says Net Neutrality Debate Just Got Real With Comcast

| About: Netflix, Inc. (NFLX)

Netflix (NFLX) CEO Reed Hastings says Comcast (CMCSA) is violating the principles of net neutrality, as laid down by the FCC, in its handling of content from its Xfinity service.

Xfinity is the brand Comcast is using for a pay-per-view service that works either from its TV or via its ISP services.

Hastings said he used his own service, on an Xbox, as well as Xfinity, using Comcast as his ISP, and that his Netflix usage counted against the service's 250 Gbytes/month data cap while the Xfinity use did not.

"The same device, the same IP address, the same wifi, the same internet connection, but totally different cap treatment.

In what way is this neutral?"

The short answer is it's not. Comcast says, however, that the Xbox content is only running inside Comcast's proprietary network, that the wider Internet isn't touched, and therefore it has not violated the rules.

This is not news and won't be news unless someone files a formal FCC complaint, and that complaint is taken seriously by the regulators. The treatment is made possible by the design of Comcast's network, which uses local Points of Presence as hubs, meaning content does not move outside infrastructure that Comcast owns. Rival ISPs like Verizon (VZ) and AT&T (T) would have to re-architect their networks along the lines of cable to do the same thing.

The shot across the bow comes three months after Netflix hired a new government relations expert, Christopher Libertelli, who worked at Skype while that company was fighting its battles concerning Voice over IP with phone companies. Libertelli has created a political action committee called Flixpac to organize customers on the company's behalf.

Advocates for the cable industry, through the blog NetCompetition, are dismissing Netflix' complaints, calling it "the AOL of net streaming." The group calls Netflix' actions "panicky."

Translation: bring it on.

Question: will he? And how might the agency respond if he does?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.