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 (NAS: CMCSA) found itself under fire for some of its broadband policies. Netflix (NAS: 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 (NYS: 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 (NYS: 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.

At the time thisarticle was published Fool contributorAnders Bylundowns shares of Netflix and has created a bull call spread on Netflix, but holds no other position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. The Motley Fool owns shares of Netflix.The Motley Fool has sold shares of Sony short.Motley Fool newsletter serviceshave recommended buying shares of Netflix. The Motley Fool has adisclosurepolicy.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 servicesfree for 30 days.

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