On Thursday, Netflix CEO Reed Hastings came out in favor of stronger net neutrality rules. Hastings supports a version of net neutrality that would help Netflix stream to customers without constant buffering -- and without Netflix having to pay extra to internet service providers. But the root problem for Netflix and customers isn't the "toll" that Netflix recently had to pay for direct access -- it's America's bandwidth scarcity.

Two Flavors of Net Neutrality

Hastings wants to be protected from paying extra to ISPs for better interconnection to their networks. His call for a "stronger net neutrality" comes after Netflix customers complained about slow streaming speeds around the time House of Cards was released, and after Netflix noted a steady decline in speeds on some ISPs.

Netflix eventually had to pay Comcast, one of the ISPs with steadily degrading Netflix streaming speeds, for better bandwidth.

Hastings doesn't want to have to do that again, so he's getting behind net neutrality.

"Strong net neutrality additionally prevents ISPs from charging a toll for interconnection to services like Netflix, YouTube, or Skype, or intermediaries such as Cogent, Akamai or Level 3, to deliver the services and data requested by ISP residential subscribers," said Hastings on Netflix's blog. "Instead, they must provide sufficient access to their network without charge."  

But in coming out for more protections for content providers against having to pay ISPs extra for better network connections further up the line than the so-called "last mile" connection that goes directly into consumers' homes -- which is what the Federal Communications Commission's 2010 net neutrality-friendly "Open Internet" rules were concerned with -- Hastings is essentially creating a new type of net neutrality. We previously looked at Netflix's streaming problem, asking if it was a result of the recent death of those 2010 Open Internet rules, and found that the "original" net neutrality rules wouldn't have helped the internet video streaming company.

Why Shouldn't Netflix Pay?

The original net neutrality principles are simply more concerned with protecting consumers than content companies. Hastings tries to make the argument that the slowdown of Netflix affects consumers, which it does in a roundabout way, but ISPs are understandably dismissive of Hastings' new version of net neutrality. Part of that is because Netflix is such a bandwidth hog that in some instances, Netflix streaming has gobbled up over 31 percent of all peak downstream traffic in North America. And for a lot of ISPs, bandwidth is a scarce resource.

"The Open Internet rules never were designed to deal with peering and Internet interconnection, which have been an essential part of the growth of the Internet for two decades. Providers like Netflix have always paid for their interconnection to the Internet and have always had ample options to ensure that their customers receive an optimal performance through all ISPs at a fair price," said David L. Cohen, Executive vice President of Comcast Corporation, in a statement on Thursday.

AT&T's reaction to Hastings was less diplomatic. "As we all know, there is no free lunch, and there's also no cost-free delivery of streaming movies. Someone has to pay that cost," Jim Cicconi, AT&T's senior executive vice president for external and legislative affairs, wrote on AT&T's blog on Friday.

"Mr. Hastings' arrogant proposition is that everyone else should pay but Netflix," concluded Cicconi. "That may be a nice deal if he can get it.  But it's not how the Internet, or telecommunication for that matter, has ever worked."

The Bandwidth "Scarcity" Problem

ISPs are perhaps understandably upset by what seems like Netflix's call for special treatment in the guise of "stronger net neutrality," but it's ultimately a problem they created. 

The U.S., in general, still trails behind other industrialize countries in the world when it comes to broadband speeds, and clearly bandwidth is a scare resource on ISPs like Comcast. Scarcity means costs rise, and just because Comcast's own customers would like Netflix to stream seamlessly doesn't mean that the cable giant wants to pay for it.

But you don't hear people in Kansas City, Kan., Chattanooga, Tenn., or the little rural town of Ephrata, Wa. complaining about slow Netflix streaming speeds. That's because they're using fiber optic, gigabit-level internet in those humble, lucky places.

Internet bandwidth doesn't have to be a scarce resource -- or at least it can be far less scarce: According to a recent study, in the U.S., the average speed is 9.8 Mpbs, just enough to watch Netflix streaming on a TV without too many issues. In Ephrata, the average internet speed is more than 10 times that, at 101.6 mbps.

Why do those towns have much-faster internet? It's not just because they have fiber -- fiber optic-based Verizon FiOS only has a nationwide average downstream speed of about 40 mbps.

Those towns have way faster internet - and no problems with a scarcity of bandwidth affecting Netflix or any other service -- because of investment. For Kansas City and others lucky enough to be chosen by Google for Google Fiber, the municipalities have to be willing to work with Google to put the infrastructure required -- even completing checklists for Google before the town is officially chosen.

In Chattanooga and Ephrata, the internet involves non-profit public utilities -- in one form or another. In Chattanooga, which boasts a 1 gigabit internet speed as well as a smart electricity grid, the internet is simply a nonprofit public utility. Because of a court ruling prohibiting public utilities from selling broadband directly to consumers, in the case of Ephrata, they have a local fiber optic company that nevertheless runs a broadband network created by the local public utility district.

But because cable companies like Comcast have monopolies in many areas, but are still the fastest connection around, many people are stuck with a world of scarce bandwidth (the standard concept of net neutrality basically boils down to ensuring ISPs don't purposely create more scarcity for consumers). Sure, Comcast and others could invest in new infrastructure, but that would cost millions if not billions of dollars, and with no competition, there's no incentive to do anything but protect the bundled TV business model and their bottom lines.

Ultimately, the new concept of net neutrality introduced by Hastings is a (probably unfair) band-aid for a problem that isn't going away until the greater problem of how Americans get their internet is addressed.