Netflix Downplays Threat of Usage-Based Broadband Access

NEW YORK ( TheStreet) -- Netflix ( NFLX), often the biggest driver of Internet traffic on any given night, isn't worried about usage-based broadband charges as Internet service providers such as Time Warner Cable ( TWC), Verizon ( VZ) and Comcast ( CMCSA) toy with new broadband pricing plans.

Neftlix Chief Financial Officer David Wells said at the Goldman Sachs Communacopia conference the streaming video service could handle a pricing regime where ISPs charge consumers for their usage. Already most wireless carriers charge consumers for their data usage in high-end smartphone plans.

Wells also said usage-based Internet pricing may be an unsuccessful strategy for ISPs.

" We feel confident that the amount of bandwidth consumed by our product can be adjusted down a little bit and are well within reasonable usage caps," Wells said of the impact of usage-based billing to Netflix.

"I don't think that through an ISP, usage caps are necessarily a successful business model, outside of particularly low income and very value oriented consumers," he added, while highlighting that charging for premium broadband service could be a more effective strategy for ISPs.

"I think the successful business model is much more, 'let me sell you a faster broadband and I'll charge you more for it,'" Wells said.

Those comments came just a day after Time Warner Cable CFO Arthur Minson said the company is continuing to test the viability of capped usage broadband plans vs. higher-priced unlimited service plans.

Verizon CEO Lowell McAdam said on Tuesday the company was forced to sue the Federal Communications Commission in a net neutrality lawsuit because it didn't want the government to decide broadband pricing.

Verizon's net neutrality lawsuit, while a matter of free speech, is seen as a referendum on whether ISPs will fall under the regulatory jurisdiction of the FCC and if they will have the ability to charge content distributors in addition to Internet users. Such a scenario is called tolling, whereby ISPs would have the ability to extract higher charges for Internet access if they believed it to be a feasible economic strategy.

Currently, the FCC and Verizon are fighting in courts over the validity of the FCC's Open Internet Order, a decree that has kept issues on net neutrality, ISP tolling and unregulated broadband pricing at bay for about a decade.

"The ISP already charges the consumer and gets a healthy return on that, a very healthy margin on that and we're using our Open Connect program to try to lower the overall delivery costs for those ISPs that would like to participate," Wells said.

Either way, Reed Hastings-run Netflix has lobbyists on the ground in Washington as they monitor a possible shift in the way ISPs charge consumers and even content distributors on the Internet.

Goldman Sachs analyst Heath Terry highlighted Wells' commentary on Netflix original content and its Latin American growth as other points of interest to come from Wednesday's conference.

"Despite the early success of its originals, Netflix is not looking to drastically increase the amount of originals series it produces, nor is its success altering the negotiations it is having with content providers for non-originals," Terry wrote in a Thursday client note.

"Wells believes Netflix could participate in a number of different IP and distribution models for its originals from licensing to ownership, but will probably not be involved in production anytime soon," he added.

While Netflix continues to view its addressable market in the U.S. as 60 million to 90 million subscribers, the company is still seeking way to boost its growth in emerging markets where communications and internet infrastructure lags.

"The company continues to face headwinds in Latin America, particularly around device penetration and payment infrastructure. However, it has moved to address these issues through offering direct debit in Brazil and debit cards in Mexico, while also optimizing its marketing spend in Latin America," Terry wrote.

Netflix shares shares were rising less than 1% in early Thursday trading to $307.83.

-- Written by Antoine Gara in New York.