March 24, 2014 7:49 p.m. ET
Any deal between Comcast Corp. CMCSA -1.25% Comcast Corp. Cl A U.S.: Nasdaq $49.67 -0.63 -1.25% March 25, 2014 4:00 pm Volume (Delayed 15m) : 17.67M AFTER HOURS $49.67 0.00 0.00% March 25, 2014 6:39 pm Volume (Delayed 15m): 766,764 P/E Ratio 19.10 Market Cap $128.81 Billion Dividend Yield 1.81% Rev. per Employee $475,419 03/24/14 Apple, Comcast Likely to Invit... 03/24/14 HEARD ON THE STREET: Apple Aud... 03/24/14 'Cord-Nevers': Why Comcast Wou... More quote details and news » and Apple Inc. AAPL +1.08% Apple Inc. U.S.: Nasdaq $544.99 +5.80 +1.08% March 25, 2014 4:00 pm Volume (Delayed 15m) : 9.89M AFTER HOURS $546.05 +1.06 +0.19% March 25, 2014 7:59 pm Volume (Delayed 15m): 193,519 P/E Ratio 13.43 Market Cap $486.43 Billion Dividend Yield 2.24% Rev. per Employee $2,163,820 03/25/14 Inside a Secret Apple Room Whe... 03/25/14 How to Find the Phone That Fit... 03/25/14 Apple Engineer Recalls the iPh... More quote details and news » to create a new streaming-video service with special access to subscribers would likely draw close regulatory scrutiny and spark a new debate over whether cable companies can carve out a part of its pipe for content providers, according to industry analysts and experts.
The Wall Street Journal reported Monday that Apple and Comcast have discussed teaming up on a new streaming-video service that would deliver content to Apple set-top boxes. Apple wants traffic to the boxes to be marked as distinct from public Internet traffic and travel in a separate flow of bandwidth over Comcast's cables to homes, ensuring better quality for Apple's TV service than Web video.
The companies aren't close to a deal and there is no guarantee they will strike one. But the talks have cast a spotlight on the type of arrangement Apple is proposing: one that would treat its video traffic as a "managed service" traveling in Internet protocol format, similar to cable video-on-demand and phone services.
Federal "net neutrality" rules struck down in January barred broadband providers from discriminating against any public Internet traffic— but they were allowed to make exceptions for managed services. The benefit of managed services is that they don't have to contend with other Web traffic over the "last mile" of pipes connected to customers' homes, and data-use thresholds often don't apply.
Comcast previously agreed to abide by net-neutrality conditions to gain regulatory approval for its merger with NBCUniversal in 2011 and its proposed acquisition of Time Warner Cable Inc. TWC -1.20% Time Warner Cable Inc. U.S.: NYSE $135.66 -1.65 -1.20% March 25, 2014 4:00 pm Volume (Delayed 15m) : 2.82M AFTER HOURS $135.66 0.00 0.00% March 25, 2014 4:52 pm Volume (Delayed 15m): 120,168 P/E Ratio 20.01 Market Cap $38.10 Billion Dividend Yield 2.21% Rev. per Employee $428,682 03/24/14 Apple, Comcast Likely to Invit... 03/20/14 Time Warner Cable CFO Eyes Fat... 03/20/14 Comcast Details How TWC Talks ... More quote details and news »
The Federal Communications Commission and the Justice Department are likely to take a close look if any such Comcast-Apple deal is struck, particularly because it involves the nation's largest cable and broadband provider.
Proponents of net neutrality—the concept that Internet service providers should treat all traffic equally—argue that such deals would allow Comcast to pick winners and losers on the Internet, and force innovative companies to pay a toll to reach customers with new applications.
"The Comcast-Apple deal could revolutionize the pay-TV business, so it will naturally draw closer government scrutiny," said Guggenheim Securities telecom policy analyst Paul Gallant.
Comcast and Apple wouldn't need government approval for such a deal, but regulators could get involved if anyone complains that an agreement violates other commitments Comcast has made.
The FCC is writing new net-neutrality rules. Under its old ones, such a deal might be allowed through an exemption for managed or specialized services, like the VoIP phone service offered by many cable companies, Mr. Gallant said.
"I think as long as it's nonexclusive, and doesn't degrade the traditional broadband service, I expect the FCC would be OK with it," Mr. Gallant said.
The FCC, Comcast and Apple all declined to comment.
Already Comcast is under scrutiny from regulators as it seeks approval to buy Time Warner Cable. Comcast has agreed to expand its net-neutrality commitment as a condition for winning approval for that deal.
The advantages of managed services over public Internet services can be stark. For example, Comcast and Time Warner Cable both offer streaming video apps on the Xbox gaming console that don't count toward customer data thresholds.
In contrast, both Comcast and Time Warner Cable count watching a streamed Netflix NFLX -2.13% Netflix Inc. U.S.: Nasdaq $370.84 -8.06 -2.13% March 25, 2014 4:00 pm Volume (Delayed 15m) : 4.31M AFTER HOURS $370.30 -0.54 -0.15% March 25, 2014 7:59 pm Volume (Delayed 15m): 35,945 P/E Ratio 194.16 Market Cap $22.66 Billion Dividend Yield N/A Rev. per Employee $1,879,910 03/25/14 Amazon Cuts Back on Streaming ... 03/25/14 Stocks Rise, Snapping Two-Sess... 03/25/14 Netflix's Tumble Doesn't Faze ... More quote details and news » movie or TV show over the Xbox toward users' data thresholds. Nearly two years ago, Netflix Inc. Chief Executive Reed Hastings put a spotlight on managed services when he said that Comcast was giving special treatment to its own TV app, while not affording the same privilege to Netflix. "Comcast should apply [data] caps equally, or not at all," Mr. Hastings wrote in a Facebook post. "In what way is this neutral?"
The cable industry argues that it should be able to offer managed services. "As the Commission has previously recognized, consumers benefit not only from a growing open public Internet, but also from the evolution of innovative, specialized services," a spokesman for the National Cable Telecommunications Association said Monday. "We fully support this conclusion and expect future regulatory proceedings to recognize this fact."
Supporters of net neutrality fear the exemptions for managed services will become a loophole for Internet service providers like Comcast to start charging companies that seek to provide consumers with new, high-bandwidth services in the future. Matt Wood, policy director of the advocacy group Free Press, said such arrangements could also discourage ISPs from upgrading the speed of traditional Internet access.
Comcast and Time Warner Cable executives have said they continue to boost speeds and investments in the public broadband portion of their pipes. The companies have said exempting their own TV streaming apps from data thresholds is justified because those don't travel over the public Internet and are simply extensions of the cable-TV service that customers are already paying for.
—Shalini Ramachandran contributed to this article.
Write to Gautham Nagesh at gautham.nagesh@wsj.com
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