Netflix says it regrets striking a deal that exempted its videos from data caps imposed by an Internet service provider and will avoid such arrangements in the future.

Netflix has criticized data caps on fixed broadband for years and said that when they are applied, they should be applied equally to all content. But in Australia, where data cap exemption deals are common, the company negotiated with iiNet to exempt Netflix video from the ISPs' caps.

One month later, Netflix said in its quarterly letter to shareholders yesterday that it was a mistake:

Data caps inhibit Internet innovation and are bad for consumers. In Australia, we recently sought to protect our new members from data caps by participating in ISP programs that, while common in Australia, effectively condone discrimination among video services (some capped, some not). We should have avoided that and will avoid it going forward. Fortunately, most fixed-line ISPs are raising or eliminating data caps in line with our belief that ISPs should provide great video for all services in a market and let consumers do the choosing.

We asked Netflix this morning if the iiNet deal is the only one it has struck and whether it will pull out of the deal, but we haven't heard back yet.

UPDATE: Netflix also has a cap exemption deal with Optus in Australia. Netflix also told Ars that it has altered the agreements with iiNet and Optus to free them of any obligation to exempt Netflix traffic from data caps. "We changed the terms of both deals though both companies decided to continue offering unmetered to their customers," Netflix said.

Commenters have also pointed out that BT in the UK offers Netflix without having it count against broadband limits. "Netflix and BT have partnered together and new and existing TV customers can now purchase Netflix from BT," BT says. If you buy Netflix directly from BT, "There are no limits: watch as much as you want." This is only true if you watch Netflix on BT's YouView system. "But [Netflix] will count towards your data allowance if you’re not on Unlimited Broadband and watch Netflix on other devices in the home," BT says.

While BT uses Netflix's content delivery network to improve performance, the ISP is not under any obligation to exempt Netflix data from caps, Netflix said. "If an ISP wants to do that because they think it's a good idea, that's their call," Netflix told Ars. "We haven't asked for special treatment, and where we did in Australia, we corrected it."

Netflix also reaffirmed its support for net neutrality rules passed in the US by the Federal Communications Commission this year. Netflix Chief Financial Officer David Wells said last month that the company hoped the FCC could find a "non-regulated solution" instead of enforcing its stricter Title II authority on broadband service.

In yesterday's letter to shareholders, Netflix said, "We support strong net neutrality across the globe, allowing all consumers to enjoy the Internet access they pay for, without ISPs blocking, throttling, or influencing content in the last mile or at interconnection points. In the US, we have been vocal advocates for, and are pleased with, recent action by the FCC to assure an open and neutral Internet under its Title II authority. In particular, we applaud the FCC for specifically addressing interconnection points. We hope this action serves as an example to regulators around the world looking to strengthen the innovative force of the Internet."