In a deal that will have ramifications for net neutrality, Netflix has agreed to pay Comcast for direct access to the No 1 cable MSO's network — an interconnection agreement that will help ensure that Netflix movies and television shows stream without hiccup to Comcast customers.
While it's not quite a toll-road deal that would signal an evolution to a completely different over-the-top (OTT) model — one that would see ISPs throttle traffic that they don't like absent a fee being paid — it's still a landmark development that could set the precedent for Netflix and others' approach to the broadband providers upon which they rely.
Netflix has always been a thorn in ISPs' sides, accounting for a majority of peak Web traffic on any given day (and 30% of overall Web traffic), but very little of the revenue for the pipe providers. It's also of course a competing service for pay-TV operators, most of whom are those same ISPs as well. This has given rise to a series of disputes over settlement-free peering arrangements, as when Comcast told Level 3 it would no longer exchange Internet traffic without being paid for it. In that case, which started in 2010, Level 3 was a main backbone provider for Netflix, and was sending more traffic to Comcast than Comcast was sending back to Level 3 — an uneven arrangement that demanded compensation, in Comcast's view, to help pay for necessary network upgrades to accommodate all of that traffic.
They two eventually resolved the dispute — terms were not disclosed — but it showcased the fundamental issue with OTT, ie, who should ultimately pay for the infrastructure to carry it?
Verizon has also been involved in its own dispute related to peering and a Netflix backbone provider, in this case Cogent Communications. Last summer, Cogent accused Verizon of delaying upgrades to the ports through which the two companies exchange Internet traffic.
"Cogent is not compliant with one of the basic and long-standing requirements for most settlement-free peering arrangements: that traffic between the providers be roughly in balance," Verizon said at the time. "When the traffic loads are not symmetric, the provider with the heavier load typically pays the other for transit. This isn't a story about Netflix, or about Verizon 'letting' anybody's traffic deteriorate. This is a fairly boring story about a bandwidth provider that is unhappy that they are out of balance and will have to make alternative arrangements for capacity enhancements, just like any other interconnecting ISP."
Against this backdrop, Netflix has been trying to sign up providers to its own CDN, the OpenConnect project, which would minimise traffic across both backbone and access networks by caching content closer to the consumer. It's essentially been in a stand-off with all of the major broadband providers, including Comcast, AT&T Inc, Verizon Communications Inc and Time Warner Cable, none of whom want to miss out on any potential revenue by forcing Netflix to pay for the privilege of quality connections.
For its part, Comcast has been releasing ISP rankings for consumers to show them which broadband providers deliver the next Netflix experience. The latest data shows that the average speeds of the company's prime time streams to Comcast subscribers dropped 27% from October to January. What part of that is the fault of Cogent — a main Comcast-Netflix middleman which analysts say needs to upgrade its infrastructure to accommodate heightened Netflix demand — and what part is simply Comcast looking to shore up its competitive position is not known.
No wonder then that Netflix has broken down and agreed to pay for direct interconnection. Comcast's sheer size gives it leverage in the matter. Boosting the viewer experience is an important differentiator as the OTT field gets more crowded. And, if Netflix could route its traffic more efficiently without paying middlemen providers, it's an operational advantage for the company and could result in a better cost profile for the streamer.
As far as net neutrality goes, Verizon last month prevailed in a lawsuit to block the Federal Communications Commission's ability to enforce net neutrality rules. Since then, consumers have anecdotally reported slower video streaming experiences across a variety of providers. While this peering deal doesn't necessarily violate Net neutrality principles, it does point out that OTT can't deliver a quality video streaming service on its own — and big ISPs like Comcast know that and will continue to seek every advantage that arises from that reliance. This has consequences for how the net neutrality landscape plays out in the coming months.