Netflix Has Started Paying Comcast to Deliver Videos to Comcast Customers – Is This The End Of Net Neutrality?

Netflix has agreed to start paying Comcast to effectively stream its service to Comcast subscribers.

Yes, you read that right. A web service is about to start paying Comcast to do what Comcast is supposed to do for their paying customers anyway. It sounds very wrong, and you can expect to see a lot of opinion pieces blasting Comcast in the coming days. However, what many people are forgetting is this kind of agreement is very common among every major player on the internet. In fact, this deal could ultimately save Netflix a ton of money.

How, you ask? – To understand, you need to know three things.

1. You need to read the full joint press release Netflix and Comcast put out this morning (February 23). It reads (emphasis added):

Comcast Corporation and Netflix, Inc. today announced a mutually beneficial interconnection agreement that will provide Comcast’s U.S. broadband customers with a high-quality Netflix video experience for years to come. Working collaboratively over many months, the companies have established a more direct connection between Netflix and Comcast, similar to other networks, that’s already delivering an even better user experience to consumers, while also allowing for future growth in Netflix traffic. Netflix receives no preferential network treatment under the multi-year agreement, terms of which are not being disclosed.

2. You need to know what an interconnection agreement is:

An interconnection (or peering) agreement is a private arrangement that allows two separate networks to communicate with each other. The entire internet is made up of millions of private and public networks linked by interconnection agreements. It’s generally accepted that no money changes hands if each network carries an almost-equal (symmetrical) amount of the other’s traffic. Otherwise, the network that sends the most traffic is expected to pay for the difference.

3. You need to know that a company called Cogent Communications links Netflix’s private network with most ISPs in the U.S.

Now you’re ready to make sense of the issue – Here goes:

For many consumers in the U.S., Netflix has been slowing down or forcing people to endure the ultimate First World Problem – Watching their favorite shows and movies in standard definition. The average connection speed between Netflix and Comcast subscribers has dropped 27% since October 2013, according to the Wall Street Journal. While most people blame this on consumer ISPs such as Verizon and Comcast, the ISPs themselves blame Cogent Communications.

Even though Cogent have taken a hard-line in denying any responsibility for the slowdown, no matter how you look at the issue, Cogent appears to be in the wrong here. Based on the information available, it appears that either (1) Cogent promised a certain amount of bandwidth to Netflix and they have been unable to deliver on that promise, or (2) they have behaved badly by refusing to pay for the traffic they send to ISPs networks – as Verizon claims. When you consider that Cogent is passing millions of video streams to ISP’s networks (mostly in HD) every day, there is no way Comcast of any other ISP could return that level of traffic to Cogent’s network. So, the ISPs expect payment, as explained above. Cogent has systematically refused to pay ISPs to use their networks, and in return ISPs are refusing to open new ports for Cogent’s network to protect the integrity of their own. This leads of network over-utilization, packet loss, and slow Netflix for everyone during peak times.

Whether you believe Cogent’s actions are justified or not, all the data suggests they are the weak link in the chain. Perhaps Netflix has realized that, and this agreement effectively removes Cogent from the equation by making their own interconnection agreement with Comcast and directly linking their network with Comcast’s; speeding up video streaming for all Netflix customers that use Comcast.

While the terms of the agreement remain undisclosed, it is likely Netflix is paying for the privilege for direct access to Comcast’s network for the reasons already outlined above. However, by cutting out the middle man, they’re likely paying much less than they would pay Cogent to do exactly the same thing, while also improving the experience for customers. It’s a win-win for Netflix who, despite their reputation as a friendly company, will happily take a page from Frank Underwood’s playbook if a third-party affects their business.

So, what does this mean for net neutrality? – The fact is that nobody knows just yet. On the surface, this seems like a simple peering agreement that shouldn’t draw the ire of regulators or affect the development of net neutrality in any way, but there may be more going on behind the scenes. The real and present risks inherent in these kinds of agreements is that it could still create a two-tier internet, with the fastest connection speeds reserved for those with the resources to directly peer with ISP networks. It can be difficult to see the difference between that and the traffic discrimination that would arise in the complete absence of net neutrality rules, and it seems regulators will have to start thinking outside of the box to help curb such risks before they arise. Hopefully Netflix will reveal some of the terms soon so that we, as consumers, know where we stand on this issue.