Reed Hastings, CEO of Netflix, expressed his disgust over the deal Netflix made with Comcast two months ago, but that did not stop him from making a similar deal with Verizon. After complaining about what he called having to pay an “arbitrary tax” just in order to improve services, he urged federal regulators to begin placing paid-peering agreements in the FCC’s Net-neutrality rules, which are currently under development right now. Whether or not Hastings will get his way or not once the new rules are released, the CEO still has to make moves in order to improve his company’s services.
The deals made by Netflix with Comcast and Verizon have only added more fuel to the fire over Hastings’ stance on Net-neutrality. Net-neutrality is the idea that customers should all have the same access to public websites within the “last mile” into their homes. Paid-peering agreements- like the ones Netflix just signed with Comcast and Verizon- are a direct connectivity issue not currently considered under the FCC’s Net-neutrality rules. Moving forward, this fire will continue to grow as Netflix will have to continue to reluctantly sign peer agreements in order to improve services with companies that could very well be abusing the market in order to get Netflix to pay up.
Hastings first publicly accused Comcast of abusing its market power in order to force Netflix to pay for peering, a strategy that Verizon has appeared to deploy as well. After that criticism, Netflix suggested that Comcast willfully allowed its connections to transit providers like Cogent and Level3- the networks that help carry traffic to every network on the internet- to slow down in order to force the hand of Netflix to strike a deal. The Netflix relationship with Comcast has again failed to improve in recent times. As news of the merger between Comcast and Time Warner Cable broke, Netflix proposed that Comcast could use this newfound power to double charge for the same internet content. For example, if Comcast wants to charge another fee for accessing Netflix, customers and Netflix alike would theoretically be paying Comcast twice to access each other.
The problem between Netflix and US ISPs over paid-peering-interconnection agreements does not end with Comcast. Before Netflix inked a deal with Verizon, Netflix had some major issues with streaming on Verizon, ranking 15th on their ISP speed index. That sinking streaming performance had caused some observers to accuse Verizon of throttling service speed in order to force the issue. With AT&T most likely up next to make a deal, Netflix again has employed the strategy of putting the customer in the middle of their fight over interconnection agreements. Netflix, like they did with Comcast, is claiming that AT&T could purposely be jamming up connection speeds in order to get a deal done sooner. Whether or not that strategy will work this time around for Netflix- it won’t- AT&T Mobility CEO, Ralph de la Vega, simply agreed with Comcast and Verizon, saying in March that the company wants Netflix to pay up as well.
The new deal with Verizon may quiet the criticism of the company from Netflix, as the connection speed between the two should improve dramatically, but with more companies like AT&T lurking to strike a deal next, the debate over paid-peering is sure to continue.
Commentary by Ryne Vyles