The Netflix-Comcast agreement isn’t a network neutrality violation, but it is a problem

It wasn’t long after Comcast(s cmcsa) and Netflix(s nflx) finally settled a festering peering dispute that people starting claiming that this resolution means the end of network neutrality. But it’s not. For better or worse, the legal framework governing network neutrality in the U.S. — the recently gutted Open Internet Order — doesn’t touch the issue of network interconnection and peering.
It could have, but at the time the FCC was pulling together the Open Internet Order in 2010, then-chairman Julius Genachowski decided not to bring interconnection agreements under the purview of the order. At the time it made sense, though even back then peering disputes raised consumer-protection issues. It would have precipitated a big fight and upset a fairly established internet practice when the big focus was on the last mile. So now we have a situation that FCC chairman Tom Wheeler summed up well when I asked him about peering in an interview late last month:

”A lot of people seem to think the whole peering and interconnection topic is the same as net neutrality. It’s not, it’s a different issue — it’s a cousin, maybe a sibling, but it is not the same issue. But it is an issue that is something the commission has to stay on top of. Our job is to make sure whatever happens is not anticompetitive, is not favoring one party…and that’s the challenge we have to apply to make sure it is a competitive, vibrant, non-preferential market.”

So what’s going on?

Even if Netflix (and other companies) paying Comcast for direct access to its network isn’t a violation of network neutrality, it is a concern. The fear is that Netflix can’t provide a decent-quality video streaming service unless it pays to peer with Comcast, either directly or through a transit provider that has a direct interconnection. Netflix has mitigated this issue by paying transit providers that peer directly with Comcast to carry its traffic. But as anyone who covers the internet knows, internet giants benefit if they can control their own infrastructure and costs as they get bigger.
With 30 percent of U.S. broadband traffic, Netflix is certainly big enough to want to control the costs of delivering its bits to the end consumer. It tried to do this in 2010 by shifting its content delivery network agreements from Akamai to Level 3, which would act as both a CDN and a transit provider. The idea was that Level 3 already had a settlement-free (it didn’t pay) peering agreement with Comcast, and Netflix could benefit from that relationship without paying Comcast directly. After the influx of Netflix traffic upset the balance that Comcast and Level 3 had, Comcast and Level 3 engaged in a very public peering fight.
Level 3 agreed to start paying Comcast. In 2012, Netflix tried once again to control its own destiny with the introduction of Open Connect, a content delivery network that offered ISPs servers that would cache the Netflix content. The larger ISPs didn’t bite. So with its capitulation that I reported on Friday, Netflix is accepting the idea that unless it pays Comcast directly or through a transit, it can’t deliver the user experience its customers expect.

A modest proposal

Given that Microsoft (s msft), Google (s goog) and many others have already decided to pay Comcast for a direct connection or pay a transit provider with a direct connection, Comcast has now enshrined its version of peering — one that requires companies that send a lot of traffic to its network to pay. An argument can be made that such payments help Comcast expand its network to meet the demand that services like Netflix put on the infrastructure, although the counter-argument is that the end consumer paying for broadband is footing that cost.
I view it as ISPs figuring out how to impose the old “sender pays” model on the internet — something we at Gigaom view with no shortage of alarm.
Another issue is that Comcast is setting the rates to let content providers get their traffic onto its network rates in a relative vacuum. These agreements aren’t transparent, even within the industry. Do these rates match the cost of buying additional ports or wavelengths to carry the influx of traffic? Could Netflix figure out a way to do this more cheaply if left alone? Could Google? How much can Netflix or another provider control about the type of gear used or where the networks meet?
These rates could go up over time, and they essentially act as a tax on the internet that the web content companies have to pay to ensure their service gets to the end user. They pay this tax directly if they are a big enough provider, or indirectly by locating their servers in places that peer directly with Comcast or buying transit.
For an internet that has been built on the concept of settlement-free peering agreements that don’t require a CEO-level negotiation, this seems like a worrisome development. It could add bureaucracy and cost and enforce the ISP as a gatekeeper. Luckily, there’s a pretty clear solution. Just open these contracts up to industry and public scrutiny. Perhaps Chairman Wheeler will get on that.