Apple(s aapl) is reportedly building its own content delivery network and is in the process of signing peering agreements with the big ISPs, according to Dan Rayburn, an industry consultant and analyst. Rayburn uses Apple’s apparent willingness to sign peering agreements with ISPs as a way to argue that Netflix’s complaints about having to pay Comcast an interconnection fee are dubious.
At a time when interconnection deals are getting so much exposure, Apple hasn’t used it as an opportunity to argue about the current business models of how networks connect with one another. Much like Microsoft, Google, Facebook, Pandora, Ebay and other content owners that have already built out their own CDNs, Apple appears to see paid interconnect deals as simply part of the costs associated with building out their own CDN network. To date, no other content owner or content syndicator that has built out their own CDN has complained of the current business models or argued about doing mutually beneficial interconnect deals between networks.
But what’s dubious is not Netflix’s complaints over paid peering agreement or Apple’s willingness to enter into these agreements. Instead, the bigger issue is the secretive nature of how content is exchanged on the internet at a time when a number of the significant content and broadband players are consolidating. Also, I’d quibble with Rayburn’s characterization that no one speaks up about these deals. In some situations, such as Google(s goog) or Facebook(s fb), many ISPs happily host content caching servers for those companies without charging them. Cablevision and Sonic.Net both have Netflix Open Connect Boxes, while other ISPs host boxes for Facebook and Amazon for free.
One might also point out that ISPs often don’t see Google’s YouTube or even Apple TV’s offerings as the potential disruption to their pay TV revenue that Netflix is. Rayburn points out that Apple TV is a mere 2 percent of total bandwidth during prime time compared to Netflix’s 34 percent, and then tries to point out that when Apple releases a software update it can be huge from a traffic perspective. That’s like trying to justify a crowd containment strategy by comparing the hordes of Black Friday shoppers at Wal-Mart to a normal day.
But, once again, the real issue here is not the differences between Apple and Netflix and whether they should pay for interconnections or not, but that these deals happen in secret when they happen, and in many places they happen in in markets that aren’t competitive. Both edge providers and ISPs consolidating their power — Google’s YouTube potentially buying Twitch, which is a growing source of traffic (about 1.35 percent of total bandwidth according to Sandvine) is an example of this consolidation on the edge provider side. Meanwhile, while AT&T’s(s t) Dish deal or Comcast’s(s cmcsa) proposal to buy Time Warner Cable(s twc) shrinks the overall ISP market — fewer players are at the negotiating table.
This is an issue that the current FCC Chairman has signaled will be an important one for his commission, explaining that while peering agreements aren’t part of the net neutrality debate (they don’t happen at the last mile, but at the point where traffic enters the last mile) they are essential to his “network compact” and the functioning of the internet.
Thus, I’m waiting for the commission to start demanding data from all companies who have a stake in this issue: those that haven’t complained publicly; those that have complained through proxies; and those that apparently are happy to accept the status quo. Until that point, I think it’s a stretch to try to compare Apple’s apparent acceptance of paying for direct interconnections to Netflix’s frustration with the practice. From here it’s like comparing apples to oranges. To find the right comparisons we’re going to need actual data, and then we can figure out if Netflix is just whining or is instead a canary warning us about an important connection point for the internet getting choked off by ISPs.