Ignore The Complaints Of Netflix's CEO, The Internet Isn't Ruined ... Yet
Such agreements, known as peering agreements, have been going on for decades. They are not the same thing as "net neutrality," explains Rayburn, an analyst for Frost & Sullivan and EVP of Internet blog site StreamingMedia.com. In the complicated, arcane world of internet infrastructure provision, Rayburn is an acknowledged guru.
Net neutrality means that an ISP can't give priority to specific things traveling on its portion of the Internet (like its own pay-per-view movies) while slowing or blocking other things from traveling on its network (like movies from Netflix or email from Google). For instance, Comcast can't refuse to deliver Hulu to its Internet customers just because it wants people to pay for its cable TV service instead.
Almost everyone in the industry agrees that ending that kind of "net neutrality" is bad idea.
But a "peering agreement" means that Internet companies have permission to connect their networks directly into an ISP's network, and that helps them transmit their own content better and, in some cases, faster.
And for that, the ISPs are allowed to get paid. They don't have to provide direct, unlimited access to their portion of the Internet to a single company for free.
Many times Internet companies use peering agreements to build what's known as "content delivery networks," or CDNs, where they can store their most popular data all over the nation, connecting to the Internet in lots of different cities. In this way, for instance, when people in San Francisco watch "Game of Thrones" online, the show is sent to them from a server in San Francisco, not from HBO's offices in New York.
Most of the big Internet companies have built their own private CDNs and have paid the ISPs for the necessary connections. The alternative is to hire a commercial CDN like Akamai, Level 3 or Limelight.
This is how it should be, Rayburn tells Business Insider.
If the FCC puts new rules in place, it should be to solidify "the current way the Internet works now, and has worked over last 20 years. The way networks connect with each other in different forms and under different business models. To date, we've not seen anyone other than Netflix come out and say we need intervention," he says.
In fact, based on research that Rayburn published on his blog on Wednesday, most of the big Internet providers are already paying the big ISPs.
Here's a chart that shows the ISPs that Internet companies are paying:
Source: Dan Rayburn. Used by permission.
Rayburn believes that Netflix's complaints about its agreement with Comcast muddies the waters.
Netflix had previously hired commercial CDN providers including Akamai, Level 3 and Limelight. It then decided to build its own and had to go to Comcast and other ISPs to get its network linked to theirs.
That's when it started complaining about having to pay. But in reality, he says that the five-plus years agreement between Comcast and Netflix is actually good for Netflix.
"Netflix gets a cheaper price [compared to its previous CDN contracts], lock-in for a long period of time. Customers get bet better quality. Netflix's costs go down. Its customer churn goes down. That gives it better margins. Yet all of this is all bad for their business? It's insane," he says.
Rayburn says that beyond the complaints, Netflix hasn't publicly suggested an alternative for the way peering agreement are handled now.
"Netflix has been vocal," he told us. "They have been complaining about it when they should be saying here's our evidence and here's how it think it should be fixed. I'm amazed that someone at Netflix thinks its a good idea to say to regulators, 'We want you to get involved in our business and regulate it. But we aren't giving any guidance on how to fix it.'"
The risk now is that the FCC is being pressured on all sides to "do something," and it has been vague about the details on what it plans to do, Rayburn says.
Netflix however, believes it shouldn't have to pay. We reached out to Netflix for comment and were directed to this statement from CEO Reed Hastings March 20 blog post:
"Consumers pay for access to the Internet. ISPs should deliver consumers the services they request. ISPs should not be allowed to double dip and, by instituting these tolls, discriminate between services."
Certainly, all the big ISP players like Comcast and AT&T understand Hasting's game plan and don't want to get rid of paid peering agreements.
But there's a fly in their ointment: Congress, filled with elected officials that don't understand the intricacies of how the Internet really works.
On Tuesday, FCC Commissioner Tom Wheeler was grilled during a Congressional hearing about his net neutrality proposal. And Netflix has been lobbying against the Comcast/Time Warner Cable merger, also on the grounds of net neutrality.
"It just shows the politics being played on the back end," Rayburn told us.