Netflix and Comcast declare peace

[Commentary] Netflix and Comcast announced that they’ve come to terms on an interconnection agreement. In general, the deal means that Comcast and Netflix will connect their networks as peers, which cuts middlemen Cogent, Level 3, and Tata out of the path between their networks. While very few people find it controversial that Netflix has to pay Cogent, Level 3, or Tata to carry their packets to the hundreds of Internet service providers in the US with who serve limited areas, there is a fairly widespread belief that Comcast should provide packet carriage for free to anyone who can directly connect to their network.

A corollary to the belief about free carriage is a belief that this deal changes the Internet or makes network neutrality irrelevant. These kinds of arrangements -- known as “paid peering” -- have been going on since the days of AOL, but have become more prominent since the rise of video streaming. The bottom line to American consumers, investors, and entrepreneurs is whether paid peering is harmful to their long-term interests, not whether it violates any obscure and poorly reasoned principles such as net neutrality. Commercial interconnect deals have NOTHING TO DO WITH NET NEUTRALITY. Implying otherwise shows a complete lack of regard in understanding how traffic is and has been exchanged across networks for the past twenty years. These companies need to interconnect where their pipes are fattest and most numerous, close to both server resources and eyeballs. There’s no better way to ensure this happens than by making a formal deal and paying some money. And make no mistake, no matter how much Netflix is paying Comcast to deliver its TV shows, it will still cost Comcast much, much more to deliver them from their points of interconnection to its end users. And I doubt Comcast’s return on assets, share price growth, and annual growth rate will match those of Netflix any time soon. So take it easy, it’s not the end of the Internet or even a new chapter: this really is business as usual, the kind of arrangement that Internet firms have to make when traffic becomes concentrated in a few hands.