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Comcast-Netflix Peering Deal: A Game-Changer?

The peering deal struck by Netflix and Comcast over the weekend could well prove to be a game-changer for large cable operators, telcos, and other large broadband providers in their dealings with OTT video providers.

Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Netflix Inc. (Nasdaq: NFLX) confirmed over the weekend that they have signed a new interconnection agreement to improve the quality of Netflix streams for Comcast subscribers and allow for the continued growth of Netflix traffic. The announcement touched off a wave of excitable media reports and speculation over whether the deal has implications for network neutrality, OTT video carriage, and Comcast's planned acquisition of Time Warner Cable Inc. (NYSE: TWC).

First, here are the facts. The new peering agreement does not mean that Comcast will put Netflix's caching appliance in its last-mile network the way some other providers have. Several outlets are reporting that Comcast is not supporting the Netflix appliances, and Light Reading has confirmed with a source close to the deal that this is indeed the case.

Comcast has also been adamant that the agreement does not mean that Netflix traffic will get any preferential treatment. Here's what Comcast said in its official statement:

"Working collaboratively over many months, the companies have established a more direct connection between Netflix and Comcast, similar to other networks, that's already delivering an even better user experience to consumers, while also allowing for future growth in Netflix traffic. Netflix receives no preferential network treatment under the multi-year agreement, terms of which are not being disclosed."

Because the agreement has been in the works for months, it means that Comcast's offer for Time Warner Cable was not on the table when the negotiations began. As for the terms of the deal, while Comcast and Netflix won't disclose them, many news organizations are reporting that Netflix is paying Comcast for the direct connection into its network.

Now, here is the controversy. Industry observers worry that many of the functions of the Internet are being consolidated in a handful of network and content companies, and that eliminating all of the middlemen (such as telecom backbone provider Cogent Communications Holdings Inc. (Nasdaq: CCOI)) in the delivery process will ultimately give these companies too much power. Also, because peering agreements are not within the Federal Communications Commission (FCC) 's regulatory jurisdiction (and officially not a network neutrality issue), there's concern that much of the brokering over Internet operations is happening without any oversight. (See also The Great Peering War Rages Again.)

And here's the heart of the issue. Peering agreements are based on closed-door negotiations, which means that nobody gets to see how the deals are done. Many consider the agreement between Comcast and Netflix to be a win for everyone. Comcast gets paid, Netflix gets an acceptable deal for traffic delivery, and consumers get higher quality video delivery.

However, there is no way of knowing what the implications are for these types of deals in the future, when the players and situations will be different. And without a transparent view of the process, there's no way to know if the industry needs to put new checks and balances in place.

— Mari Silbey, special to Light Reading

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