Netflix has agreed to compensate Comcast in return for assurances that the cable company’s subscribers would no longer be caught in the middle of a dispute between Comcast and one of Netflix’s content distributors.

The multi-year agreement between the two companies will bring Netflix direct access to Comcast’s broadband network with a Service Level Agreement that will guarantee streaming stability for customers who have loudly complained about Netflix’s deteriorating performance.

The controversial arrangement has probably established a precedent for other large Internet Service Providers likely to seek compensation to handle Netflix traffic. As of this evening, both AT&T and Verizon have already acknowledged they are negotiating with Netflix for similar arrangements.

Caught in the middle of the dispute are Comcast customers paying for a reliable Internet connection and getting slowing connections and re-buffering problems while attempting to watch Netflix content during peak usage times.

One side accuses Comcast of violating Net Neutrality while the other blames Netflix for dumping enormous Internet traffic on Internet Service Providers without compensation for network upgrades. Also in the crossfire is Cogent, a third-party company delivering Netflix content to Comcast’s front door.

How Netflix Distributes Its Streaming Movies and TV Shows

Netflix has traditionally avoided owning the “pipes” that distribute movies and TV shows to paying customers. Instead, it usually contracts with “transit providers” to send content from Netflix headquarters on to “content distribution networks (CDN)” that manage video streaming. A Netflix video may pass through a number of connections on a variety of independently owned networks before it arrives at the front door of your Internet Service Provider. Companies like Comcast handle “the last mile” of the journey that began at Netflix and ends at your computer or television set.

Netflix does not rely on just one transit provider to handle its traffic. Level 3, Cogent, and XO Communications all reportedly serve in that capacity, depending on where traffic is headed. The same is true for the CDN’s Netflix contracts with to regionally stream content to each subscriber.

Netflix determines how to handle your streaming movie request behind the scenes, selecting a CDN that is close to you and capable of delivering the most stable streaming experience at that moment. If you are a Comcast or Verizon customer, Netflix often selects Cogent to handle its content. Cogent is also well known for its relatively low cost.

If you are served by Cablevision, Frontier, or certain other providers like Google Fiber, Netflix will instead direct your streaming request to a CDN located within your provider’s own network. These “Open Connect” boxes store Netflix content in a type of cache and can stream it to customers directly without sending video packets across multiple third-party networks. Theoretically, Open Connect offers an efficient and stable way of distributing Netflix content to customers. It also saves Netflix money and in return, it costs the ISP nothing — Netflix pays for the equipment and service.

Cogent vs. Big Telecom

Netflix and YouTube together are now estimated to cover 50 percent of all video traffic on the Internet, and that traffic is growing. Cogent dutifully passes that video content along to Internet Service Providers like Verizon and Comcast that have customers waiting to watch. But it is a two-way street. Any outbound traffic from customers could also be forwarded to Cogent to send on. Traditionally, both sides have managed the traffic by gradually increasing the bandwidth and speed of their connections to one-another. But as Netflix traffic grows and grows, companies like Comcast and Verizon believe they are being saddled with the costs to upgrade their networks in ways that are out of proportion to the traffic they send in the other direction. ISPs often grumble about the cost but keep on upgrading to keep paying customers happy. Verizon and Comcast are suspected of dragging their feet on those upgrades in an effort to win compensation.

Verizon and Comcast argue they should be paid by content producers responsible for generating tons of Internet traffic to help cover the cost of upgrades. Instead, Netflix offered its Open Connect boxes, which keep Netflix traffic within an ISPs own network, reducing the necessity of constantly upgrading connections with other transit providers. Verizon and Comcast don’t want Netflix’s solution — they want cold hard cash.

Conflict of Interest

Some network engineers cannot understand all the controversy about Comcast’s arrangement with Netflix. Some believe Netflix is simply shifting traffic away from third-party Cogent to Comcast directly, presumably at a cost savings. They suggest customers will be happy that streaming quality is restored and Netflix also wins a guaranteed level of performance they never had with Cogent.

But that argument does not explain why Netflix was compelled to make a financial arrangement with Comcast. The two companies have been in negotiations on the subject of traffic compensation for months. Many industry observers believe those talks went nowhere until Netflix customers began complaining about the increasing network slowdowns. Some even dropped their Netflix subscriptions over the issue.

Netflix CEO Reed Hastings admitted he made a deal with Comcast to restore customer confidence in Netflix and end subscriber frustration. It was also increasingly clear Comcast was in no hurry to improve things on its own, despite the fact its own customers were the ones most directly affected.

So why wouldn’t Comcast (or Verizon or Time Warner Cable) take Netflix up on its offer of free Open Connect boxes that would reasonably solve streaming problems without forcing anyone to spend a fortune on upgrades? Simply put, all three companies are direct competitors of Netflix. Helping Netflix offer a top quality streaming experience is not in the best interests of Comcast (or others) that are facing potential cord-cutting customer losses in their subscription video businesses. Verizon has partnered with Redbox to deliver streamed video, Comcast operates Streampix, its own online streaming service, and Time Warner Cable offers a variety of on-demand and streamed video content for its cable TV subscribers. None of these services have suffered from traffic congestion issues.

ISP Payday

What About Net Neutrality? What About Paying Customers?

With Net Neutrality tossed out by the courts, there is little any regulator can do to resolve disputes until Net Neutrality can be properly enforced under a stronger regulatory framework. Some argue the congestion issues creating the problems with Netflix are not a true violation of Net Neutrality in any event because providers are not artificially prioritizing traffic.

They are simply not keeping up with upgrades that just so happen to directly impact a competitor while leaving their own services unscathed.

Providers also seem characteristically unconcerned about complaining customers, passing blame for the problem on to Netflix. Besides, they remind you, paying for an Internet connection alone does not entitle you to any guarantee of performance.

The Dam Breaks

With this week’s agreement between Comcast and Netflix, both AT&T and Verizon wasted no time admitting they are both seeking compensation from Netflix as well. Other providers are likely to follow.

Netflix warned investors that paid agreements with ISPs could adversely affect its earnings due to increased costs. Although stopping short of suggesting price increases for Netflix customers could come as a result, Wall Street wasted no time worrying about the financial impact of deals like the one between Netflix and Comcast.

The Wall Street Journal reported the momentum appears to be shifting in favor of large Internet providers like Comcast and AT&T and away from content producers.

Janney Capital analyst Tony Wible suggested Comcast’s toll booth could create a barrier for other content producers if the cable company asks for significant compensation.

“Although there is no prioritization benefit [from the deal], we suspect that the exchange of money for resolution/performance could (if large) effectively limit competition,” said Wible. “In essence, Netflix could be trading [profit] margins for subscribers. Few others can match Netflix’s [spending budget to acquire content] without incurring massive losses. The competition may now have to cope with additional fees that sway their willingness to compete if they do not already have a large subscriber base.”

In other words, a new Internet startup could face hard questions from investors about how it intends to cover ISP demands for compensation in return for a suitable connection to reach customers. A large venture like Netflix has enough resources to handle those costs and negotiate for a better deal while a smaller startup may not.

[flv]http://www.phillipdampier.com/video/WSJ Netflix Comcast Agreement 2-24-14.flv[/flv]

Netflix has signed a deal with Comcast to ensure smooth streaming, in what is being called a landmark agreement. Wall Street Journal reporter Shalini Ramachandran explains the agreement. (3:39)

Aereo’s over the air antenna is about the size of a dime.

Aereo is coming to Austin in March.

Already available in four other Texas cities, Aereo will allow Austin residents to watch local over-the-air television stations on mobile devices, tablets or home computers through live video streaming.

Aereo will accept customers for its Austin service from these counties: Bastrop, Blanco, Burnet, Caldwell, Fayette, Gillespie, Hays, Lee, Llano, Mason, Travis and Williamson.

Customers are invited to sign up early for the waiting list on their website to get the service first when it launches March 3. Aereo Austin subscribers will be able to record and watch 19 over-the-air channels, at rates starting at $8 a month.

A Utah federal district court judge has found Aereo in violation of federal copyright law and must end online streaming of over the air television stations to customers within his jurisdiction, which includes Utah, Colorado, Kansas, New Mexico, Wyoming and Oklahoma.

U.S. District Court Judge Dale A. Kimball broke ranks with district court judges in the eastern U.S. that have ruled Aereo’s streamed feeds of local television stations received over the air by tiny antennas is within the law, but the Supreme Court is expected to have the last word when it hears arguments about the service’s legality later this spring.

The ruling means Aereo will have to suspend service in two of its 10 operating markets — Salt Lake City and Denver. Service to other markets will continue unaffected for now.

Kimball’s decision was based on The Copyright Act of 1976 which requires broadcasters and retransmission services to pay royalties to content originators, in this case the networks and the affiliated local stations involved. Broadcasters consider Aereo a major threat to their retransmission consent revenue stream. Cable, satellite, and telephone company providers are collectively paying millions for permission to carry local stations on their lineups. Should Aereo offer a free alternative, these pay television providers could adopt similar technology to avoid paying the fees.

Kimball determined Aereo was operating more like a cable company than a remote antenna service.

Plusnet offers DSL and fiber broadband plans (in some areas) that offer budget-priced capped or unlimited use plans.

While North American cable and phone broadband providers are among the most-hated companies on the continent, in the United Kingdom, customers gave generally high scores to their Internet providers.

PC Advisor partnered with Broadband Genie, an impartial, independent, and consumer-focused commercial broadband comparison service. Together they engaged an independent survey company (OnPoll) to survey 3,000 broadband users, chosen at random, in late 2013 and early 2014. They asked those users how happy they were with their ISP, tested the speed and reliability of their connections, and found out other valuable tidbits, such as how much they were paying, and for what exactly. Altogether, more than 10,000 U.K. broadband users contributed to the data that made an in-depth assessment of British broadband possible.

The results might stun those on the other side of the Atlantic. Unlike in Canada and the U.S., British broadband users are satisfied overall with their providers, and are enthusiastic about recommending many of them to others. Even the worst-performing provider – BE – still had a 46% recommendation rating, and the company was sold to BSkyB well over a year ago and is in the process of being merged with Sky’s broadband service.

Around 68 percent of British broadband users responding still rely primarily on various flavors of DSL for Internet service. But BT, the national telephone company, is in the process of upgrading facilities and dramatically increasing the amount of fiber optics in its network. The result is what the Brits call “Super Fast Broadband.” Back here, we call it fiber to the neighborhood service similar to AT&T’s U-verse or Bell’s Fibe. In many cases, improved service is providing speeds much closer to 25Mbps vs. the 1-6Mbps many customers used to receive. The upgrade is an important development, especially in rural Britain, often left without Internet access.

Cable broadband is much more common in North American than in the United Kingdom. While cable television became dominant here, the British favored small satellite dishes like those used by DirecTV or Dish customers. With BT dominating wired infrastructure, the government required the company to open its landline network to third-party providers. Some cable companies do exist in England, but they hold only a 12% broadband market share, even lower than fiber to the home service now at nearly 20%.

Great Britain treats broadband as a national priority, and although the current government has controversially settled for a hybrid fiber-copper network instead of delivering fiber straight to every British home, it’s a considerable improvement over what came before, especially in rural areas. Usage caps that used to dominate British broadband plans are now an option for the budget-minded. Unlimited use plans are becoming more mainstream.

With all the upgrade activity and improved service, the Brits have gotten optimistic about their broadband future. Only 12% of those surveyed loathe their broadband supplier. Another 20% were neutral about recommending their ISP, but 51% considered themselves satisfied and another 17% considered their provider top rate. Many in Britain even expect their Internet bill will decrease in 2014, and compared with North American prices, it’s often very low already.

The average price paid by customers of various British ISPs (excluding line rental)

Average speed received by customers varies depending on the technology. Virgin operates cable broadband, Plusnet uses a mix of DSL and fiber, while the slower performers are primarily ADSL.

Average speed test results per ISP (kbps)

• Virgin: 27,266
  

  Was top-rated for broadband reliability.

• Plusnet: 24,529
• BT: 13,164
• TalkTalk: 6,910
• EE: 6,818
• Demon: 6,586
• Sky: 5,942
• Eclipse: 5,786
• O2: 5,642
• Be: 5,458
• AOL: 3,809
• Post Office: 3,255

Overall ratings and reviews from PC Advisor found Virgin Media (cable) and Plusnet (DSL/Fiber) near tied for top ratings.

[flv]http://www.phillipdampier.com/video/PC Advisor Best cheapest fastest broadband UK ISPs rated 2-19-14.mp4[/flv]

PC Advisor talks about this year’s British ISP review, which reveals Brits are generally satisfied with their broadband speeds and pricing. (3:51)

China’s top economic planning agency is assessing a monopoly case involving two large telecom companies and will make a ruling soon as the Beijing government declares uncompetitive broadband against the interests of the people.

The National Development and Reform Commission (NDRC) began to investigate the duopoly of China Telecom and China Unicom in the broadband business two years ago. The two companies, fearing reprisals, promised to end the questionable practices that brought scores of complaints from Chinese citizens over network incompatibilities, rising prices, and slow service.

The two companies together maintain a 90 percent market share of Chinese broadband, and both could face fines up to 10 percent of their annual Internet revenues if the NDRC finds they are acting as an abusive duopoly.

The Chinese government passed strict anti-monopoly laws in 2008 and has enforced them. Beijing has been particularly concerned about price discrimination against other Internet Service Providers and relentless rate hikes, even as costs to offer the service have dropped dramatically.

The NDRC said on Wednesday that the two companies submitted evidence that suggested both had significantly raised network integration, extended the direct-link bandwidth of their backbone networks, raised broadband speeds and lowered prices.

Although the Chinese government’s free market policies have brought investment and economic change to China, the government has grown increasingly concerned about leaving vital sectors of the economy unregulated. In several instances, the result has been bad for consumers and generally reduced innovation, as handfuls of conglomerates found it easier to enforce market power, reduce investment, and raise prices. The Chinese consider the country’s online networks critical to its participation in the global digital economy, with the NDRC acting as a check against uneven playing fields and abusive business practices.