Verizon/AT&T confirm Netflix talks; analysts think Netflix's costs could drop

Verizon (VZ) and AT&T (T) have confirmed that they, too, are talking with Netflix (NFLX +3.4%) about direct peering deals. Verizon CEO Lowell McAdam says his company's talks with the streaming giant have been going on for about a year.

Netflix shares closed the day with strong gains, as analysts argued direct peering deals such as the one just reached with Comcast could end up having a neutral or even positive impact on Netflix's bandwidth costs, given the company will no longer have to pay intermediaries such as Cogent (CCOI -6.8%).

Dan Rayburn: "It should actually be cheaper for Netflix to buy direct from Comcast, and they also get an SLA, which also improves quality ... While I don’t know the price Comcast is charging Netflix, I can guarantee you it’s at the fair market price for transit."

Others aren't convinced direct peering deals are a positive. The Washington Post: "Cogent has many competitors. Verizon's FiOS service does not. If companies like Cogent are squeezed out of business, it will make these already powerful network owners even more powerful."

GigaOm: "These agreements aren’t transparent ... rates could go up over time, and they essentially act as a tax on the Internet."

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Comments (5)
  • Philip Marlowe
    , contributor
    Comments (1601) | Send Message
    This is bad news for ordinary Americans and, if I may be allowed some grandiosity, for America. No-one knows exactly what these deals look like, but even in the best case (i.e., the deals are such that allow Netflix to survive without significant fee hikes) these deals will severely limit competition and the opportunity for new entrants to develop new offerings.


    The reason the Internet prospered (and US high tech industry prospered along with the Internet) as opposed to closed networks like America Online, or the Prodigy network was that it was open for everyone and anyone can start any business on it. Now if we accept the current state of affairs that large data movers require their own peering agreements, we will find that in at least one area of internet business competitiveness will slow down. Which means that innovation will slow down and we will probably lose the innovation leadership to another country.
    24 Feb 2014, 07:00 PM Reply Like
  • Parker Logan
    , contributor
    Comments (247) | Send Message
    Surrrreee... Comcast & the Bunch are making deals to save NFLX money while adding more pressure onto their own TV business. Makes perfect sense!


    Oh yeah, let's not forget squeezing out their partners like Cogent to appease Netflix viewership.


    Can you believe the spoon full of $#% these sell-side analysts are trying to feed us? 1+1=3 right?
    24 Feb 2014, 07:41 PM Reply Like
  • Sakelaris
    , contributor
    Comments (2689) | Send Message
    In principal, I support governmental regulation of any line that passes over or under my property. If a gas or electric company--or an ISP does not like that, they are in the wrong kind of business.


    Now, having said the above and possibly stirring up a hornet's nest of ISP supporters, let me also add that I certainly do not blame Netflix if it is now able to work out some deals with the ISPs. I hope this works well for them.


    Above all, do not call me a bandwidth hog, for, in addition to using Netflix streaming, I also make major use of the wonderful, content-loaded, and unfairly maligned Netflix DVD service. More people should do that.
    24 Feb 2014, 10:09 PM Reply Like
  • Minutemen
    , contributor
    Comments (2296) | Send Message
    If this deal with Verizon will eliminate my recent Netflix rebuffering issues, then I'm all for it. Nonetheless, I'm still dropping Verizon like a hot potato when my contract expires and switching to Comcast.
    25 Feb 2014, 07:57 AM Reply Like
  • bobelouis
    , contributor
    Comments (100) | Send Message
    Sure Netflix didn't want to save money before, so it didn't go direct earlier. Cogent will still be the intermediary for all the small ISPs And if they are now going to "pay the market rate for transit" for the entity that uses 30% of the whole "internet system's" capacity, how can this not be a materially arger number than before?
    26 Feb 2014, 04:12 PM Reply Like
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