The problem is that as more and more traffic flows through these intermediaries, they can become congested and jammed up like traffic during rush hour. For video streaming, TV rush hour is usually right after work until about 11 p.m., and during those peak times, Netflix can account for a third of all Internet traffic.
Netflix has been trying to address these issues in a few ways. One is with the peering arrangements we're seeing with companies such as Comcast and Verizon, where Netflix connects to each ISP directly, essentially cutting out the middlemen—third-party transit providers—where congestion bottlenecks often happen.
But another way that large companies such as Amazon, Google, and Netflix help improve their customers' experience is through the use of content delivery networks, or CDNs. A CDN is basically a network of servers situated at various points at the "edge" of the Internet. That means that instead of everything coming all the way from Netflix, programs can be stored locally at or near the various ISPs. This can greatly speed up the delivery of, say, an episode of "Orange Is the New Black," since your request is automatically routed to the closest server holding that content.
For some time, Netflix has tried to peruade ISPs to use its CDN, called Open Connect, but most of the larger ones—except for Cablevision, the highest-rated company in Netflix's ISP speed rating—have declined. That's why Netflix is now paying for these peering arrangements.
Even though Netflix signed these deals—and more are expected—it doesn't like them, and has been very vocal about it. It argues that Comcast shouldn't be paid like a transit network, since it doesn't carry Netflix traffic long distances, and it doesn't connect Netflix to other networks on the Internet, things that companies such as Cogent and Level 3 do.
Also, some of the transit providers have stated that the real congestion is with the ISPs, not the intermediaries. In a blog post on its website, Level 3 clearly lays the blame on ISPs, which typically don't have any competition, and thus not as much incentive to upgrade capacity. Level 3 says these ISPs refuse to upgrade their networks unless content providers pay a toll—and that this situation doesn't happen in countries or markets where cnsumers have a choice among broadband providers.
Consumers Union, the policy and advocacy arm of Consumer Reports, has asked regulators to look into the deals, and possible throttling of content, which would violate the principles of net neutrality, which pertain to traffic traveling over the last mile into consumer homes. Comcast is bound by an agreement it signed when it purchased NBCUniversal to abide by net neutrality rules, which require ISPs to treat all Internet content equally.
Recently, the FCC announced it was proposing new net neutrality rules that would apparently allow for ISPs to be paid by content providers to create "fast lanes" for those able and willing to pay for them. We'll be following any developments, so keep checking back for the latest news.
—James K. Willcox