Netflix, Verizon Ink Interconnection Agreement

Comes Two Months After Netflix And Comcast Sealed Their Deal
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It’s not the way Netflix prefers to do things, but the video streaming giant confirmed Monday that it has inked a direct interconnection deal with Verizon Communications, a paid peering deal that factors in about two months after Netflix and Comcast inked one of their own.

BTIG analyst Walter Piecyk broke the news on Twitter on Monday afternoon.  Netflix spokesman Joris Evers later confirmed it on Twitter, noting that Netlfix has “reached an interconnect arrangement with VZ that we hope will improve performance for customers over the coming months.”

“We have reached a deal with Netflix to deliver improved service for our combined customers,” a Verizon spokesman confirmed via email.

Both sides did not disclose the financial terms of the deal, but it’s believed to be along the lines of the Comcast/Netflix agreement, which means Netflix will be making payments to the telco.

A direct interconnection deal between Verizon and Netflix doesn’t come as a huge surprise. In February, Verizon CEO Lowell McAdam told CNBC that talks had been underway for about a year. AT&T and Netflix are in discussions but have yet to announce an interconnection deal.

Based on the early results of the Comcast/Netflix agreement, the direct interconnection should improve the quality of Netflix streams delivered over Verizon’s broadband network. In Netflix’s speed index of the nation’s major ISPs for March March, Verizon FiOS was a middle-of-the pack performer, while the performance of Verizon DSL has historically languished near the bottom.  

Although Netflix has agreed to paid peering  deals with two of the nation’s largest broadband ISPs, it’s not Netflix’s preference.  Netflix would rather have ISPs sign on for “Open Connect,” a private content delivery network that relies settlement-free peering and Netflix-supplied network edge caches. ISPs such as Comcast have been reluctant to do that in part because it could open them up to making similar arrangements with companies such as Google and Amazon.

Meanwhile, Netflix and its CEO, Reed Hastings, have been lobbying for “stronger” network neutrality rules that factor in interconnection deals, calling them an “arbitrary tax” on over-the-top video service providers.  Netflix has parlayed that argument into its formal opposition of the proposed Comcast-Time Warner Cable merger.

Last week, in a  letter to Sen. Al Franken (D-Minn.), Netflix VP, global policy, Christopher Libertelli, said that Comcast SVP David Cohen was off base in his characterization that Netflix signed the deal to “cut out the middleman,” but that Netflix agreed to it on order to reverse a decline in its customers’ video experience.

Comcast, of course, sees things much differently.

“Netflix’s argument is a House of Cards," said Jennifer Khoury, Comcast SVP, corporate and digital communications, said in response issued last week, making reference to the popular Netflix original series. "But there is no need for us to engage in a point-counterpoint with Netflix to demonstrate the continued distortions and inaccuracies on which it relies. As we and other industry observers have already noted, Netflix’s decision to reroute its Internet traffic was all about improving Netflix’s business model. While it’s understandable for Netflix to try to make all Internet users pay for its costs of doing business (as opposed to just their customers), the company should at least be honest about its cost-shifting strategy.”