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From throttling to CDN fees, Comcast had a counter to every Netflix workaround as it

Interesting tidbits continue to emerge from Netflix, Inc.'s (NFLX) petition to deny Comcast Corp.'s (CMCSA) $45.2B USD mega-takeover of Time Warner Cable Inc. (TWC), which sits on the docket of the U.S. Federal Communications Commission (FCC).  In the 256-page filing [PDF], Netflix explains finer details of its war with Comcast late last year.
 
I. Pay to Play -- Level One, the Small CDNs
 
Many assumed that it was after the collapse of the FCC's net neutrality rules that an emboldened Comcast began to aggressively throttle connections from Netflix.  But in reality, Netlix's loss to Comcast earlier this year and agreement to pay it fees came after a hard-fought half-decade-long war against America's largest and most abusive cable company
 
Comcast would sell users high speed connections, then effectively deny customers the service they paid for by disallowing high-bandwidth content providers like Netflix from connecting to subscribers at reasonable bitrates.

Netflix video
[Image Source: The New York Post]

Netflix describes how it initially outfitted itself to become the nation's largest deliverer of subscription streaming video, writing:

In 2007, Netflix launched its video streaming service. In preparation for its initial launch, Netflix designed and deployed its own CDN, which Netflix hosted in five locations across the country.  Netflix purchased transit from Limelight and Qwest to deliver content from the CDNs.

By 2008, however, consumer demand for edge provider content, including Netflix's service, had grown significantly.  As a result, it made sense for Netflix to partner with third-party CDNs, which could better manage the relationships with terminating access networks and could host Netflix content in more locations to reduce distances that the content needed to travel to reach the requesting end user-thus enhancing both the consumer experience and network efficiency.  In 2008, Netflix entered into agreements for transit with Level 3 and CDN services with Limelight.  In 2009, Netflix entered into an agreement for CDN service with Akamai.

Starting in 2009, the CDN providers on which Netflix relied to distribute its content to Comcast's subscribers-Limelight and Akamai-were forced to pay arbitrary terminating access fees for additional capacity into Comcast's network.

The squeeze was on.  
 
Comcastic day
Comcast wants customers to have a "Comcastic" day -- aka, a fee-filled day.
[Image Source: cmorran123/Flickr]

By charging terminating fees to third "content delivery network" (CDN) providers like Akamai Technologies, Inc. (AKAM) and Limelight Networks, Inc. (LLNW) Comcast eyed either eliminating this undesirable who dared allow customers to make full use of the bandwidth speeds they were paying for.
 
II. Comcast Punishes Fee-Free Netflix Content Delivery Partners With Throttling
 
To be fair, Akamai and Limelight always had to pay Comcast fees of some level for connections.  While the increased rates seemed abusively correlated to Netflix's arrival, it could be dismissed as merely historic.  So Netflix turned to the natural alternative -- companies who had no-fee agreements with Comcast.  But it would soon find that Comcast wasn't afraid of resorting to more flagrant tactics to counter its "workaround".
 
internet cables
Netflix tried to circumvent Comcast's fee wall by cutting deals with fee free vendors.
[Image Source: VentureBurn]

In 2010 it partnered with Level 3 Communications, Inc. (LVLT) -- one such firm who had long-standing agreements with Comcast the precluded these connection fees.  Or so it thought.  It recalls:

Approximately one week after Netflix's agreement with Level 3 went into effect, Comcast, citing the traffic ratio in its peering policy, demanded payment from Level 3 for terminating traffic on its network (even though that traffic, like all traffic delivered to Comcast, was requested by Comcast's broadband subscribers, who pay Comcast to deliver it).

According to Level 3, this was "the first time [that Comcast demanded] a recurring fee from Level 3 to transmit Internet online movies and other content to Comcast' s customers who request such content."

After three days of heavy congestion at interconnection points between Comcast and Level 3's networks, Level 3 agreed to pay the requested fee for terminating traffic on Comcast's network.

Cogent Communications Inc. (CCOI) saw a fate similar to Level 3's in 2012.  Netflix recalls:

According to Cogent' s CEO, "[ t]or most of Cogent' s history with Comcast ...
[as] Comcast's subscribers demanded more content from Cogent's customers, Comcast would add capacity to the interconnection points with Cogent to handle that increased traffic."  After Cogent began carrying Netflix traffic, however, "Comcast refused to continue to augment capacity at our interconnection points as it had done for years prior.

Comcast slowlane
Comcast has been fighting for half a decade now to slow Netflix enough to force it to pay fees.
[Image Source: Mashable]

In other words, when Cogent and Level 3 -- two of the only CDNs that had contractual fee-free status with Comcast -- developed relationships with Netflix, Comcast skirted its commitments by simply congesting their networks to the point at which they dropped out of their deal with Netflix or agreed to pay "voluntary" fees to reduce the congestion.
 
III. No Way Out
 
Netflix tried to develop alternatives to CDNs -- even acting as a CDN itself.  It writes:

The threat of  new access fees being passed through to Netflix were making third-party CDNs a less certain option for Netflix and in early 2012, Netflix began to transition its traffic off of CDNs and onto transit providers with settlement-free routes into Comcast's network.  Netflix also was preparing to launch its own CDN, Open Connect, which would bear most of the burden of delivering traffic to terminating access networks' subscribers.  Netflix continues to invest significantly in Open Connect, an effort that has more than 100 million dollars in research, development, and deployment costs.

Comcast taunt
Netflix tried to wait Comcast out, but that approach proved impossible.
[Image Source: Viacom/Comedy Central/SouthPark Studios]

 
Netflix met with Comcast and tried to talk through the impasse.  It writes:

When Netflix approached Comcast regarding the lack of uncongested settlement-free routes available to its network, Comcast suggested that Netflix return to using CDNs, which Comcast could charge access fees that would then be passed on to Netflix, or use a Tier 1 network like AT&T which charged its own access fees.  Comcast made clear that Netflix would have to pay Comcast an access fee if Netflix wanted to directly connect with Comcast or use third-party CDNs. In essence, Comcast sought to meter Netflix traffic requested by Comcast's broadband subscribers. 

The streaming video provider tried to simply wait out Comcast, but that plan proved fruitless.  

IV. Comcast's Dark Victory

Comcast continued to turn up the heat on Netflix until finally it was ready to break down and pay fees.  Netflix recalls:

In December 2013 and January 2014, however, congestion on routes into
Comcast's network reached a critical threshold and Comcast's and Netflix's mutual customers were significantly harmed. Comcast subscribers went from viewing Netflix content at 720p on average (i.e., HD quality) to viewing content at nearly VHS quality. For many subscribers, the bitrate was so poor that Netflix's streaming video service became unusable.  

The degraded viewing quality for Comcast subscribers also resulted in a sharp increase in calls to Netflix customer support. Those calls made clear that Comcast was well aware of the degradation of Netflix traffic and was directing its subscribers to contact Netflix.  The fact that the height of the congestion occurred in December and January is significant. December is one of Netflix's busiest times because members spend more time at home over the holidays and therefore request more streaming video from Netflix and other OVDs.  It became clear that Comcast would continue to allow congestion across its network to negatively affect its subscribers' online video streaming experience.

VHS tapes
Comcast finally broke Netflix by reducing its service to "VHS-like quality". [Image Source: Cohesive Pieces]

That breaking point came when Comcast managed to reduce the quality of Netflix's service to "near VHS quality".  It writes of its decision to pay direct-access fees:

Despite purchasing transit on all available routes into Comcast's network that did not require direct or indirect payment of an access fee to Comcast, the viewing quality of Netflix's service reached near-VHS quality levels.

Faced with such severe degradation of its streaming video service, Netflix began to negotiate for paid access to connect with Comcast.  Netflix and Comcast eventually reached a paid agreement.  Within a week of that agreement, viewing quality for Netflix streaming video on Comcast's network shot back up to HD-quality levels.

Netflix implicated this successful shakedown for subsequent direct-access fee arrangements forced by Time Warner Cable, Verizon Communications Inc. (VZ), and AT&T, Inc. (T).  After watching Comcast's play calling, these rivals had a readymade playbook to squeeze Netflix for fees.
 
In perhaps its most interesting note, Netflix compares its hard bitrate data between Comcast and a smaller -- but less abusive -- internet service provider (ISP), Cablevision Systems Corp. (CVC).  

Netflix says that if Comcast and Time Warner are merged, it will create a single dominant entity that will be capable of not only endangering online video firms with fees, but also other forms of "edge content" such as online gaming services.
 
In the end the consumers pay for these tactics, as streaming services are forced to charge subscribers higher rates to keep up with the relentless fees levied on the ISP side.

Source: FCC





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