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Netflix, Comcast Deal Raises Flags

Los Gatos, Calif. — Netflix took a strategic step Sunday to ensure that its subscribers who use Comcast broadband service continue to receive unimpeded movie and TV program streaming.

According to a report in the Wall Street Journal Sunday, Netflix agreed to pay Comcast for direct access to its broadband network, eliminating the need to go through backbone service providers, which have been under pressure to pay ISPs like Comcast for improved access to their broadband users.

Under the so-called “paid peering” deal, Netflix will be allowed to connect directly to Comcast’s network instead of going through these “backbone” intermediaries, as it formerly did.

Exact terms of the deal were not disclosed.

The companies have long been engaged in a battle over the cost of delivering Netflix streams to Comcast‘s broadband customers. Netflix believed it had the right to connect to Comcast’s network for free, while the giant cable multi-system operator (MSO) demanded compensation for the extra traffic and bandwidth consumption Netflix users generated with their increased video streaming.

The agreement comes less than two weeks after Comcast announced a $45 billion deal to acquire Time Warner Cable through a merger that, if approved, will create a national cable titan with 33 million subscribers.

In recent months, Netflix customers on Comcast had suggested that their connections to Netflix were degraded. Last month, Netflix released data showing a 27 percent decline in average Netflix streaming speed since October.

The companies said that Netflix will not receive preferential treatment under the deal, although it is likely to set a precedent for similar agreements with other broadband providers, including AT&T, Verizon and Time Warner Cable.

Some observers fear that the deal could invalidate attempts to establish Net neutrality laws, which would prevent broadband providers from blocking access to or discriminating against Internet traffic traveling over their connections.

Others said the deal could also lead to the kind of tiered broadband access that network neutrality advocates have long feared. It could also make the Internet less competitive by forcing backbone providers, which streaming services like Netflix use to connect to the various ISPs, to pay fees to connect to those ISPs.

In Netflix’s defense, some said the payment deal was made out of fear that after the announced Time Warner merger proposal, the broadband industry will continue its rapid consolidation into near-monopoly status, like the one once held by AT&T for years on telephone service. The more concentrated the broadband market becomes, the more leverage broadband providers like Comcast and Verizon will have over backbone providers, weakening Internet competition.