Sleeper Issue Peers Around the Corner of Comcast-Time Warner Deal

Comcast executives scored big points three years ago with the Federal Communications Commission by volunteering to abide by the agency’s embattled Open Internet rules until 2018 in order to win approval to buy NBCUniversal.

Comcast executives took a similar tack Thursday, proposing to expand that agreement over Time Warner’s Internet lines as well and possibly extending that commitment for several additional years. The Open Internet, or net neutrality, rules would prevent Comcast from deliberately blocking or throttling consumer Internet traffic.

But those rules don’t cover an issue that has resulted in growing complaints from consumers about falling download speeds of movies and TV shows from Netflix or other online video providers, even though other Internet traffic is being delivered without delay.

The wonky issue of how Internet companies like Netflix pay to get fast downloads into homes could replace net neutrality as one of the most significant issues in the upcoming review of the Comcast-Time Warner deal.

When you download a movie from Netflix, it comes to your house via middleman Internet distributors, or content delivery networks, that are scattered across the country. Those content delivery networks, which are paid by companies like Netflix to serve its videos, reach so-called “peering” agreements with Internet providers like Comcast to deliver traffic directly into homes. Such agreements allow the data to get to your PC or tablet faster than if the data went over the open Internet.

Peering used to be free, for the most part, but that began changing as video streaming became more popular. All of a sudden, customers of Internet providers like Verizon and Comcast were downloading far more data than they were uploading. Internet providers complained about all the traffic being dumped onto their networks and they began negating commercial agreements with content delivery networks to handle the increased traffic.

Comcast got into a public dispute about one of these agreements four years ago with network operator Level 3 Communications after it began delivering Netflix traffic. Level 3 raised the issue with the FCC but the agency didn’t get involved and the companies eventually reached a deal.

There are no regulations over such deals and the FCC has steered clear of this issue in the past. But FCC Chairman Tom Wheeler has said recently that the agency is aware that private peering disputes are starting to gain consumer notice — even if consumers don’t know why their video streams seem to be buffering now more than before.

Netflix itself is trying to draw attention to the issue, without exactly saying that’s what they’re doing. On Monday, the company published data that indicated that its customers using Comcast and Verizon broadband were seeing slower speeds.

Netflix didn’t come out and say this was due to a peering dispute. But the company did say that it didn’t think the carriers were “throttling” traffic, and it has pointed out in the past that it doesn’t have peering agreements with Verizon and Comcast. So you’re supposed to connect the dots.

“While investors and politicians spend significant time and energy focused on Net Neutrality, we believe peering and interconnection are the issues actually impacting content creators, distributors, CDNs and consumers today,” wrote Richard Greenfield of BTIG Research in a note Tuesday.

At a conference recently, Wheeler spoke about the peering issue, calling it “a cousin, maybe a sibling” of net neutrality. “But I think that it is an issue that is something the commission has to stay on top of … our job is to make sure whatever happens is not anticompetitive, is not favoring one party.”

“The problem is that the bigger you are and the more residential customers you have, the bigger ability you have to make the middle mile guys pay,” said Harold Feld, senior vice president at Public Knowledge, a public interest group opposing the deal. “This would make Comcast dominate in all of the top 10 markets in the U.S.”

Comcast executives dismissed the notion that peering disputes are an issue and argued that Comcast’s acquisition of Time Warner would actually increase competition between broadband providers because the cable giant would be better able to compete with rivals AT&T and Verizon.

“I don’t think it reduces competition at all. I actually think there is not a serious problem in the peering space,” said David Cohen, Comcast’s executive vice president. “I think historically this has been space where reasonable commercial partners have been able to work these agreements out.”

Comcast owns NBCUniversal, which is an investor in Re/code.

This article originally appeared on Recode.net.