Verizon says net neutrality should not touch interconnection arrangements

Verizon (NYSE: VZ) sent a letter to the FCC this week saying the government can't regulate the interconnection deals the company strikes with third-party content providers like Netflix (NASDAQ: NFLX).

William H. Johnson, Verizon vice president and associate general counsel, said that these deals are separate from the net neutrality issue.

"The interconnection of Internet networks and the exchange of Internet traffic have always been accomplished through voluntary, commercially negotiated arrangements," wrote Johnson in a letter to the FCC. "Those interconnection arrangements, moreover, have been deemed to be outside the scope of Open Internet proceedings and not suitable for similar regulation."

Verizon also said that the FCC's Title II reclassification option does not apply to interconnection agreements.

"The Commission cannot under any circumstances lawfully impose Title II common-carriage requirements on interconnection, as some regulatory proponents propose. Such requirements apply only to 'common carriers,' that is, to telecommunications service providers already 'engaged as a common carrier for hire," Johnson wrote, citing U.S. communications law and court precedents. "As the DC Circuit has explained, when a provider is not operating as a common carrier, the Commission cannot 'relegate' that provider 'to common carrier status' by imposing common-carriage regulation. The Commission does not have 'unfettered discretion... to confer or not confer common-carrier status on a given entity depending upon the regulatory goals it seeks to achieve.'"

Netflix has struck various agreements with a number of service providers, including Verizon, AT&T (NYSE: T), Time Warner Cable (NYSE: TWC) and Comcast (NASDAQ: CMCSA), to get access to less congested paths into its networks so it can ensure a decent viewing experience for its customers that use those service providers' broadband services.

Prior to striking these agreements, Netflix subscribers reported poor performance of their video streaming service because their traffic was getting caught in congested interconnection points where traffic from various online services is transferred from third-party transit providers to broadband providers.

Interestingly, right after Netflix struck new interconnection deals with AT&T and Verizon, Netflix reported in September that both providers improved their ranking on the online video provider's Netflix speed chart.

At that time, the average streaming speeds for subscribers on the FiOS network rose two places on the SVOD provider's August Speed Index, to 2.41 Mbps. However, AT&T saw the biggest improvement. After signing an interconnection agreement in May, U-verse streaming leaped seven places on the index, averaging 2.61 Mbps and coming in as the seventh fastest last-mile provider for Netflix streaming.

For its part, Verizon said the blame should be laid on Netflix and Ethernet provider Cogent Communications.

"Internet players such as Netflix and Cogent have called for the Commission to reach beyond the last mile and regulate interconnection points or the terms of interconnection, on the ground that congestion at those points can affect the speeds that end users experience when accessing content," Verizon wrote.

Although Netflix has to pay these service providers, it has petitioned the FCC to mandate "settlement-free interconnection" where service providers would offer interconnection without requiring payment. The FCC has been taking a look at these interconnection agreements, but has yet to indicate if it would take Netflix's proposed path.  

For more:
- see this FCC filing
- Ars Technica has this article
- Consumerist has this article

Related articles:
Verizon tells FCC to address blocking and paid prioritization without Title II reclassification
Verizon's Shammo clarifies remarks about net neutrality impact on company's investment strategy
Verizon's Shammo: If net neutrality passes, it will create a litigious environment
Verizon's Shammo: We'll look at FiOS expansions once it returns the cost of capital

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