There's been a lot discussion over the last few weeks after the Federal Communications Commission's "Net Neutrality" regulations were over turned and allegations of throttling for content heavy providers ensued. These allegations are a lot more complicated than they would first appear, and it's not as simple as "Verizon is throttling Netflix." In fact, the way that internet traffic is exchanged between multiple internet service providers (ISP), like Sprint and Verizon, is a bit complicated under a concept known as peering which is explained by the Electronic Frontier Foundation below:
Connections between web service providers, web sites, and ISPs depend on agreements to exchange Internet traffic with each other, or “peering” links. Operators of backbone and web services make peering agreements with ISPs about how to exchange Internet traffic so that data can be carried efficiently from one part of the Internet to another.
Two networks of comparable size will exchange traffic for free if each is sending roughly the same amount of traffic to the other. However, when the relationship is disproportionate, the network that sends significantly more traffic will often write a check to the receiving network to cover the costs. It's kind of like if everybody is going to a potluck dinner. If everybody brings the same amount of food that they eat, that's OK. But if one person habitually eats more than he brings, everybody else might ask that person to pay some money just to keep everything fair.
Peering agreements were traditionally handled at the ISP level (Comcast and Sprint, for example) where ISPs would agree what, if any, fiscal compensation was required to level the data transfer requirements, and typically these negotiations are transparent to the customer. However, as Cogent and Sprint users might remember from 2008, they can spiral out of control enough to cause traffic outages. Furthermore, ISPs have been known to withhold critical infrastructure upgrades to gain leverage in peering negotiations to the detriment of their consumers.
However, for all of the faults that we've seen as a result of peering, it has been overwhelmingly in our benefit. Take Africa and South America for example; these continents are notorious for ISPs competing with one another and refusing to peer. As a result, the internet connectivity in these regions is astonishingly poor (maps). So for all of the negative publicity that peering has gotten over the last month, it's worth remembering that it has ushered in a new era of high speed connectivity and globalization.
So what does this have to do with Netflix? The prolific Comcast and Netflix deal signifies a shift from ISP - ISP peering to ISP - Product peering agreements. Some pundits stipulate that this could signal a downward spiral of internet innovation as the ISP market increasingly collapses to a smaller number of superpowers where the peering burden is increasingly placed on the product owners. While this is absolutely a possibility, we still have a few more steps before internet innovation is harmed.
Most notable among these steps is to prevent anti-trust abuses of ISPs and to ensure that while barriers to entry remain high, they are not artificially fabricated by the oligarchy of ISP superpowers. Unfortunately, this can be a little tricky to navigate as ISPs and city governments have a history of shady courtship prior to installing new infrastructure. Similarly, as we've seen in politics at the federal level, lobbyists of superpowers can be difficult to ignore, making the free market more difficult to maintain.
So where does that leave your average consumer?
Potentially screwed. The free market only operates at equilibrium if everyone acts in their own self interests. If you are waiting for legislation to force companies to act in your self interest, you are going to be sorely disappointed. So if you find yourself giving your business to a company that isn't furthering your own interests (be it Wal-Mart, Verizon, or General Motors), change companies!