UPDATE 1-Netflix may need to pay AT&T, Verizon for faster speeds

Mon Feb 24, 2014 5:52pm EST

By Liana B. Baker and Lisa Richwine

Feb 24 (Reuters) - Netflix Inc, which agreed to pay Comcast Corp for faster video delivery, may have to make similar arrangements with other broadband providers to make sure its customers get trouble-free access its streaming movies and TV shows.

Verizon Communications' chief executive said on Monday he expects Netflix will pay the telecom company for faster speeds after Netflix customers complained about slow connections to stream TV shows and movies with Verizon's FiOS service.

AT&T spokesman Mark Siegel said in a statement on Monday that "we're in discussions with Netflix to establish a more direct connection between our networks, similar to agreements we have with others, so that AT&T broadband customers who use Netflix can enjoy an even better video experience."

Talks with telecom companies that provide broadband Internet access gained momentum after Sunday, when Netflix agreed to pay Comcast Corp for faster speeds.

Evercore Partners analyst Alan Gould said the agreement with Comcast removed uncertainty and likely involved small payments since Netflix agreed voluntarily to the arrangement.

"This is probably a template for the deal that will get done with other broadband providers," said Gould, who has an "overweight" rating on Netflix shares. "We are assuming the payments are not going to materially change the business model."

Netflix shares rose 3.4 percent to a record $447.

Verizon CEO Lowell McAdam said on CNBC, where he discussed Verizon's talks with Netflix, that the two companies have been in negotiations for a year.

These deals hinge on whether Netflix can set up direct access to Verizon, known as an "interconnect agreement," rather than go through a third party. Verizon provides millions of U.S. customers with its FiOS broadband service and Netflix speeds have slowed on that network in recent months, leading to complaints.

Many providers including Cox, Cablevision and Google Fiber directly connect to the Netflix network through a service the streaming company developed called Open Connect. Those providers have not seen their speeds deteriorate in recent months.

But others, including AT&T and Verizon, have opted not to use Open Connect.

Shares of Cogent Communications, one of the companies that took care of the Internet traffic exchange between the Comcast and Netflix networks, fell 7 percent on Monday as investors worried that these deals would take away Cogent's business.

Cogent's chief executive Dave Schaeffer played down the effect of the Comcast-Netflix agreement on its business and reaffirmed the company's annual revenue forecast.

"It doesn't mean that revenue goes away from Cogent. It just means that some of the growth in revenue may not occur through us," he said.

McAdam, the Verizon CEO, spoke out in favor of telecom companies signing deals with Netflix.

"It shows you don't necessarily need a lot of regulation in a dynamic market here. Doing these commercial deals will get good investment and good returns for both parties," McAdam said.

Asked about discussions with Verizon or other providers, Netflix spokesman Joris Evers said "we talk to all major ISPs all the time to make sure Netflix users get the best possible experience."

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Comments (4)
JustVotin wrote:

Netflix may need to pay AT&T, Verizon for faster speeds

This is why net neutrality and the recent law that the cable companies knocked out was so important. Now they will essentially be able to extort companies that rely on speed, requiring them to pay much more money just to use the internet, and they will also be able to charge us at the same time based on the speed we receive, then lock down our speeds so we don’t get anything at the actual speed we were paying for.
They claimed the law needed to be removed because it stopped competitive practices, but since when have cable companies competed? We have no choice in most of the country with agreements the cable companies made with cities and counties to be the only one there…. It was really to allow them to screw us all over more without having to make repairs to their infrastructure… to charge more for what we already have and let speed degrade while calling it “fair”, and to keep from having to give us more speed to compete with emerging technology and markets.

Feb 24, 2014 6:15pm EST  --  Report as abuse
ralphos wrote:
You pay for X amount of bandwidth down and if they throttle it down after you paid for it. to extract some monetary concession from a business. All of you should file a class action if your ISP did that to you.

Feb 24, 2014 6:33pm EST  --  Report as abuse
Yay more extortion made legal, thanks legal system for proving how bought off our system is.

Feb 24, 2014 7:27pm EST  --  Report as abuse
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