Netflix says 99 percent of its links with ISPs are unpaid [Updated]

UPDATE: This story quotes a Netflix filing with the FCC that says, “Globally, Netflix delivers 99 percent of its traffic without payment to the terminating access network." Netflix told Ars after this story was published that the statement to the FCC is incorrect. Netflix has free connections to 99 percent of the ISPs that it sends traffic to, but the few ISPs Netflix does pay—AT&T, Verizon, Comcast, and Time Warner Cable—account for more than 1 percent of the company's total traffic. The story has been updated to reflect this.

Netflix hates writing checks to Internet service providers—and luckily enough, it usually doesn't have to.

Though the streaming video company has complained bitterly about having to pay Comcast, AT&T, Verizon, and Time Warner Cable for direct connections to their networks, Netflix said this week that worldwide, it delivers traffic to 99 percent of ISPs without money changing hands.

The statement came in a filing with the Federal Communications Commission in which Netflix asks the FCC to block Comcast's proposed acquisition of Time Warner Cable. Besides AT&T and Verizon, those are the only ISPs that refused to give Netflix the unpaid connections, known as "settlement-free peering." In the months before Netflix agreed to pay these companies, video was sent over congested links, resulting in poor performance for subscribers.

To Netflix, the fact that so few companies have the market power (i.e. size) to demand such payments is evidence that further consolidation should not be allowed. Netflix goes into its thinking in more depth than it has previously, but it's the same argument that it has made before.

Netflix used to pay third-party content delivery networks (CDNs) such as Akamai to distribute its traffic. Netflix grew immensely, now accounting for about a third of peak Internet traffic in North America, and decided to build its own "Open Connect" CDN at a cost of more than $100 million for research, development, and deployment. Although CDNs often pay ISPs for direct connections to their networks, Netflix asked for free connections and in many cases was able to get them. In cases where Netflix did not have direct connections to ISPs, Netflix paid third-party transit providers such as Cogent and Level 3 to distribute traffic into the networks. The links between those companies and the ISPs became congested, resulting in further money disputes.

ISPs known to provide free connections to Netflix include Frontier, British Telecom, TDC, Clearwire, GVT, Telus, Bell Canada, Virgin, Cablevision, Google Fiber, RCN, and Telmex. The direct connections are spread throughout the country and ensure that traffic goes from Netflix to the ISPs without having to cross additional, "middle-mile" networks. Some ISPs also host Netflix storage boxes to bring video even closer to customers.

“Globally, Netflix delivers 99 percent of its traffic without payment to the terminating access network," the filing said. (As noted in the update at the top of this story, that statement is incorrect—instead, Netflix has unpaid links with 99 percent of ISPs.)

"In the United States alone, Netflix exchanges traffic on a settlement-free basis with [number redacted] networks," the filing also said. Some of the traffic may still go over middle-mile networks before traveling to the consumer ISP, but Netflix didn't say how much. Netflix told Ars that "the vast majority" of connections to ISPs are direct, not involving middle-mile networks.

Despite payments to a few ISPs, Netflix's deployment of Open Connect has largely been a success. And at least for now, Netflix has said that its interconnection costs are small compared to what it has to pay for video content.