Verizon, AT&T are exploring interconnection deals with Netflix

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Verizon Communications (NYSE:VZ) and AT&T (NYSE:T) may be the next major telecommunications and broadband providers to strike interconnection agreements with Netflix similar to the one the streaming video service recently agreed to with Comcast. The deal with Comcast has sparked worries that net neutrality may be undermined as a result because Netflix will pay Comcast for faster and more reliable access to Comcast's customers.  

Both Verizon and AT&T said they were in talks with Netflix on similar agreements. According to CNET, Verizon Communications CEO Lowell McAdam said on a conference call with investors on Monday that that it makes sense for those consuming lots of Internet bandwidth to help companies like Verizon invest in keeping networks open by defraying the cost of network upgrades.

"We are pleased to see Netflix and Comcast agree on an arrangement," he said during the call. "And we have had discussions with Netflix ourselves."

McAdam expanded on his views on the matter interview on CNBCs  "Squawk on the Street" program, and said that Verizon and Netflix have been discussing a deal for the past year. He did not say when a deal might be reached but he said that he thought there was a "good opportunity here" for both companies.

AT&T also acknowledged similar discussions with Netflix. "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," an AT&T spokesperson said in a statement.

It's unclear if the agreements would be for wired or wireless networks—or both. Verizon just took full control of Verizon Wireless.

Netflix has stepped up pressure on broadband providers to join its OpenConnect content delivery network, which requires Netflix video caching servers to be placed on an operator's network. Broadband providers that are OpenConnect members have moved to the top of its monthly rankings, including Cablevision, Cox Comunications and Suddenlink Communications. However, other providers like Verizon, which hasn't joined OpenConnect, have seen their rankings slip in the monthly reports.

Recently, some of Netflix's existing Internet connections to broadband providers like Comcast and Verizon have been slowed. One such choke point has been Cogent Communications, which Netflix was using as a "primary" to route content into Comcast, according to a recent Wall Street Journal report, which cited an unnamed person familiar with the matter.

As the Journal noted, according to data Netflix recently published, the average speeds of the company's primetime streams to Comcast subscribers fell 27 percent from October to January and Netflix's streams to Verizon customers also have slowed in recent months.

The developments come as the FCC is lookin for ways to use its existing authority to craft new net neutrality rules following a recent federal appeals court ruling striking down the commission's net neutrality regulations.

FCC Chairman Tom Wheeler said last week that said the FCC is going to focus on ensuring that "edge providers" that deliver goods and services on the Internet can reach people. He said that the January ruling from the U.S. Court of Appeals for the D.C. Circuit  upheld the FCC's "judgment that Internet freedom encourages broadband investment and that its absence could ultimately inhibit broadband deployment."

For more:
- see this Reuters article
- see this CNET article
- see this Mashable article

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