Apple Negotiating Paid Interconnect Deals With ISPs For Their Own CDN

In February I blogged about a new group formed inside of Apple last year, tasked with building out their own CDN to deliver Apple software updates, apps and other Apple related content. Since my post, Apple has been very busy with their build out deploying a lot of boxes running Apache Traffic Server and buying a ton of transit, co-location, wavelengths and other infrastructure services. Their CDN is quickly growing, and it won’t be long before we start seeing a portion of their content getting delivered from their new CDN.

As part of their build out, Apple is currently negotiating paid interconnection deals with some of the largest ISPs in the U.S. I’m not going to disclose which ISPs they are talking to and what deals they have already done, but it’s interesting to note that with all the talk lately of net neutrality, peering and interconnect relationships, Apple isn’t out in the market making any complaints. While Netflix has used the media, consumers and lawmakers to try and argue that CDNs should get as much peering as they want, at no charge, Apple doesn’t seem to agree with that sentiment. If they do, they certainly aren’t complaining in any public forum.

At a time when interconnection deals are getting so much exposure, Apple hasn’t used it as an opportunity to argue about the current business models of how networks connect with one another. Much like Microsoft, Google, Facebook, Pandora, Ebay and other content owners that have already built out their own CDNs, Apple appears to see paid interconnect deals as simply part of the costs associated with building out their own CDN network. To date, no other content owner or content syndicator that has built out their own CDN has complained of the current business models or argued about doing mutually beneficial interconnect deals between networks. If interconnect deals are such a problem in the industry, or a threat as many make it out to be, you don’t see the ones who actually have to pay for these deals complaining, other than Netflix.

Some might suggest that the reason for this is that Apple is not as big as Netflix since according to Sandvine data, Apple takes up only 2% of total Internet traffic at peak while Netflix takes up 34%. While that’s true, when Apple releases a new operating system for the iPhone, like they did last year, their iOS 7 and app downloads accounted for nearly 40% of all the traffic inside ISP’s networks, almost overnight. So Apple does push a lot of traffic at times and the more devices they sell, the larger their traffic grows.

What Apple is working on aligns with what all of the other big content syndicators out there have already built, which is a considerable amount of their own distributed origin infrastructure, for both large and small objects. Part of Apple’s reasoning for building their own CDN is because of performance issues with iCloud, with Apple wanting to have more control over the end-user experience. Apple already controls the hardware, the OS and the iTunes/App store platforms. Right now Apple controls the entire customer experience, except for the way content is delivered to their devices, so it’s only natural that a company of their size would build out their own CDN.

For all the talk in the media about how bad paid interconnect deals are for the Internet, this is how the Internet (updtaed: in the U.S.) was able to grow over the last twenty years and how services got to the scale and performance that they are today. Without these interconnect deals taking place, the Internet would not operate as well and fewer services would be available in the market. I think we should rely on those who actually have to build out these CDNs and pay the costs associated with doing so to tell us whether or not the current way of doing business need to be changed. But so far, out of those who have built their own CDNs to deliver content including Netflix, Microsoft, Apple, Pandora, Yahoo, Ebay, Facebook, Amazon and others, only Netflix is complaining.

There is only one company that I can think of that could bring even more exposure to the interconnect topic than Netflix, to try to get the current business models changed, and that would be Apple. So far, they haven’t done that, have not complained to the media or to the public and are currently signing and negotiating paid interconnect deals with ISPs. So it’s just another example you have to look at when some make the statement that paid interconnect deals are bad for everyone involved. It seems that other than Netflix, those companies paying and signing these deals don’t seem to have a problem with them.

  • Richard Bennett

    Dan, who at Comcast paid you to write that article?

    • danrayburn

      Really, that’s the best comment you can come up with? Not very original.

      • Richard Bennett

        LOL it was sarcasm Dan. Haters gonna hate.

      • dansux

        neither are you, you hack.

  • tzakrajsek

    I am surprised you didn’t mention the Google Global Cache…

    • danrayburn

      Yeah I forgot to add them to the list in this post.

  • wscaddie56

    Seeing as apple is a patent troll, see rockstar, I don’t think we should have any expectation of them acting in society’s best interest.

    • mccldwll

      Must have been a double bag day to come up with something that tired.

  • capella

    Nice piece! I linked over here from ArsTechnica’s mention… I’m trying to follow these developments and have gotten tired of the predictably superficial treatment it receives there… Would rather hear from people with more Industry / technical knowledge than those who preach ‘Net neutrality as-utopia and/or welcome turning the game over to the regulators.

  • thomg875

    Where do you get the figures? Netflix accounts for 34% of all internet traffic? That seems highly inflated considering everyone on Facebook and Youtube not to mention the aggregate of all other internet activity. And then take in the whole world, Netflix isn’t even offered in most of it, is it?

  • Herbbie

    Apple should just buy Level 3 and have a ready made path to where they want to go, instantly.

  • Be my Guest

    They don’t have a problem with them because they can afford to pay for better service… making competition from startups with limited capital… difficult.

    • capella

      This is the part that confuses me… start-ups still are guaranteed base-line service, like if you go to the post office and mail regular delivery. If one has a business case for express delivery, one pays for it.

  • Lost

    “If interconnect deals are such a problem in the industry, or a threat as many make it out to be, you don’t see the ones who actually have to pay for these deals complaining, other than Netflix.”

    Google does one better than complaining. They offer free interconnection (peering) and free server co-location.

  • waltc3

    There’s a huge difference between “paid interconnect” and the public’s mythical “fast lane.” The two are not the same. Everybody, from a single customer all the way up to the largest company “pays to interconnect,” and if they didn’t there’d be no Internet at all. (Obviously.) Apple’s iPhone downloads may well consume 40% of the *wireless* Internet capacity–at certain times, only–but it doesn’t scratch the surface of the the total wired Internet infrastructure capacity. This is why catch-phrases like “net neutrality” are so horrid: nobody really has a clue about what he’s talking about when he uses the phrase and few can or will ever agree on what the phrase is supposed to mean. The best people can come up with is: “We want the Internet handled just like our land-line phone service!” and this they think is a profound statement of some kind. Really, you’d want your Internet to become as crummy as land-line phone service? Count me out on that one. I like things the way they are and, no, the sky is not falling no matter what you hear to the contrary.

  • Justin W.

    Dan, great post as usual. One important detail you forgot to mention is that Apple now employs Ren Provo. She used to work for Steve Lacoff at Comcast, structuring paid peering deals similar to the one Apple is probably entering into, so she knows the system inside and out. The winners here are Apple’s customers, who will enjoy top quality streaming and iTunes downloads for only a modest increase in price.

  • jasoncjh

    Netflix is at the forefront of this transformation of the television business, which happens to be Comcast’s business, too. Netflix is nibbling away at Comcast’s pay TV base and getting plenty of help from emerging Internet TV content providers.

    Apple hasn’t complained, but neither have the backbone providers that carry the traffic passed on to Comcast. That’ll change.

    Comcast is doing what it can to monetize Internet TV content it passes through without the benefit of adding to its subscriber revenue.

    It’s a new day for cable TV companies; they don’t want to be reduced to carriers only, with no profit from the content. Charging the Internet TV content providers is just getting started.

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