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September 20, 2017

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Comcast-Netflix deal may upend Internet payments model

WASHINGTON--Netflix's agreement to pay Internet giant Comcast for smoother delivery of its video-streaming service sets a precedent which could upend the model for who pays for online content.

The agreement, confirmed over the weekend by the companies, will see Netflix pay an undisclosed amount for "a more direct connection" to consumers using Comcast's Internet service.

Some analysts say this kind of deal threatens the model of "net neutrality" — or equal access for all kinds of online services — a concept enshrined in U.S. regulatory policy until a court ruling last month invalidated most of the rules.

"For the first time in the cable industry's history, a content provider will pay for direct access to the pipe," said Kannan Venkateshwar, a Citi analyst, in a note to clients.

"This flips the traditional distribution model thus far whereby content has been paid by the pipe."

The announcement came after reports that Comcast, the largest U.S. cable and Internet provider, was slowing Netflix traffic, making it harder for viewers to see programs such as the hit series "House of Cards."

It also comes after the Federal Communications Commission regulator announced that it would seek to rewrite its "Open Internet" rules in an effort to achieve many of the goals of the "net neutrality" principle, struck down by a federal appeals court.

Earlier this month, Comcast announced a massive deal to acquire rival Time Warner Cable, which would boost its already dominant position in the United States.

Rivals May Follow Suit

Youssef Squali at Cantor Fitzgerald said the Comcast-Netflix deal could set a precedent for other Internet and content providers.

"We believe that this agreement is likely to precipitate others in the U.S. and internationally," Squali said in a research note.

This was confirmed on Monday by telecoms giant Verizon's chief executive Lowell McAdam, who said his company was looking to follow Comcast's model.

"We are pleased to see that Netflix and Comcast had an arrangement," McAdam told analysts.

"We will have to see what the details of that are but we have had discussions with Netflix ourselves and feel that the commercial markets can come to agreement on these to make sure that the investments keep flowing."

John Bergmayer at the consumer activist group Public Knowledge said the news is troubling because it shows how Internet service providers can assert themselves as powerful gatekeepers.

Bergmayer said the Internet and cable firms "should be in the business of charging their users for access to the Internet, not of charging the rest of the Internet for access to their users."

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