Apple Is Looking to the Internet Fast Lane

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Frost & Sullivan analyst Dan Rayburn claims in a new blog post that Apple (NASDAQ:AAPL) has been hard at work recently building its own content delivery network, which through paid deals with Internet service providers will allow Apple to deliver online content to its users faster and more reliably than it can now through its third-party CDNs.

Rayburn has written extensively about both the CDN and ISP industries, and wrote a post in February saying that Apple has spent the last year building out a team experienced with the creation of large content delivery networks so that the company could stop relying on current third-party CDN providers Akamai and Level 3. Having its own CDN would allow Apple to deliver a better experience for users of its apps, iTunes video, and software updates. Updates to the iOS operating system in particular take up huge amounts of bandwidth when they are released.

Now Rayburn is saying that Apple’s CDN is nearing completion, and customers will soon begin seeing their content delivered through it. One of the most important aspects of the maneuver is that Apple is looking to make paid deals with ISPs for better, faster bandwidth delivery, something that’s possible now that the Federal Communications Commission’s net neutrality laws were overturned in January. ISPs are now free to make deals with content providers in exchange for access to better Internet service.

“As a 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,” Rayburn said. “While Netflix (NASDAQ:NFLX) 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.”

With all the attention that net neutrality has been getting in the media lately, it seems that if Apple had something to say on the matter, it would have said it. Last week the FCC opened the floor for comments on how it should proceed, with the discussion a battleground between those arguing that government regulation is necessary to keep the Internet a fair and open space for all and those arguing that government regulation would inhibit the Internet’s growth. Almost no one is happy with FCC Chairman Tom Wheeler’s proposal that content providers be able to make deals with ISPs on “commercially reasonable” terms under the watchful eye of the FCC.

Almost no one who’s talking, that is. It seems like this is exactly the type of arrangement that Apple is leaning toward. “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 may make it out to be, you don’t see the ones who actually have to pay for these deals complaining, other than Netflix,” Rayburn wrote.

If you’re interested in the latest with the with the internet fast lanes and Net Neutrality, you might be interested in our previous story on the matter. Check it out here:

Last week the Federal Communications Commission filed a notice of proposed rule making regarding how the agency should proceed regarding net neutrality. The FCC is looking to reinstate net neutrality laws after the current version of the rules was overturned by a D.C. district court in January, but public outcry over the possibility of bigger, richer companies receiving privileged access to the Internet at the detriment of smaller startups has left the FCC feeling uncertain about how to proceed. So it’s asking for input from any and all individuals over the next four months about what it should do next.

FCC Chairman Tom Wheeler has suggested that the rules be changed to allow for Internet service providers to make deals with content providers that would like to pay for faster, better-quality broadband service under “commercially reasonable” terms. This middle-of-the-road-type agreement would allow for ISPs to benefit from market changes by cutting these kinds of deals, but would allow the FCC to closely monitor the agreements to ensure that smaller companies aren’t being treated unfairly.

This proposal, like most compromises, seems to be making no one happy. Advocates for net neutrality believe those laws are needed to keep the Internet a free and open space for everyone so that new companies have the opportunity to blossom. Wheeler himself has said that without net neutrality, the next Google or Facebook might never happen. Those companies and others, including Netflix and Amazon, wrote a letter to the FCC earlier this month saying that the FCC’s dedication to the principle of net neutrality is the reason the the Internet has flourished, and allowing those rules to end will hamper the Internet’s economic possibilities.

Of course, some believe that the answer to keeping the Internet economically viable is not more, but less regulation. When the FCC issued its notice of proposed rule making, Commissioner Ajit Pai issued a dissenting statement, saying that increasing government regulation of the Internet would hamper innovation as much as throwing out net neutrality completely, and that the FCC shouldn’t be the body responsible for making such a big decision.

He cited the fact that the Telecommunications Act of 1996 purposefully left the Internet out so that it could grow without government regulation. “After all, nobody thinks of plain old telephone service or utilities as cutting-edge. But everyone recognizes that the Internet has boundless potential. And that’s because the government didn’t set bounds early on,” Pai said. He also recommended that the FCC seek advice from Congress on the matter. “A dispute this fundamental is not for us, five unelected individuals, to decide. Instead it should be resolved by the people’s elected representatives, those who choose the direction of the government — and those who the American people can hold accountable for that choice,” Pai said.

Now some lawmakers have issued their opinions on net neutrality. Predictably, Republicans and Democrats are taking opposing sides on the matter, with Democrats saying net neutrality laws need to be upheld and Republicans saying that a lack of government regulation is what has made the Internet thrive in the first place.

Ten Democrats from the Senate issued a letter to Wheeler, saying that allowing ISPs to charge companies for better Internet service undermines the entire concept of net neutrality. “Changing the rules — to let broadband Internet Service Providers (ISPs) demand payment from websites and app developers — would eradicate Net Neutrality, not preserve it. Anytime one group of packets is favored on an IP network the rest of the traffic is, by definition, discriminated against,” the senators wrote. “The genius of the Internet is that it allows for innovation without permission, not innovation only after cutting a deal with the ISP and receiving the FCC’s blessing for it.”

From the Republican side, the House Energy and Commerce Committee chairman, Rep. Fred Upton (R-Mich.), and the Communications and Technology Subcommittee chairman, Rep. Greg Walden (R-Ore.), issued a statement last week saying that they were also disappointed in Wheeler’s proposed rules, but because they think said rules would place too much regulation on the Web.

“Free from regulation and government meddling, the Internet as we know it has thrived. Sadly, these unnecessary rules the commission has proposed today will have a chilling effect on job creation and innovation without any corresponding consumer benefit. These rules are a solution in search of a problem. Worse still, any attempt to reclassify broadband Internet embarks on a worrisome course for its future,” the representatives said.

Free from regulation and government meddling, the Internet as we know it has thrived. Sadly, these unnecessary rules the commission proposed today will have a chilling effect on job creation and innovation without any corresponding consumer benefit. These rules are a solution in search of a problem. Worse still, any attempt to reclassify broadband Internet embarks on a worrisome course for its future,” said Upton and Walden. “With so much at stake, Chairman Wheeler has ignored the bipartisan congressional calls for caution. We look forward to a spirited discussion with Mr. Wheeler next week on the commission’s misguided vision of a heavily regulated Internet.” – See more at: http://energycommerce.house.gov/press-release/upton-and-walden-respond-fcc-vote-proposed-net-neutrality-rules#sthash.rhSAjAdW.dpuf
Free from regulation and government meddling, the Internet as we know it has thrived. Sadly, these unnecessary rules the commission proposed today will have a chilling effect on job creation and innovation without any corresponding consumer benefit. These rules are a solution in search of a problem. Worse still, any attempt to reclassify broadband Internet embarks on a worrisome course for its future,” said Upton and Walden. “With so much at stake, Chairman Wheeler has ignored the bipartisan congressional calls for caution. We look forward to a spirited discussion with Mr. Wheeler next week on the commission’s misguided vision of a heavily regulated Internet.” – See more at: http://energycommerce.house.gov/press-release/upton-and-walden-respond-fcc-vote-proposed-net-neutrality-rules#sthash.rhSAjAdW.dpuf

The White House is staying predictably neutral on the matter. President Obama supported net neutrality throughout his presidential campaign and is saying that he would like the Internet to remain as open as possible without giving specifics as to how that should be achieved. A statement from the White House press secretary issued last week says that the president still “strongly supports net neutrality and an open Internet.”

Meanwhile, Obama’s former chief technology adviser, Aneesh Chopra, said in an interview with Time that the rules put forth by Wheeler actually fall in line with the idea of net neutrality that the White House supported in 2010. “In my personal opinion, the provision of managed services is not inconsistent with the principles of an open Internet, provided there is a robust level of oversight ensuring that we are not degrading the Internet service offerings for the rest of us,” he said.

Chopra’s opinion that FCC regulation of deals between ISPs and content providers for faster service falls in line with the spirit of net neutrality is clearly not shared by many on either side of the political spectrum, but it does seem to be the direction both the White House and the FCC are headed.

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