Netflix may have recently agreed to pay Comcast for delivering its traffic to end users, but CEO Reed Hastings is clearly not happy about it. He recently slammed the existing Net neutrality situation that has given rise to the need for Netflix to pay for interconnection, whereas in the past there have always been settlement-free peering arrangements.

And as far as Net neutrality goes, Verizon earlier in the year prevailed in a lawsuit to block the Federal Communications Commission's ability to enforce Net neutrality rules. Since then, consumers have anecdotally reported slower video streaming experiences across a variety of providers.

 “Some big ISPs are extracting a toll because they can -- they effectively control access to millions of consumers and are willing to sacrifice the interests of their own customers to press Netflix and others to pay,” Hastings noted in a blog. “Though they have the scale and power to do this, they should realize it is in their long term interest to back strong Net neutrality. While in the short term Netflix will in cases reluctantly pay large ISPs to ensure a high quality member experience, we will continue to fight for the Internet the world needs and deserves.”

He added, “Some major ISPs, like Cablevision, already practice strong net neutrality and for their broadband subscribers, the quality of Netflix and other streaming services is outstanding. But on other big ISPs, due to a lack of sufficient interconnectivity, Netflix performance has been constrained, subjecting consumers who pay a lot of money for high-speed Internet to high buffering rates, long wait times and poor video quality.”

Once Netflix agrees to pay the ISP interconnection fees, however, sufficient capacity is made available and high quality service for consumers is restored.

“If this kind of leverage is effective against Netflix, which is pretty large, imagine the plight of smaller services today and in the future,” he added. “Roughly the same arbitrary tax is demanded from the intermediaries such as Cogent and Level 3, who supply millions of websites with connectivity, leading to a poor consumer experience.”

Netflix has always been a thorn in ISPs' sides, accounting for a majority of peak Web traffic on any given day (and 30 percent of overall Web traffic), but very little of the revenue for the pipe providers. It's also of course a competing service for pay-TV operators, most of whom are those same ISPs as well.

This has given rise to a series of disputes over settlement-free peering arrangements, which Hastings was alluding to. Comcast for instance told Level 3 it would no longer exchange Internet traffic without being paid for it, back in 2010. At the time, Level 3 was a main backbone provider for Netflix, and was sending more traffic to Comcast than Comcast was sending back to Level 3 — an uneven arrangement that demanded compensation, in Comcast's view, to help pay for necessary network upgrades to accommodate all of that traffic.

They two eventually resolved the dispute — terms were not disclosed — but it showcased the fundamental issue with OTT, i.e., who should ultimately pay for the infrastructure to carry it?

Major ISPs like Verizon, Comcast, AT&T and Time Warner Cable have also been involved in ongoing disputes related to peering and Netflix backbone provider Cogent Communications. Last summer, Cogent accused Verizon of delaying upgrades to the ports through which the two companies exchange Internet traffic.

"Cogent is not compliant with one of the basic and long-standing requirements for most settlement-free peering arrangements: that traffic between the providers be roughly in balance," Verizon said at the time. "When the traffic loads are not symmetric, the provider with the heavier load typically pays the other for transit. This isn't a story about Netflix, or about Verizon 'letting' anybody's traffic deteriorate. This is a fairly boring story about a bandwidth provider that is unhappy that they are out of balance and will have to make alternative arrangements for capacity enhancements, just like any other interconnecting ISP."

Emphasizing that he is not willing to enter into paid peering arrangements, Cogent Communications CEO Dave Schaeffer last week publically offered to resolve the impasse with the ISPs over Netflix and other streaming, by paying the capital cost required for these companies to upgrade the connections (as well as Cogent's own costs) to ensure adequate capacity to deliver quality service.

"Cogent believes the traditional Internet model in which each party bears its own capital costs to upgrade an interconnection should be the model for these relationships, but the reality of the gatekeeper power exercised by these telephone and cable companies requires that Cogent accept these additional costs in order to provide the highest quality Internet service possible," said Schaeffer.

“Cogent believes that these major telephone and cable companies are attempting to leverage their monopoly on broadband residential Internet connections to increase their profits by imposing tolls on traffic requested by their customers and delivered by other Internet service providers,” the company added in a statement.

Against this backdrop, Netflix has been trying to sign up providers to its own CDN, the OpenConnect project, which would minimize traffic across both backbone and access networks by caching content closer to the consumer. But it's essentially been in a stand-off with all of the major broadband providers, none of whom want to miss out on any potential revenue by forcing Netflix to pay for the privilege of quality connections.

“Interestingly, there is one special case where no-fee interconnection is embraced by the big ISPs -- when they are connecting among themselves,” Hastings said. “They argue this is because roughly the same amount of data comes and goes between their networks. But when we ask them if we too would qualify for no-fee interconnect if we changed our service to upload as much data as we download-- thus filling their upstream networks and nearly doubling our total traffic -- there is an uncomfortable silence. That's because the ISP argument isn't sensible.”