FORTUNE — Frost & Sullivan analyst Dan Rayburn created a stir Tuesday when he reported that Apple was negotiating paid interconnection deals for preferential treatment from certain large Internet service providers that Rayburn was not at liberty to name.
This news, coming after a heated political debate about “net neutrality” in which Apple did not participate, prompted a classically snarky Business Insider headline: This Is Why Apple Doesn’t Care If The FCC Wrecks The Internet.
Really?
I must confess that I had skipped most of last month’s net neutrality debate. It was a little boring, I was traveling, and Apple (AAPL) didn’t seem to have a stick in the fire — or at least not a very big one.
I knew that the company — which had relied for years on Akamai (AKAM) and Level 3 Communications (LVLT) to pipe its content onto the Internet — had started to build its own content delivery network (a.k.a CDN.) Rayburn had that story in February. The Wall Street Journal reported the next month that Apple was negotiating some kind of sweetheart deal with Comcast.
But Rayburn clarified things considerably when he cited Sandvine’s breakdown of U.S. Internet traffic. Netflix accounts for an astonishing 34.2% of downstream peak residential traffic in the U.S. (See attached piechart.) That’s the reason Netflix is 1) paying Comcast an Internet-usage fee and 2) making a big fuss about it.
Apple’s share of Internet traffic may be small compared with Netflix — just 3.6% — but it’s large enough to cause traffic jams during Apple’s own periods of peak usage, such as the release of a new operating system. That helps explain why, like Microsoft, Google, Facebook, Pandora and Ebay, Apple is building its own CDN.
“For all the talk in the media about how bad paid interconnect deals are for the Internet,” Rayburn writes, “this is how the Internet (updated: 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.”
Personally, I don’t know whether the FCC’s Net neutrality plan is good or bad for the Internet. I suspect chairman Wheeler doesn’t either. Like most people who have grown to depend on the Web, I want it everywhere, I want it to work, and I want it to be free or nearly so. (The price of a cup of coffee seems about right.)
But I’m also willing to concede that my attitudes were formed 30 years ago, when the Internet was built with government money by university researchers. Today, the Internet is largely in private hands. Just seven Tier 1 companies provide the backbone.
The way things are structured now, someone’s got to put up the money to build out the network — which is seems to be what Apple is doing — and I’m not surprised that they expect a return on their investment. One way or the other.
Below: The most recent Sandvine numbers I could find. (Note that Apple’s upstream traffic is even smaller that its downstream. For data moving from the home to the cloud, the biggest contributor is BitTorrent.)
Recommended reading: Ben Thompson’s The Net Neutrality Wake-up Call
