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Report: Apple In Paid Interconnect Talks

Following a path already blazed by Netflix and other online content providers, Apple is negotiating paid interconnection agreements “with some of the largest ISPs in the U.S,” Dan Rayburn, the EVP for and a principal analyst at Frost & Sullivan, reported Tuesday in this blog post.

Rayburn didn’t identify the ISPs by name, but said the talks are heating up as Apple’s home-grown content delivery network grows rapidly. “[I]t won’t be long before we see start seeing a portion of their content getting delivered from their new CDN,” he wrote, noting his earlier report from February that Apple had formed a new group tasked with the new CDN effort to handle software updates, apps and other Apple-related content.

Apple has not responded to requests for comment, but the report comes as Netflix forges, albeit reluctantly, new paid interconnection deals with Comcast and, more recently, with Verizon Communications, with similar talks underway with AT&T.

Netflix has advocated for interconnection to be includes in the scope of the FCC’s new open Internet rules effort, labeling such deals as an “arbitrary tax” on over-the-top video service providers. Netflix parlayed that argument into its formal opposition of the proposed Comcast-Time Warner Cable merger.

While Netflix prefers that ISPs join Open Connect, its private content delivery network that relies on Netflix-supplied edge caches, its interconnection deal with Comcast has already boosted the quality of Netflix streams that are delivered to the MSO’s broadband subscribers.

Apple doesn’t appear to share Netflix’s view on the paid interconnection matter.

“If they do, they certainly aren’t complaining in any public forum,” Rayburn wrote. “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.”

For now, Netflix’s online traffic generally dwarfs Apple’s. According to Sandvine’s latest snapshot of Internet usage, Netflix’s share of aggregate data during peak periods (upstream and downstream) on fixed access networks in North America was 31.09%, while Apple iTunes represented just 3.33%.

But Rayburn notes that there’s more to it, pointing out that Apple-related traffic can surge, particularly around new releases of its operating systems. For example, Apple’s iOS 7 and app downloads accounted for nearly 40% of all traffic on ISP networks “almost overnight,” the analyst wrote, citing data from Qwilt, a maker of “transparent” caching systems.

Rayburn also said Apple’s decision to build its own CDN is to help get a grip on performance issues with iCloud.