Apple Inc. Quietly Follows In Netflix's Footsteps

Why is Netflix complaining so much?

May 24, 2014 at 12:00PM

Netflix (NASDAQ:NFLX) has been making headlines all year by inking interconnection deals with Internet service providers, allowing greater network access to improve streaming quality. Apple (NASDAQ:AAPL) may be doing likewise, according to industry insider Day Rayburn. Apple is reportedly negotiating interconnection deals with several large domestic ISPs, yet Apple has not complained publicly about having to pay these fees like Netflix has.

In fact, interconnection deals are quite common in the industry, with companies like Microsoft, Google (NASDAQ:GOOG)(NASDAQ:GOOGL)Facebook, and Pandora Media having similar arrangements, among many others. For most companies, interconnection fees are simply a cost of delivering content via content delivery networks, or CDNs. Apple is likely building its own CDN to replace third-party providers like Akamai and Level 3, but it'll be a long time before it has a CDN up and running.

Google doesn't charge interconnection fees for Google Fiber, and offers free access for delivering content. However, Google can afford to be more aggressive since Fiber is a tiny side business.

In this segment of Tech Teardown, Erin Kennedy discusses interconnection deals with Evan Niu, CFA, our tech and telecom bureau chief.

(Relevant segment starts at 9:10)

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Erin Kennedy owns shares of Apple. Evan Niu, CFA owns shares of Apple. Evan Niu, CFA has the following options: long January 2015 $460 calls on Apple, short January 2015 $480 calls on Apple, short January 2015 $60 puts on Facebook, and long January 2015 $35 puts on Facebook. The Motley Fool recommends Apple, Facebook, Google (A shares), Google (C shares), Netflix, and Pandora Media. The Motley Fool owns shares of Apple, Facebook, Google (A shares), Google (C shares), Microsoft, Netflix, and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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