Will Net Neutrality Ruin Akamai?

Content-delivery network Akamai sits between content providers such as Netflix and ISPs such as Verizon. What do recent developments in the network neutrality debate mean for Akamai?

Jul 9, 2014 at 1:00PM

Content-delivery networks, or CDNs, such as Akamai (NASDAQ:AKAM) reflect the complex and changing nature of the Internet, much of which is hidden from public view. They operate thousands of servers worldwide from which they deliver customers' web content, providing improved speed and reliability to end users. CDNs currently serve over one-third of total Internet traffic, and it is estimated that, by 2018, this will increase to more than one-half.

CDNs sit between content and bandwidth providers, and are, in effect, the partners and customers of both. It is, therefore, natural to ask how the recent developments on net neutrality, including the FCC's overturned regulation and the well-publicized spat between Netflix (NASDAQ:NFLX) and Verizon (NYSE:VZ), will affect companies like Akamai.

A quick net neutrality primer
The term "network neutrality" is currently used to mean several different things. The overturned FCC regulation had a fairly restricted scope, which was to prohibit bandwidth providers from blocking or throttling certain kinds of traffic on their networks. The concept was designed to protect consumer experience and choice, and it dealt with networks at the edge of the Internet.

There's also a broader conception of net neutrality that has spread in the wake of Netflix's dispute with ISPs such as Verizon. Basically, the Netflix-Verizon situation revolved around the prices that different networks pay each other to exchange traffic. These are business-to-business dealings that have been standard for many years.

However, the public nature of Netflix's service made many people concerned with the idea of a paid Internet fast lane and its effects on fairness, cost, and competition. This has given rise to a broader definition of net neutrality, which is about preventing preferential treatment on networks in exchange for money.

Akamai and net neutrality
Many of the arguments that are being presented in favor of the "no-fast-lane" use of net neutrality can also be applied against CDNs such as Akamai. The company clearly provides a competitive performance edge to customers who can afford to use its services, and those services are not cheap. In fact, Netflix used to be an Akamai customer, before sourcing out its content to a wider range of CDNs and, finally, developing its own content-delivery network in an effort to reduce costs.

However, The FCC regulation specifically rejected this idea, stating that CDNs improve the end-user experience and reduce overall Internet traffic. As the FCC regroups following the court's decision on the Open Internet Order, Akamai's management has stated that, however the net neutrality debate moves forward, the company is in a good position and will likely benefit. Akamai has a strong relationship with ISPs such as Verizon, which host Akamai's servers and of which Akamai is a major customer, as well as the content providers, which are Akamai's own customers.

Now, Akamai seems to be pushing the fast-lane idea even further, into the mobile space. A collaboration with Ericsson called the Mobile Cloud Accelerator would allow content providers to purchase premium content delivered more quickly across congested last-mile mobile networks. According to Technology Review, Lior Netzer, vice president of mobile networks at Akamai, has said that the effect on other traffic should be negligible. Still, as this has the potential to negatively impact other end users, it gets closer to the domain of the original FCC ruling, and it remains to be seen how regulators would react.

In conclusion
In spite of sitting between dueling content and bandwidth providers, content-delivery network Akamai seems to be in a good position. It has strong relationships with both sides, and, as the FCC has noted, its services reduce the overall costs of delivering traffic and do not violate net neutrality. However, it remains to be seen how regulators will react to Akamai's new initiative to provide a paid fast lane in last-mile mobile networks.

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Srdjan Bejakovic has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. 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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