Two companies, A and B, have a network connection between them. Packets flowing through this wire fall into three categories:<p><pre><code> * Traffic for which both A and B are being paid by their respective customers
* Traffic for which A is being paid by the sender or recipient, but B is not paid
* Traffic for which B is being paid by the sender or recipient, but A is not paid
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The latter two categories are called "transit"; that's when you carry packets between two parties, neither of which is directly your customer. There is an established tradition which says that if two companies set up a connection which carries transit, the flow of traffic across it should be balanced.<p>Currently, there is controversy over a large amount of traffic flowing like this:<p><pre><code> Netflix -> Level 3 -> Verizon -> Consumers
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For which the corresponding flow of dollars looks like this:<p><pre><code> Netflix -> Level 3 Verizon <- Consumers
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In the past, it has sometimes been difficult to frame peering in terms of who's paying who, so it was instead framed in terms of senders and recipients, rather than in terms of who's paying who. Verizon is trying to use this framing to say that Level 3 should pay them. But looking at the economics, it's clear that neither Level 3 nor Verizon should be paying the other, because each of them is already being paid for the traffic by their respective customers.