Internet backbone technology

Ultimately, most internet traffic is exchanged between networks in a process called Peering at places called Internet Exchange Points(IXPs). ISPs and other networks sign Peering Agreements with each other to establish terms and conditions for sharing traffic between networks.

There are two types of peering: public, and private:
Public peering is where a large number of carriers can go to all connect to each other in a 'public forum' manner. Public peering is most often slower for a number of reasons. It can also be used as a backup when the preferred network is down or malfunctioning.
Private peering is where two carriers make a peering agreement to establish a connection directly between themselves. Naturally, this allows the parties to agree on acceptable latency and bandwidth. The vast majority of internet traffic is exchanged via private peering. Private peering agreements are normally secretive, and a lot of shady business goes down when negotiating them. For example, providers very frequently and intentionally neglect to upgrade their equipment at an IXP in order to gain the upper hand in peering agreements. They can now claim: "Look, we'd love to agree to this, but we clearly need more bandwidth at this location, which will cost us money! 0:)"

Side note: A really cool site to check out if you're so inclined is You can browse through public and private IXPs, and check out some peering info on a good deal of networks. (you can log in with guest/guest, you only need an account if you want to update the database)

In order to be able to transfer content quickly and efficiently to everyone everywhere, you're going to need to either peer directly with all the major networks, or partner with third party networks that can exchange traffic on your behalf. The latter is what most companies do-- Netflix, for example, uses Akamai, Limelight, and Level 3 (three very fast "Content Delivery Networks") to push its video to customers. Each of those CDNs have extensive peering agreements all over the globe.

Networks are constantly shifting, with internet routes being modified all the time, and problems arise frequently. Most peering agreements include the stipulation that if problems are found on a network, there will be techs around to investigate and fix it. A tech's ability to fix a problem, however, varies, depending on how well he knows the systems involved. Here's an example of Hulu trying to alleviate some of the pressure from their CDNs--

With all that in mind, CDNs and other content providers that are categorized as "Mostly Outbound" tend to incur the largest fees for data transfer. In order to vastly reduce the amount of data needed to travel between networks, larger CDNs/content providers will strike agreements with major ISPs to host content caching hardware either inside or directly adjacent to the ISP's own network(both physically and logically).

Google's version of this is called "Google Global Cache"-- (very bottom of page)

Netflix's version of this is called "Open Connect"--

You can see these systems indirectly by watching a YouTube video and checking the address of the streaming server. Sometimes the address of the server may indicate your ISP, eg "comcast-blah.blah". If not, if you run a traceroute on the address, you'll find that it barely makes it out of your ISP's network(most of the time, check here for a dry article on why not always).

Up until a few days ago, Comcast refused, for whatever reason, to sign on to Netflix's Open Connect. They recently struck an agreement, though. I imagine that this is in part due to the recent Supreme Court ruling allowing ISPs to throttle any traffic they deem unworthy-- Netflix I'm sure had to pony up a few more coins to strike the agreement now. Another motivating factor was that Netflix, which was opposed to the ruling, would also be opposed to the Comcast acquisition of Time Warner Cable. Now that they have an "in" with Comcast, however, they are likely to be far less vocal about it.