Level 3 Communications Inc. (NYSE: LVLT), fresh off a deal that made it a primary content distribution network (CDN) for Netflix Inc. (Nasdaq: NFLX), claims it's been strong-armed by Comcast Corp. (Nasdaq: CMCSA, CMCSK) into paying a recurring fee for piping video traffic requested by Comcast's high-speed Internet subscribers.
Level 3 is playing up the situation as a major network neutrality issue. But Comcast says it's just a case of normal network peering negotiations, with Level 3 not wanting to pay its share.
In Level 3's press release, issued Monday, chief legal officer Thomas Stortz holds that Comcast "is effectively putting up a toll booth at the borders of its broadband Internet access network," unilaterally deciding how much to charge for content that competes with its own services -- both traditional cable TV and the new Xfinity TV Online. (See Comcast's TV Everywhere Play Breaks Out of Beta .)
Level 3 said it agreed to the terms "under protest" on Nov. 22 to ensure that its customers did not experience any disruptions. Level 3 further claimed that Comcast's demand for payment was of the "take it or leave it" variety.
Level 3 "has inaccurately portrayed the commercial negotiations between it and Comcast," MSO SVP of external affairs and public policy Joe Waz writes. He claims Comcast offered Level 3 the same terms it offers to its CDN competitors for the same traffic, but that Level 3 wants to pass all the costs of its CDN business onto the MSO.
"To quantify this, what Level 3 wants is to pressure Comcast into accepting more than a twofold increase in the amount of traffic Level 3 delivers onto Comcast's network -- for free," Waz writes.
Level 3 had announced its multiyear deal with Netflix on Nov. 11, noting then that it would double its storage capacity and add 2.9 Tbit/s of available CDN capacity. Level 3 claims Comcast first demanded the new fee on Nov. 19.
The Universal question
The timing of all this is interesting, because Comcast is seeking approval for its acquisition of NBC Universal , with regulators considering what, if any, conditions to apply to the deal. Separately, word is spreading that the Federal Communications Commission (FCC) may again try to codify net neutrality rules and reclassify its authority over broadband. (See Policy Watch: Eyes on NBCU & Title II .)
Level 3, which is airing the issue with regulators and policy makers, notes that the net neutrality debate has largely centered on how Internet content is filtered or managed. Stortz claims Comcast's demand for fees "goes well beyond this" and risks the emergence of a closed Internet, whereby ISPs serve as gatekeepers on how and what content their subscribers can access.
During inquiries pertaining to the NBCU deal, Comcast has said it would not hinder the delivery of over-the-top content. The deal is expected to be approved before the end of the year. (See Comcast to Take Control of NBC Universal.)
For more on the regulatory implications of the Comcast/NBCU deal, please check out these stories:
OldPOTS, User Rank: Light Beer 12/5/2012 | 4:17:15 PM
re: Level 3: Comcast Erected Web Video 'Toll Booth'
This has been coming to a head for years ever since shared networks were created.
The question becomes, how much should the intermediate carriers be paid for transporting new large quantities, 'more than a twofold increase in the amount' of traffic for which they receive no service revenue?
I would point out that now that most early intermediate hauling fiber is full so the cost to handle the additional traffic becomes very expensive, much more now than local access.
But I guess we can all sacrifice and share the congested network, or pay more.
re: Level 3: Comcast Erected Web Video 'Toll Booth'
I've been asking around on this one, and hope to get a CDN provider outside the fray to comment on it on the record. At this point, though, I'm being told that it's not out of the ordinary for a CDN to pay this type of fee if the balance of traffic starts to get out of whack following an earlier, basic peering relationship based on straight transit. Level 3 will certainly be getting bigger w/Netflix traffic coming onto it, so they'll need to find a way to pay for that. JB
re: Level 3: Comcast Erected Web Video 'Toll Booth'
The whole set of issues surrounding peering, inter-carrier compensation and settlements really should be on the FCC's plate. A properly regulated system is needed, one that is well thought through from a financial and legal standpoint to be transparent, equitable, related to cost, and free of unreasonable discrimination.
Unfortunately, the FCC appears to lack the statuatory authority to do anything at this point, and it's not clear that even if they decide to reassert authority under Title II, they'd have a legal basis to open a proceeding. So it looks like we'll just muddle along...
re: Level 3: Comcast Erected Web Video 'Toll Booth'
International settlements are indeed an ITU problem. Presumably, US positions in SG3 and to the next Plenipot (and in planning meetings leading to the Plenipot) would be a topic of such a proceeding.
I would think, though, that domestic settlements are a more acute concern.
rjmcmahon, User Rank: Light Beer 12/5/2012 | 4:17:11 PM
re: Level 3: Comcast Erected Web Video 'Toll Booth'
re: "The question becomes, how much should the intermediate carriers be paid for transporting new large quantities, 'more than a twofold increase in the amount' of traffic for which they receive no service revenue?"
Hi OP,
Comcast is receiving revenue per the residential monthly fee for broadband. They also only offer an aysmmetric link to the broadband customers with the argument that the traffic is inherently asymmetric so it's kinda odd to be claiming that settlement free peering should be equal between a last mile pipe and a middle pipe provider. In this case it seems the last mile pipe owner is leveraging its monopoly position to extract rents from a middle pipe provider which is explcitly what economists such as Eli Noam was concerned about.
Last-mile pipes. This is the traditional core of market power for the pipes. Right now, there are at most two major pipes – the telecom and the cable pipes. They have significant market power towards the end-users, and even more so towards content providers, for whom they are the only way to access an end-user. To deal with this situation requires the following principles:
• Incentives to increase the number of pipes. (allocation of spectrum to competing wireless providers, unlicensed spectrum, encouragement of municipal and electric powerline provision, temporary tax benefits to all broadband pipes, and access to public rights-of-way.)
• Only end-users pay for use of the last-mile pipe, there is no charge by pipes to content providers to send packets to those end-users.
• Packets from providers can access the end-user's last-mile pipe at its initial point.
• Pipes are free to offer different quality and price packages to end-users.
• Users are free to choose a quality or price package, to access any lawful provider, and to connect any device.
Middle-pipes. Here, there would be only no restrictions. For those pipes, competition exists, and content and applications providers could find ways to bypass restrictive middle-pipes, directly or through resellers, as long as they could access the last-mile pipes. The following principles would apply:
• Pipes are free in their pricing and quality offerings.
• Pipes cannot limit resale by a customer to other parties such as content and applications providers.
• Where pipes discriminate in favour of their own content or applications provision and hold market power, they are subject to fast-track regulatory and antitrust laws.
rjmcmahon, User Rank: Light Beer 12/5/2012 | 4:17:08 PM
re: Level 3: Comcast Erected Web Video 'Toll Booth'
re "Thus creating a real issue for the FCC and various pipe and service providers to react to."
Sure, the question is how they react and what is measured. Will we have a system that rewards scarcity in bit distribution and connectivity in order to maximize profits for a few or will we have a system that rewards abundance of both in order to maximize the benefits to all of society? I hope we get this right because our kids need all of the advantages that they can get.
OldPOTS, User Rank: Light Beer 12/5/2012 | 4:17:08 PM
re: Level 3: Comcast Erected Web Video 'Toll Booth'
Today I heard someone predict an "internet" Traffic Jam, that after Christmas there would become serious congestion as those new toys crank up more streaming video.
Thus creating a real issue for the FCC and various pipe and service providers to react to.
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