Level 3: Comcast Erected Web Video 'Toll Booth'

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.

Comcast, which is developing its own video-optimized CDN, responded in blog form late Monday afternoon, saying Level 3 is being "duplicitous." (See Comcast's 'Project Infinity' Takes Flight .)

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:

• Zoom Moans About Comcast's Modem Tests
• ACA: Comcast-NBCU Deal Will Raise Rates
• Rumor: Comcast Plots OTT Stealth Attack
• WOW: Comcast-NBCU Menaces Service Rollouts
• ACA: Apply Conditions on Comcast-NBCU Deal
• Net Neutrality Ruling: FCC Loses, Comcast Wins
• Policy Watch: Another Grilling for Comcast-NBCU
• Comcast: NBCU Deal Won't Kill Web TV Players

— Jeff Baumgartner, Site Editor, Light Reading Cable