Level 3, Comcast Exchange Barbs Over Alleged ‘Tollbooth’ Charges

It’s a rather delicate time for Comcast, with its pending acquisition of NBCU being attacked on multiple fronts and with the deal serving as a lightning rod for net-neutrality debates. Adding to the MSO’s public-relations troubles, Level 3 Communications has issued a press release claiming Comcast demanded it charge an additional fee to deliver Netflix video to Comcast’s customers.

Thomas Stortz, chief legal officer at Level 3, issued the following statement yesterday:

“On November 19, 2010, Comcast informed Level 3 that, for the first time, it will demand a recurring fee from Level 3 to transmit Internet online movies and other content to Comcast’s customers who request such content. By taking this action, Comcast is effectively putting up a tollbooth at the borders of its broadband Internet access network, enabling it to unilaterally decide how much to charge for content which competes with its own cable TV and Xfinity delivered content. This action by Comcast threatens the open Internet and is a clear abuse of the dominant control that Comcast exerts in broadband access markets as the nation’s largest cable provider.”

Stortz said Comcast’s demand for payment was a “take it or leave it” offer, and Level 3 “agreed to the terms, under protest, in order to ensure customers did not experience any disruptions.”

Joe Waz, Comcast’s senior VP/External Affairs and Public Policy Counsel, quickly fired back at Level 3 via a posting on Comcast’s corporate blog: “Level 3 has inaccurately portrayed the commercial negotiations between it and Comcast. Comcast has long-established and mutually-acceptable commercial arrangements with Level 3’s Content Delivery Network (CDN) competitors in delivering the same types of traffic to our customers.

“Comcast offered Level 3 the same terms it offers to Level 3’s CDN competitors for the same traffic. But Level 3 is trying to gain an unfair business advantage over its CDN competitors by claiming it’s entitled to be treated differently and trying to force Comcast to give Level 3 unlimited and highly imbalanced traffic and shift all the cost onto Comcast and its customers.”

The Netflix Factor

The crux of the Level 3/Comcast dispute is how to deal with increased broadband traffic from Netflix.

Netflix’s business quickly is evolving from being a deliverer of DVDs through the mail to a deliverer of streaming video. Just last week, Reed Hastings, Netflix’s co-founder and CEO, said, "We are now primarily a streaming-video company, delivering a wide selection of TV shows and films over the Internet."

And this will impact broadband service providers. (See Netflix Delivers One-Two Punch to Video/Data Providers).

Two weeks ago, Level 3 announced it was selected to serve as a primary CDN provider for Netflix to support the company’s streaming functionality and to support storage for the entire Netflix library of content. (For more, click here).

In his statement yesterday, Level 3’s Stortz explained: “Level 3 operates one of several broadband backbone networks, which are part of the Internet and which independent providers of online content use to transmit movies, sports, games and other entertainment to consumers. When a Comcast customer requests such content, for example an online movie or game, Level 3 transmits the content to Comcast for delivery to consumers.

“While the network-neutrality debate in Washington has focused on what actions a broadband access provider might take to filter, prioritize or manage content requested by its subscribers, Comcast’s decision goes well-beyond this. With this action, Comcast is preventing competing content from ever being delivered to Comcast’s subscribers at all, unless Comcast’s unilaterally determined toll is paid – even though Comcast’s subscribers requested the content.”

In response, Comcast’s Waz wrote: “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. In other words, Level 3 wants to compete with other CDNs, but pass all the costs of that business onto Comcast and Comcast’s customers, instead of Level 3 and its customers.”

According to Waz, Comcast is meeting with Level 3 later this week.

-Linda Hardesty