Netflix Partner: Comcast Charging Toll for Online Video Deliveries

Netflix’s online delivery partner says the cable giant threatens neutrality with a network toll; Comcast says it’s simply charging for added traffic

Last Updated: November 29, 2010 @ 6:32 PM

Either Comcast is taking the whole net neutrality issue to a new level … or someone is trying to leverage the fact that the company's in delicate state, as it seeks regulatory approval for a big merger.

A technology services provider that helps Netflix deliver movies over the internet on Monday accused Comcast of charging a fee to move video across its network — a direct threat to the open internet.

According to a statement issued by Broomfield, Colo.-based Level 3 Communications, Comcast notified the company on Nov. 19, demanding a recurring fee for the transmission of movies and other content to Comcast Internet services customers.

"On Nov. 22, after being informed by Comcast that its demand for payment was 'take it or leave it,' Level 3 agreed to terms, under protest, in order to ensure customers did not experience any disruptions."

Comcast is the biggest supplier of broadband Internet services in the U.S. and is seeking to build its own online/on-demand movie and TV-show service, which it calls Xfinity.

In its statement, Level 3 — which signed an agreement with Netlfix earlier in the month to become a primary backbone provider fo the movie-distributor's fast-growing streaming service — tries to tie the fee to the ongoing battle over net neutrality currently being refereed by the Federal Communications Commission.

“Level 3 believes Comcast’s current position violates the spirit and letter of the FCC’s proposed Internet Policy principles and other regulations and statutes, as well as Comcast’s previous public statements about favoring an open Internet," said Level 3 chief legal officer Thomas Stortz in the statement.

(UPDATE: In its own statement, released late-afternoon Monday, Comcast described Level 3's position as "simply duplicitous," noting that the Colorado company itself has upped fees on users who suddenly increase traffic on its network.

(According to Comcast, the increased fees have to do with increased traffic on its network, not the fact that Level 3 and Netflix are making a competing content play.

("Level 3 has inaccurately portrayed the commercial negotiations between it and Comcast," the statement added. "These discussions have nothing to do with Level 3's desire to distribute different types of network traffic … Comcast has long established and mutually acceptable commercial arrangements with Level 3's competitors in delivering the same types of traffic to our customers.")

Independent of the merit to Level 3's claim, the dispute highlights an emerging era of corporate conflict, with content providers like Netflix encroaching on the turf of vertically integrated companies like Comcast, which are seeking to package both content and delivery infrastructure.

It also comes as Comcast is trying to close regulatory approval for its purchase of NBC-Universal.

“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," Stortz said.

"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," he added. "With this action, Comcast demonstrates the risk of a ‘closed’ Internet, where a retail broadband Internet access provider decides whether and how their subscribers interact with content."

Here's the Level 3 statement:

Level 3 Communications Issues Statement Concerning Comcast's Actions

BROOMFIELD, Colo., November 29, 2010

Level 3 Communications, Inc. (NASDAQ: LVLT) today issued the following statement, which can be attributed to Thomas Stortz, Chief Legal Officer of Level 3:

“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 toll booth 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.

“On November 22, after being informed by Comcast that its demand for payment was ‘take it or leave it,’ Level 3 agreed to the terms, under protest, in order to ensure customers did not experience any disruptions.

“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.

“Level 3 believes Comcast’s current position violates the spirit and letter of the FCC’s proposed Internet Policy principles and other regulations and statutes, as well as Comcast’s previous public statements about favoring an open Internet.

“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. With this action, Comcast demonstrates the risk of a ‘closed’ Internet, where a retail broadband Internet access provider decides whether and how their subscribers interact with content.

“It is our hope that Comcast’s senior management, for whom we have great respect, will closely consider their position on this issue and adopt an approach that will better serve Comcast and Comcast’s customers.

“While Comcast’s position is regrettable, Level 3 remains open and willing to work through these issues with Comcast. However, Level 3 does not seek any ‘special deals’ or arrangements not generally available to other Internet backbone companies.

“Given Comcast’s currently stated position, we are approaching regulators and policy makers and asking them to take quick action to ensure that a fair, open and innovative Internet does not become a closed network controlled by a few institutions with dominant market power that have the means, motive and opportunity to economically discriminate between favored and disfavored content.“


About Level 3 Communications
Level 3 Communications, Inc. (NASDAQ: LVLT) is a leading international provider of fiber-based communications services. Enterprise, content, wholesale and government customers rely on Level 3 to deliver services with an industry-leading combination of scalability and value over an end-to-end fiber network. Level 3 offers a portfolio of metro and long-haul services, including transport, data, Internet, content delivery and voice. For more information, visit www.level3.com.

© Level 3 Communications, LLC. All Rights Reserved. Level 3, Vyvx, “From Creation to Consumption,” Level 3 Communications and the Level 3 Communications Logo are either registered service marks or service marks of Level 3 Communications, LLC and/or one of its Affiliates in the United States and/or other countries. Level 3 services are provided by wholly owned subsidiaries of Level 3 Communications, Inc. Any other service names, product names, company names or logos included herein are the trademarks or service marks of their respective owners.

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