Level 3, Comcast in a Cat Fight Over Online Video

According to middle-mile Internet provider 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.

Comcast’s Joe Waz, Senior Vice President for External Affairs and Public Policy Counsel emailed a statement characterizing this as a peering issue and noted that Level 3 has even dealt with these imbalances in traffic in the same manner as Comcast is– by charging a provider that sends the greater amount traffic across the network more money to compensate for the fact that it’s using more of the resources than it is providing.

The timing of the fee request is suspicious given that in the middle of November, Level 3 announced that it would provide content from Netflix the online video rental and streaming service, whose streaming traffic generates a lot of online traffic. Netflix declined to comment on the issue today, but Chief Product Officer Neil Hunt recently said Netflix ships “over half a billion” DVDs a month. CEO Reed Hastings previously said Netflix will stream more content online than it will ship on DVD in the fourth quarter, so one can assume Netflix is currently streaming more than 40 million DVDs’ worth of video each month.