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Level 3 Alleges Comcast Demanded Fees To Deliver Internet Content

Updated at 9:15 p.m. ET

Network services provider Level 3 Communications on Monday alleged Comcast forced it to pay recurring fees to transmit Internet video and other content to cable customers, but the MSO countered that Level 3 misrepresented negotiations between the two companies and was trying to get a "free ride" on its network.

The dispute centers on the issue of network neutrality, the idea that Internet networks should remain free from pricing or network discrimination. Level 3 charged that Comcast is violating principles of open Internet access by requiring higher payment, while the cable company accused Level 3 of not paying its fair share for increased content delivery costs.

On Nov. 19, 2010, according to Level 3, Comcast contacted the Broomfield, Colo.-based provider to demand a recurring fee to transmit Internet online movies and other content to Comcast's customers who request such content.

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

"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," Level 3 chief legal officer Thomas Stortz said in a statement. "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."

Continued Stortz, "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."

In a statement Monday night, Joe Waz, Comcast senior vice president for external affairs and public policy counsel, said that Level 3 "misportrayed" the commercial negotiations between the two companies.

"This has nothing to do with Level 3's desire to distribute different types of network traffic," Waz said. "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."

According to Comcast, the MSO offered Level 3 the same terms it offers to other CDNs for the same traffic but that Level 3 is trying to undercut its competitors by claiming it's entitled to provide the cable operator "unlimited and highly imbalanced traffic and shift all the cost onto Comcast and its customers."

"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 said. "In other words, Level 3 wants to compete with other CDNs, but pass all the costs of that business on Comcast and Comcast's customers, instead of Level 3 and its customers."

Federal Communications Commission chairman Julius Genachowski has championed the issue of network neutrality and is looking to reach a compromise on basic non-discrimination rules with vote to come as early as December, Multichannel News reported last week.

Level 3 operates one of several broadband backbone networks that comprise the Internet. The company must interconnect with other Internet service providers, such as Comcast, to let individual users access websites and Internet services provided via its network.

Earlier this month, Level 3 announced that Netflix selected it as a primary content distribution network for streaming video over the Internet and storage. Netflix accounts for more than 20% of downstream bandwidth usage during peak times in the U.S., and is heaviest between 8 and 10 p.m., according to a survey of Internet service providers in August and September 2010 by bandwidth-management company Sandvine.

"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," Level 3's 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."

Stortz added that Level 3 "remains open and willing to work through these issues with Comcast" but that it does not seek any preferential treatment over other Internet backbone companies.

Comcast called Level 3's position "duplicitous."

"When another network provider tried to pass traffic onto Level 3 this way, Level 3 said this is not the way settlement-free peering works in the Internet world," Waz said. "When traffic is way out of balance, Level 3 said, it will insist on a commercially negotiated solution."

According to Comcast, Level 3 is proposing to send traffic to Comcast at a 5:1 ratio over what Comcast sends to Level 3. "We are happy to maintain a balanced, no-cost traffic exchange with Level 3. However, when one provider exploits this type of relationship by pushing the burden of massive traffic growth onto the other provider and its customers, we believe this is not fair," Waz said. He added that Comcast will meet with Level 3 later this week in order to work out a new agreement.
Level 3 called for government intervention.

"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," Stortz concluded.

Critics of the proposed Comcast/NBC Universal deal were latching onto the Level 3 charge as ammunition in their fight against that deal, as well as using it to argue for network neutrality rules.

"Comcast's request of payment in exchange for content transmission is yet another example of why citizens need strong, effective network neutrality rules that include a ban on such ‘paid prioritization' practices," said Media Access Project's Andrew Schwartzman. "It is also yet another clear demonstration of why Comcast should not be permitted to acquire NBC Universal, given its clear tendency to exercise control in the video marketplace."

Public Knowledge's Harold Feld called it "exactly the sort of anticompetitive harm that opponents of Comcast's merger with NBC-Universal have warned would happen."

In meetings with FCC staffers last week, Comcast reiterated that it didn't think there needed to be any online access conditions on the deal and that the marketplace was nascent and competitive.

-- John Eggerton contributed to this article.