November 29, 2010
Netflix Partner Says Comcast ‘Toll’ Threatens Online Video Delivery
Level 3 Communications, a central partner in the Netflix online movie service, accused Comcast on Monday of charging a new fee that puts Internet video companies at a competitive disadvantage.
Level 3, which helps to deliver Netflix’s streaming movies, said Comcast had effectively erected a tollbooth that “threatens the open Internet,” and indicated that it would seek government intervention. Comcast quickly denied that the clash had anything to do with network neutrality, instead calling it “a simple commercial dispute.”
The dispute highlighted the growing importance of Internet video delivery — an area that some people say needs to be monitored more closely by regulators. Net neutrality, which posits that Internet traffic should be free of any interference from network operators like Comcast, is thought to be on the December agenda of the Federal Communications Commission.
“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,” Thomas C. Stortz, the chief legal officer for Level 3, said in a statement Monday.
Those issues cut to the heart of Comcast’s imminent acquisition of NBC Universal, which is in the final stages of review by the F.C.C. and the Justice Department. The F.C.C. is considering attaching a condition to the merger that would aim to keep Comcast’s Internet network open to competitors, according to public filings this month.
In theory, without government action, Comcast could speed up streams of NBC programs and slow down streams of its rivals’ programs. “This may be one of those teaching moments for consumers to understand what’s at stake,” said Michael McGuire, a media analyst for Gartner.
There is no known case of Comcast ever slowing the traffic to one of its direct competitors, but it did delay some peer-to-peer file traffic in a much-litigated case several years ago. Comcast says it supports an open Internet — but also says that it needs to be able to manage its expensive and still-evolving networks, which are essentially on- and off-ramps to the Internet.
Level 3 in essence operates a highway that connects to those ramps and handles traffic to and from individual Web sites. Comcast customers rely on the company’s on- and off-ramps from that highway. With nearly 17 million broadband Internet customers, Comcast is the nation’s largest such service provider.
The scuffle between the two started on Nov. 19, when Level 3 says Comcast demanded a recurring fee to “transmit Internet online movies and other content to Comcast’s customers who request such content.”
Three days later, under pressure from Comcast, “Level 3 agreed to the terms, under protest, in order to ensure customers did not experience any disruptions,” Mr. Stortz said.
Mr. Stortz did not cite Netflix in his statement. But just a week before Comcast’s demand, Level 3 announced a multiyear deal to support Netflix’s rapidly growing streaming service.
A recent study found that at peak times, Netflix represented 20 percent of Internet download traffic in the United States. That makes it a de facto competitor for incumbent distributors like Comcast and Time Warner Cable, which are eager to protect both the subscription television business and the emerging video-on-demand business.
Mr. Stortz implied that Comcast was taking the action to impair companies that compete with its own cable and Internet services.
A spokesman for Netflix declined to comment Monday. Netflix, which announced a new pricing structure last week, is gradually weaning its customers from DVDs by mail in favor of online streaming, making any new costs a serious concern.
Comcast on Monday rebuffed the notion that the new fees were related to Netflix by saying that the type of traffic distributed by Level 3 was irrelevant. Joe Waz, a senior vice president at Comcast, says it has had a peering agreement with Level 3 to swap traffic fairly evenly. Now Level 3 is sharply increasing its traffic, he said, while resisting a commercial agreement to pay for that.
Comcast is “already carrying huge amounts of video to our high-speed Internet customers every day through commercial arrangements, and it seems to be working for everybody else,” Mr. Waz said. “Level 3 is trying to change the rules of the game.”
If nothing else, the dispute demonstrates that consumers have little, if any, idea how convoluted it can be to transmit video to a computer or mobile phone.
Nonetheless, on Monday night, public interest groups that have steadfastly opposed the combination of Comcast and NBC Universal argued that the Level 3 case proved that Comcast would discriminate against competitors if it could.
“On its face, this is the sort of toll booth between residential subscribers and the content of their choice that a net neutrality rule is supposed to prohibit,” said Harold Feld, legal director of one such group, Public Knowledge, in a statement.
Mr. Stortz said Level 3 would be approaching government regulators this week 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.”
Mr. McGuire, of Gartner, said, “There is no law here. There are only guiding principles. F.C.C. clarity on this kind of thing is going to be required.”