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The Internet Toll Booth Is Open for Business: Comcast Wants More $ to Deliver Netflix Movies

Phillip Dampier November 30, 2010 Comcast/Xfinity, Data Caps, Net Neutrality, Public Policy & Gov't, Video 10 Comments

Comcast wants to be paid twice for carrying Netflix online video content to its customers: once from customers themselves and a second time from Level 3 Communications, Inc., the company providing much of Netflix’s streamed video traffic.

“On Nov. 19 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,” said Level 3’s chief legal officer, Thomas Stortz, in a statement. “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.”

The backbone and content distribution company accused Comcast of threatening the open Internet and of abusing its market position as America’s largest cable broadband provider.  Comcast disageed, calling Level 3’s position “duplicitous” and accused the company of sending far more traffic from its content partners than the cable giant sends in the other direction.

Joe Waz, senior vice president of External Affairs and Public Policy Counsel at Comcast posted a response on the company’s blog claiming Level 3 was trying to have it both ways, running a lucrative content delivery business for clients like Netflix while also acting as a major Internet backbone provider.  Waz claims Level 3 is purposely confusing the fair exchange of backbone traffic with the commercial content delivery business it also runs:

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.

To quantify this, 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.

Level 3′s position is simply 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. When traffic is way out of balance, Level 3 said, it will insist on a commercially negotiated solution.

But Level 3 claims Comcast threatened to pull the plug if they didn’t agree to the cable company’s demands, which would have cut off Comcast customers from a wide range on content.  The company agreed to pay Comcast under protest, and took the issue public just as attention has become re-focused on Net Neutrality at the Federal Communications Commission.

The dispute increasingly resembles cable TV carriage fights where programmers threaten to yank programming if their terms are not met.  Had Comcast delivered on its alleged threat to cut ties to Level 3, widespread disruptions of content delivery could have been the result, starting with a blockade against Netflix streaming video.  That would leave Comcast broadband customers paying for a hobbled Internet experience, missing popular websites because of Comcast’s roadblocks wherever Level 3 traffic was involved.

It’s a classic case of a Net Neutrality violation, with money being the motivating factor.  Pro-consumer public policy groups immediately pounced on the news.

“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 Andrew Jay Schwartzman, senior vice president and policy director of Media Access Project. “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.”

“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 Public Knowledge. “In addition, this is exactly the sort of anticompetitive harm that opponents of Comcast’s merger with NBC-Universal have warned would happen — that Comcast would leverage its network to harm distribution of competitive video services, while raising prices on its own customers.”

Although Netflix and officials at the Federal Communications Commission both refused comment, analysts predict consumers will ultimately pay the price for Comcast’s newest fees in the form of higher prices for online content.  Comcast does not impose these fees on its own TV Everywhere online video service, Xfinity Fancast.  Waiving expensive content delivery fees for “preferred content partners” could leave independent competitors like Netflix vulnerable to the whims of the broadband providers charging extra to deliver traffic to paying customers.

The FCC is rumored to be considering enacting some broadband reforms before new Republican members of Congress take their seats in January.

(Thanks to several of our readers, including Terry and ‘PreventCaps’ for sending word.)

[flv]http://www.phillipdampier.com/video/Bloomberg Comcast Internet Toll Booth 11-30-10.flv[/flv]

Bloomberg News briefly covered the dispute in this morning’s Business Briefs segment.  (1 minute)

Currently there are 10 comments on this Article:

  1. MrktMind says:

    I applaud Phillip’s efforts with Stop The Cap.com

    Having been around since the beginning I have seen the effort Phillip has put into research and writing. I have been able to steer many people towards the research and knowledge that is available on Stop The Cap. Stop The Cap has helped win several battles starting with the TMC cap tests.

    Unfortunately I fear that it is ultimately going to take more than just rallying people together to complain and write letters to win the war. We can win a few battles that way but to win the war we will, sooner or later, need to up the ante. As long as we continue to fight the battle on the duopolies terms where they can buy off politicians and use their money combined with the “justice” system to spend people into submission they will win. But the instant we starting fighting the war on OUR terms it will take very few battles to end the war.

    Just what is “our” terms you say? Can you imagine the attention just one man with a pair of wire cutters working just one evening could generate. Now multiply that by 100 or 1000 men working a whole week! Or just one redneck using his pick-up truck to back over connection/switching stations – and then multiply that by just 25 redneck’s!

    The duopolies are always throwing disinformation around about how little they make and how much network infrastructure costs but the truth of the matter is they are making billions in profits each year. While they want to use their power to make trillions it will be amazing how quickly they will “settle” for billions once the war starts being fought on “our” terms.

    So we can continue to bitch, moan, and complain but until we take politicians and the justice system out of the equation the duopolies will continue to win.

  2. jr says:

    This is the CATO Institute dream for the internet

  3. Terry says:

    If the FCC drops the ball on this before the change of power in January we will know exactly where our concerns lie within the FCC.

    I also found this an interesting read…
    http://mediadecoder.blogs.nytimes.com/2010/11/29/netflix-partner-says-comcast-toll-threatens-online-video-delivery/

  4. Scott says:

    Be careful about the Comcast propoganda on this how they’re bringing up Level 3’s dispute with Cogent in order to backup their own peering argument.

    The Level 3 dispute with Cogent was about a peering agreement for traffic using L3’s network to pass data THROUGH TO OTHER NETWORKS. L3’s dispute in that situation was completely warranted, they were carrying the burden and expense of transit for Cogent to other providers.

    The Comcast peering toll-booth agreement with L3 is about Comcast forcing L3 to pay for every bit that Comcast CUSTOMERS request, for traffic that L3 delivers to comcast to their CUSTOMERS as a destination.

    This most certainly is a case of Comcast abusing their dominant market position holding their customers eyeballs hostage, requiring Level 3 to pay extra to deliver competing content to their own customers.

    By doing this Comcast can do a end-run around the outrage that would happen if they openly blocked that traffic, or if they openly demanded Netflix pay them directly. By forcing Level 3 to pay for the traffic, Comcast is able to INDIRECTLY force Netflix to pay extra to deliver streaming video to Comcast customers who already pay $50/+mo to Comcast for that access.

    The Comcast and NBC merger needs to be stopped, and the FCC needs to put a stop to Comcast immediately with their destination tax. Ultimately it’s still just us as consumers that are getting hurt as we pay higher fees as the Cable Co’s struggle to maintain their monopolies and dying business model.

    The other alternative would be for all major ISP’s to stop carrying and forwarding Comcast traffic over the internet. Then when they agree to operate by net neutrality rules, restore the access. However with companies like AT&T controlling the majority of the internet backbone, I wouldn’t hold my breath as they’ve got as much vested in not rocking the boat as Comcast.

  5. DeanSB says:

    THAT is WHY WE MUST INSIST to OUR CITY OR VILLAGE MUNICIPALITIES THAT THEY BUILD THEIR OWN Residential Telecommunications services, CITY-OWNED, to COMPETE AGAINST THOSE INCUMBENT PROVIDERS!!

    If you live in Nebraska, Kansas, Missouri, Arkansas, Texas, or in ANY OTHER STATE WHERE THEIR LEGISLATURES have MADE SUCH CITY-OWNED SERVICES ILLEGAL, I ENCOURAGE THOSE OF YOU IN THOSE STATES to DEMAND TO THE LEGISLATURES THAT SUCH LAWS BE DECLARED NULL AND VOID, and DEMAND that local municipalities BE ALLOWED TO BUILD THEIR OWN “STATE-OF-THE-ART” TELECOMMUNICATIONS SERVICES FOR RESIDENTIAL CUSTOMERS to COMPETE AGAINST the “privately-held” incumbents!!!

    If the Phone & Cable lobbies attempt to stop municipally-run telecommunications services for residential customers, like they’re TRYING to do in North Carolina, I ENCOURAGE YOU TO SEND A CLEAR AND CONCISE MESSAGE to your state legislators that THEY RISK THEIR JOBS if such types of legislation is EVER PASSED!!!

    So long as the public remains SILENT on this matter, the Phone & Cable Lobbies WILL WALK ALL OVER YOU THE CUSTOMERS, and YOU WILL BE THE LOSERS IN THE END!!!

    If you live in a community that is serviced by Comcast, Charter, CableOne, or ANY OTHER COMPANY that ATTEMPTS HAS HAS ALREADY IMPOSED ARBITRARY BANDWIDTH LIMITS AND CAPS ON YOUR SERVICES, I ENCOURAGE YOU TO SEEK, OUT OTHER HIGH-SPEED INTERNET ALTERNATIVES, OR IF THERE AREN’T ANY, ORGANIZE BOYCOTTS OF THOSE PROVIDERS UNTIL SUCH TIME AS THEY END THOSE CAPS AND THOSE POLICIES FOR ONCE AND FOR ALL!!!

    If you live in Sioux City, Iowa, and are serviced by CableOne, CANCEL ALL YOUR SERVICES WITH CABLE ONE and SWITCH TO EITHER QWEST DSL OR FIBERCOMM DSL AS SOON AS POSSIBLE, and SWITCH YOUR TV PROVIDER TO EITHER DIRECTV OR DISH NETWORK (now that BOTH services offer the Sioux City Local Broadcast stations)!!!

    MAKE IT CLEAR that YOU WILL NOT DO ANY BUSINESS WITH ANY COMPANIES THAT PURPOSELY CAP THEIR INTERNET CUSTOMERS’ SERVICES OR IMPOSE ARTIFICIAL OR ARBITRARY CAPS ON THEM!!!!

    If you live in the Marshall, Minnesota area, and you currently have Charter for your Cable / Phone / Broadband Internet services, CANCEL YOUR SERVICE WITH CHARTER AS SOON AS POSSIBLE and SWITCH TO KNOLOGY, since Knology DOES NOT, NOR EVER WILL, CAP THEIR INTERNET USERS’ SERVICES WITH ARTIFICIAL OR ARBITRARY CAPS AND OVERCHARGES FOR “using the Internet too much”!!!!

    If you live in the Mankato, Minnesota area, or in the surrounding communities, DUMP CHARTER and SWITCH TO HICKORY TECH for your High-Speed Internet / Cable TV / Phone services!!!

    It’s TIME TO BOYCOTT CHARTER, COMCAST, OR ANY OTHER PROVIDERS that PRACTICE BANDWIDTH-CAPPING AND LIMITS, AND BANDWIDTH OVERCHARGES!!!

  6. Greg says:

    @DeanSB

    Short answer – Good luck with that!

    Long answer – Somewhere between 25% and 40% of potential US voters are too stupid to even know what you are talking about little lone make a proper decision regarding net neutrality or municipal networks. You’ve seen these people – they are the one’s with their pants around their knees, wearing camo or “wife-beater” t-shirts, and/or have 347 tatoos/body piercings. If you can’t see them then you can generally smell them.

    Another 50% to 60% of US voters could give a shit. As long as they can continue to watch Dancing With The Stars, Monday Night Football, fill in the blank, and continue to go to the bars, ride their Harleys, fill in the blank then they aren’t going to lift a finger to do anything. This isn’t limited to net neutrality they don’t care about taxes (as long as the gov “calls the ball” and starts telling them 8 months before in the media that taxes are going up 66% – then when they “only” go up 20% they don’t care), freedoms (I’m not doing anything wrong so I don’t care), or anything else that would require them to do some research prior to voting. These people are perfectly happy to let the talking heads (Glenn Beck, Rush L, etc) do their thinking for them. They think that letting the media brainwash them constitutes putting forth an effort.

    The last group are the registered voters – who aren’t that different from the above group. They are registered voters so they don’t actually have to invest any effort in voting. They just go down the line and vote for every Rep. or Dem. on the ticket. Their party could be talking about abolishing our right to vote and they would still vote for them – mainly because they wouldn’t know anything about it since they invested zero time researching the issues.

    So as I said – good luck with that!

    • DeanSB says:

      @Greg

      We’ll just have to see about that.

      What’s going to happen when, all of a sudden, one day, the customer of the offending incumbent providers suddenly decides to implement the Internet Overcharging schemes that Phillip talks about?

      There WILL be a BIG OUTCRY from customers in MANY COMMUNITIES when they find that their Internet bills have SUDDENLY BALLOONED to MUCH HIGHER PRICES because their family members watch videos on YouTube, Hulu, or other such sites, or they download MP3 music from sites like Amazon MP3, iTunes, or BeatPort.

      These Internet Overcharging schemes are TANTAMOUNT to MAKING PEOPLE PAY TWICE for the same services they’ve been enjoying ALL ALONG!!

      I OBJECT to THAT KIND OF BILLING, and I HOPE that MANY PEOPLE in those communities affected by these Internet Overcharging schemes WILL PUT UP A GREAT BIG STINK in the local media over it, and DEMAND THAT THEIR CITIES OFFER A REAL ALTERNATIVE, ESPECIALLY if they’re in a community where BOTH the Incumbent Cable AND Phone companies impose such caps and overcharging schemes!!!!

      Philip is RIGHT!! This whole “bandwidth is getting scarcer by the moment, and therefore we must conserve bandwidth through these schemes” IS UTTER BULLSHIT!! The Incumbent providers just want to GET MORE MONEY OUT OF US!!! 🙁

      It’s HIGH TIME TO STAND UP NOW and DEMAND that these schemes DON’T EVER SEE THE LIGHT OF DAY…NOT WITHOUT A HELL OF A FIGHT AGAINST THEM BY THE CUSTOMERS!!!

  7. tom says:

    Phil,

    I usually agree with you, but this has NOTHING to do with network neutrality. It is purely a peering dispute between two backbone operators. The distinction that comcast also happens to have end-users as customers is meaningless when talking about transit at the backbone level.

    Peering agreements are negotiated and re-negotiated all of the time. In this case Level3 signed a new customer (netflix) which grossly imbalanced the terms of their previous peering agreement with Comcast. During re-negotiation, they are (incorrectly) using the “net-neutrality” buzzword and the court of public opinion in order to gain leverage against comcast.

    AFAIK, this is one situation where comcast is actually in the right!

    • Scott says:

      Tom,

      A PEERING agreement involves two providers exhcanging traffic as TRANSIT over their respective networks.

      The dispute with Level 3 and Comcast is not Peering, it’s Comcast wanting additional money for Level 3 to deliver data requested by Comcast Customers to the Comcast network.

      Comcast customers have already paid their monthly fee for that service, and companies like Netflix have already paid millions to backbone providers to carry their traffic all the way up to the destination (Comcast).

      If Level 3’s traffic was crossing over Comcast’s network to another backbone provider and being routed elsewhere, and not to Comcast customers, then yes, it would be a peering dispute, but that’s not whats happening here.

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