Comcast vs. Level 3: Netflix Didn’t See This Coming

Level 3 (s LVLT) didn’t mention Netflix (s NFLX) by name when it came out yesterday to accuse Comcast (s CMCSA) of erecting an Internet toll both, and Comcast’s dismissal of the accusation didn’t make any reference to the company either. Still, everyone following the business immediately knew what was at the center of the controversy: Those The Office streams we’ve all been watching at night, courtesy of the Netflix online video catalog.

Netflix has been busy ramping up its online video offering. The company has signed billion-dollar licensing agreements, and most recently introduced a streaming-only subscription tier for U.S. customers. That bet has been paying off; not only are two-thirds of the company’s subscribers now streaming content, but Netflix is also streaming more hours of content than it’s delivering via its DVD rentals. The network management solutions provider Sandvine said in October that Netflix now accounts for more than 20 percent of U.S. Internet traffic during evening hours.

CEO Reed Hastings and his team must have known that this could one day lead to a backlash from ISPs, and the company has been busy advocating for solid net neutrality rules to make sure your Netflix streams don’t get blocked. Netflix filed comments with the FCC in January in support of net neutrality regulation, and the company’s representatives have been back in Washington for a number of high-level meetings with the FCC throughout the year. Netflix filed some further comments as late as a month ago, but none of these interventions anticipated a scenario like the one playing out now.

In fact, a review of the Netflix comments available through the FCC’s website reveal the company has been most concerned about two issues: the possibility of managed services and their impact on the general Internet as well as the threat to competition posed by network operators that are also active in the content business. In its January filing, Netflix writes:

“There is substantial discrimination and consumer harm if a network operator uses its ownership affiliation with a program content provider, or even its bulk buying leverage with a video content provider, to deny attractive programming to a competing online video service. The concern that network operators will use their gatekeeper control over broadband access services to discriminate against unaffiliated content in a variety of ways is central to the Commission’s proposed open Internet policies, and a wide variety of discriminatory conduct that stems from such gatekeeper control should be cognizable under the net neutrality rules.”

Managed services were at the center of Netflix’ most recent comment filed in October:

“(T)he Commission should ensure that specialized services do not unreasonably erode capacity devoted to broadband Internet access services. Requiring service providers to offer some level of guaranteed capacity for broadband Internet services, at reasonable rates to consumers, will ensure that all comers — from today’s Netflix to the “next Netflix”— are able to reach consumers without obtaining the permission of network operators.”

However, nowhere in its filings does Netflix say anything about the possibility of a straight-up toll booth that forces the company to pay more for delivering video traffic based on the CDN or backbone provider it’s working with. The company simply didn’t see this coming, and it’s unclear yet whether it’s willing to take sides in the current conflict.

A spokesperson told me yesterday that there will be no statement from Netflix about the issue. Let’s see if the company changes its mind in case the FCC looks into the current conflict.

Image courtesy of Flickr user Scott Feldstein.

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