What the Web Is Saying: Comcast vs. Level 3

A big showdown between Comcast (s cmcsk) and Level 3 (s lvlt) over fees Level 3 has agreed to pay the cable giant to carry its traffic has touched off a debate online as to whether Comcast is abusing its market power or if it’s simply holding Level 3 to a fair standard of conduct. Level 3, a network backbone provider, has accused Comcast of erecting a toll booth to use its network to deliver content, most notably traffic from Netflix, which Level 3 recently signed a deal with. Level 3 said the fee, which it reluctantly paid, is a threat to the Open Internet and represents the power providers like Comcast can exert in the broadband access market.

Comcast has countered that its arrangement with Level 3 is similar to what it has with other content delivery networks and Level 3 should be expected to pay for the outsized traffic it sends to Comcast. The company said the dispute is a peering issue between network operators dealing with an 5:1 imbalance of traffic that can’t be dealt with a settlement-free agreement. Stacey had a good write up on how this dispute underscores the need for more competition and could ultimately break the web.

The issue has touched off warning sirens for net neutrality proponents, who have taken to the Web to decry Comcast’s behavior, calling it uncompetitive and a step toward paid prioritization of traffic. Advocates like Free Press said the episode highlights the need for an investigation of Comcast and additional scrutiny of Comcast’s proposed purchase of NBC Universal.

“This is just a preview of what a media monopoly will look like in the Internet age – one company, consolidating its media power to squash competitors, stifle innovation and price-gouge consumers. Comcast has demonstrated time and again that it can’t be trusted and will do anything and everything to undercut its competition, abuse its power, and evade accountability,” said Free Press President Josh Silver.

Susan Crawford, a professor of law at Cardoza, said the dispute provides a defining moment for the FCC, as it looks to institute net neutrality rules, which it could take up at a Dec. 21 meeting. She said the fight should prompt the FCC to decide how far it needs to go in checking the power of cable giants such as Comcast. Crawford said the timing of the rate hike, shortly after Level 3 secured a deal to handle Netflix’s video traffic, along with Comcast’s own competing video products including its TV Everywhere service, gives it motivation to fight Level 3.

“This is how companies that don’t face competition act. It may be that transmission service is so expensive to install and needs to be at such a large scale in order to be maintained that it is, indeed, a natural monopoly.  If we have gotten to that point (and I think we have), then regulatory oversight needs to be in place to protect consumers and innovation,” Crawford wrote.

But others have pointed out that the dispute is one of fairness. George Ou, policy director at think tank Digital Society senior analyst at the Information Technology and Innovation Foundation, said Level 3 is trying to wave the banner of neutrality to distract from the fact that it was taking advantage of Comcast. Ou said Level 3 was able to win the Netflix contract by underbidding other CDNs because it intended to not pay for the expected 5x growth in traffic.

“With the added confusion of “Net Neutrality”, the hopeless pro-anything-labeled-Net-Neutrality biased blogosphere and the FCC proceedings on the Comcast NBC merger, Level 3 figured that they had a good chance of getting away with bandwidth theft or at least negotiating a much more favorable deal.  But not only is Level 3 trying to steal bandwidth, they’re a hypocrite because they’ve fought just as vigorously against other bandwidth thieves that tried to violate Level 3?s peering agreements,” Ou wrote.

Rebecca Arbogast, managing director for Stifel Nicolaus, said Comcast may be on firm footing with federal regulators if it can prove that it was acting on the imbalance of traffic and not targeting a specific type of traffic, which could set off alarms with net neutrality proponents. But she said Comcast may be using the traffic imbalance issue as a backdoor to target Netflix’s video traffic, which reportedly accounts for 20 percent of transmissions at peak hours.

“If Comcast imposed a new charge on Level 3 on the basis of its newly imbalanced traffic, which is largely due to competing video traffic, that could raise a more complicated set of questions for regulators about the effect of the fee. And that also raises the question of why Comcast picked this moment to impose the new charge, which if nothing else could muddy the merger review and net neutrality proceeding,” Arbogast wrote in a research note.

Comcast may end up helping usher in stronger net neutrality rules because of its dealings with Level 3, said Tony Bradley, a writer for PC World.

“With FCC action on net neutrality expected within weeks, the latest events with Comcast make a very solid case for why net neutrality is necessary and provide ample justification for the FCC to move forward. If I didn’t know better, I would say that Comcast is actively lobbying in favor of net neutrality…and doing a damn fine job of it,” he wrote.

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Post and thumbnail photos courtesy of Flickr user heavylift.