Level 3 vs. Comcast: More Than A Peering Spat?

Level 3 says Comcast has erected a "toll booth" around its network to deter competition for its in-house offerings. Comcast says it is seeking fees from a peering partner whose growth has created a traffic imbalance between the two services, a common cause of peering disputes.

The feud between the two major players in online content appears to have been precipitated by Level 3's recent addition of online video service Netflix as a major new customer of its content delivery network (CDN) business. The Netflix win means that Level 3's CDN will likely be delivering a larger volume of content onto the networks of huge consumer broadband providers like Comcast.

It also means that Level 3's new customer is offering a competitive alternative to Comcast's on-demand video offering. Level 3 has seized on this in its protest of Comcast's new fees.

New Fees Sought for Peering
"On November 19, 2010, 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," writes Thomas Stortz, Chief Legal Officer of Level 3, in the company's 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. 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."

Comcast says the issue is not the type of traffic moving between the two networks, but the volume of traffic. At the heart of the issue is peering, which allows two providers exchanging large volumes of traffic to save money by connecting directly, rather than routing traffic across their paid Internet connections. Peering is often free as long as the amount of traffic exchanged is not out of balance, providing substantial cost savings for bandwidth for high-traffic sites and networks.

Comcast says its traffic exchange with Level 3 is out of balance (presumably because of the Netflix deal) and no longer meets the conditions for no-cost "settlement-free" peering.

"Level 3′s position is simply duplicitous," said Joe Waz, Comcast's Senior Vice President for External Affairs, in a statement. "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. Now, Level 3 proposes to send traffic to Comcast at a 5:1 ratio over what Comcast sends to Level 3, so Comcast is proposing the same type of commercial solution endorsed by Level 3."

Is Netflix the Issue?
The obvious next question, assuming that Netflix is the issue: How has Comcast dealt with other CDNs delivering Netflix content? Two other CDNs, Akamai Technologies and Limelight Networks, have also delivered Netflix video. Did Comcast change terms with these partners based on their transmission of content that competes with Comcast's own services? Comcast says no. "Comcast offered Level 3 the same terms it offers to Level 3's CDN competitors for the same traffic," said Waz.

Even this  is not an apples-to-oranges comparison. Akamai and Limelight run larger CDNs than Level 3, meaning that the Netflix business may have meant a more substantive change in CDN traffic levels for Level 3. But Level 3 is not just a CDN - it is also a major  backbone provider that operates its own network (a fact noted several times in Level 3's statement).

So what now? Level 3  has agreed to pay the new Comcast fees "under protest" and Comcast says the two companies will meet later this week to discuss the issue. Level 3 is emphasizing that it is not seeking any "special deals." In the meantime, Level 3's stance has spun up a vigorous debate about Net Neutrality and the potential for online video traffic to disrupt the peering relationships that keep Internet traffic flowing smoothly.

Peering disputes usually end amid howls of pain from customers who've had their Web surfing disrupted by the networks disconnecting. That hasn't happened in this case. Level 3 has objected to the new fees, but neither party has actually severed their peering. Comcast's action could reflect an opportunistic move to rework its peering deal with Level 3 - in effect, a bet that Level 3 would pay the fees instead of disrupting the ability of  Netflix (and its other customers) to reach one of the largest Internet audiences.