Level 3 accuses Comcast of unfairly using its clout as the dominant U.S. cable provider
update at 10:45 p.m.: with comments from Susan Crawford, professor of communications law at Cardozo University's law school; quote from Level 3 assistant legal counsel
An online networking company that carries video feeds for Netflix has accused cable giant Comcast of demanding unfair fees to provide that video to home subscribers, raising questions about Comcast’s power to control consumers’ access to the Internet.
Level 3, a Colorado-based Internet company whose main client is the video giant Netflix, on Monday said Comcast’s action amounts to setting up a “toll booth” on the Internet.
The issue arises as federal regulators consider Comcast’s proposed purchase of a controlling interest in NBC-Universal, which rivals have said will give the cable company too much power over both programming and the means to distribute it.
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,” Level 3’s chief legal officer, Thomas Stortz, said in a news release.
Comcast disputed Level 3’s claims, saying its demand for fees is unrelated to the content that Level 3 wants delivered to consumers.
“Comcast offered Level 3 the same terms it offers to Level 3’s content delivery network competitors for the same traffic,” Joe Waz, Comcast’s senior vice president for external affairs, said in a statement. “But Level 3 is trying to undercut its . . . 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.”
The allegations come as the Philadelphia-based cable titan seeks to wrap up federal reviews of its merger with NBC Universal. Sources with knowledge of the reviews say regulators are expected to demand as a condition of approval that the company adhere to guidelines that discourage it from showing preference for some Web sites over others.
Regulators are also expected to demand that Comcast agree not to withhold NBC shows and movies from new Internet competitors such as Google TV and Apple TV, said the sources, who spoke on condition of anonymity because they were not authorized to publicly discuss the matter.
Level 3’s complaint also comes as the Federal Communications Commission prepares to issue more formal rules, conceived by Chairman Julius Genachowski, that would force broadband provider to treat all content equally. The agency’s authority over network operators was cast in doubt by a federal appeals court ruling in April. Genachowski is expected on Tuesday to announce the agency will vote on new net neutrality rules in December.
The FCC declined to comment Monday. A spokeswoman for the Justice Department wasn’t immediately available to comment.
Level 3’s backbone Internet networks deliver content such as videos, retailing Web sites and games to networks operated by cable and phone companies, which then transmit the data over the “last mile” of Internet pipes into American homes.
On November 19, Comcast demanded extra fees from Level 3 for delivering Web content to Comcast customers, according to Stortz. Level 3 agreed to Comcast’s demands a few days later after the cable company posed a “take it or leave it” threat, he said.
Level 3 is the exclusive backbone Internet service provider for Netflix, the mail-order DVD company that has morphed into an Internet streaming giant. It accounts for 20 percent of all broadband traffic during peak hours, according to analytics firm Sandvine. And analysts say it’s propelled a recent wave of cable subscription losses.
Netflix’s market value has more than tripled this year. On Monday, Netflix stock rose to a record $198.92 a share, making the company worth nearly $10.4 billion.
Public interest groups held up Level 3’s claims as evidence that Comcast’s proposed merger with NBC Universal could hurt competition and consumers.
“This case clearly establishes that Comcast is engaging in grossly anti-competitive conduct and is a serial violator of the FCC’s Net Neutrality policies,” said Derek Turner, a research director at public interest group Free Press. “Despite its calls for self-regulation, Comcast has demonstrated time and again that it will push the boundaries of the law without any concern for how its actions harm consumers.”
Analysts and telecom law experts say it's unclear if Comcast's alleged actions violate federal policies because there isn't a regulatory body that oversees network transit deals between backbone networking companies and last mile firms like Comcast. Susan Crawford, a professor at Cardozo University school of law wrote that competition among network companies would ensure fair arrangements for "peering," the practice of exchanging traffic for free.
"There are sharp limits to this competition that can no longer be ignored. Level 3 just ran into a wall with Comcast and felt it had no choice but to cave," Crawford wrote in a blog. She noted that Comcast's demands for fees from Level 3 came days after the backbone Internet firm announced a new partnership with Netflix. Netflix then announced a new $7.99 Internet streaming membership plan -- a direct competitor to cable service providers.
Level 3 assistant chief legal officer Steve Ryan said in an interview Monday evening that the company will file fuller comments on the situation in the FCC's proceeding on net neutrality.
"The ability to tax or charge a toll is the ability to control what its subscribers see on the Internet and that is what we don't like," Ryan said.
Separately, Zoom, the nation’s second-largest maker of retail modems, filed a complaint to the FCC saying that Comcast has unfairly imposed requirements that make it harder to compete with Comcast, which rents modems to its 17 million high-speed Internet customers.
Zoom said that Comcast demanded costly and time-consuming tests even though its modems had already met industry-wide standards. In its 117-page FCC complaint, Boston-based Zoom said it was needed Comcast’s approval because the cable giant controls 40 percent of the cable market.
| November 29, 2010; 8:20 PM ET
Categories: Comcast, DOJ, FCC, Media, Net Neutrality
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