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Posted at 1:42 PM ET, 11/30/2010

FCC looks into Level 3-Comcast spat over online video

By Cecilia Kang

The chairman of the Federal Communications Commission said Tuesday his agency is looking into claims by Level 3 Communications, a Netflix partner, that Comcast broke net neutrality guidelines.

Julius Genachowski said the FCC is seeking more information about Level 3’s allegations, which haven’t been submitted to the agency as a formal complaint.

“That is new information as you know. It would be premature to comment on it without knowing what the facts are. The staff is looking into it," Genachowski said.

He did not say, as much anticipated, if he would push forward with a vote on a proposal for net neutrality rules next month. Observers said Genachowski could announce his plans as early as tomorrow.

But do Comcast’s demands for more fees from Level 3, the primary partner of Netflix’s video traffic, violate open Internet principles?

The allegations are being hotly debated, with some telecom experts saying the business deal was fair as Level 3 begins to push a flood of traffic – much from Netflix -- to Comcast users. Others say Comcast appeared to target competing online video traffic by charging extra for those data bits over others – an apparent violation of open Internet guidelines at the Federal Communications Commission.

Citadel Securities analyst Vijay Jayant said the dispute between Level 3 and Comcast is “a day-to-day business dispute between two companies.”

He said what probably occurred was that Level 3 had a “peering” relationship with Comcast. That means the two companies exchanged traffic for free. But earlier this month, when Level 3 became a key partner to Netflix, it tried to leverage its free traffic deal as a backbone Internet provider as it prepared to unleash a flood of new traffic to Comcast users. Netflix, which occupies 20 percent of all broadband Internet traffic in peak hours, recently announced an all-streaming membership for $7.99 a month.

“If the new charge is in fact, as Level 3 seemed to suggest, tied to a type of traffic – video content – then that would trigger concerns stressed by certain tech/edge and public-interest groups that a vertically integrated broadband network operator is discriminating against competing content,” wrote Rebecca Arbogast, head of tech policy research at Stifel Nicholaus.

Public interest groups and some communications law scholars point to potential harm by Comcast, which is hoping to bulk up as a media and distribution giant through its merger with 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,” said Josh Silver, head of public interest group Free Press, which called on FCC to launch a formal probe of Level 3’s allegations.

If nothing else, Level 3 appears to have succeeding in drawing attention to Comcast’s business practices at a delicate moment as the cable giant attempts to close its federal reviews for its merger with NBC Universal, some analysts say.

“Level 3’s charge is likely to create something of a political firestorm, if not with the FCC itself . . . then at least with the general public and . . . with the technology press,” wrote Craig Moffett, an analyst with Sanford & Bernstein research. “In our view, this is very likely its intent.”

That could help Level 3’s position in negotiations over traffic fees. It could also flag concerns for regulators that Comcast’s leading position as the nation’s cable and broadband service provider could spell anticompetitive behavior as it seeks to control media powerhouse NBC Universal.

Level 3 on Monday night issued a press release saying Comcast demanded extra fees for transmitting online video and other traffic to Comcast’s residential customers. Level 3 said the demands amounted to putting a “toll” on the edge of the Internet that made Comcast a gatekeeper of certain content, violating guidelines for net neutrality.

Comcast denied the claims, saying Level 3 is misportraying their business negotiations. It said Level 3 has asked for the same fees from other companies that deliver Internet content and that Level 3 is trying to undercut its competitors by being treated differently by Comcast.

By Cecilia Kang  | November 30, 2010; 1:42 PM ET
Categories:  Comcast, FCC, Net Neutrality  
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Next: Lawmakers push FCC to vote on net neutrality in 2010


Conflict of interest used to be something those who set our policy sought to have avoided to protect us from exactly this sort of thing. Sure Comcast would like everyone buying cable and cable upgrades. Where are anti-trust laws?

Posted by: SarahBB | November 30, 2010 4:30 PM | Report abuse

Comcast has 3 recent post's, one a video explanation, on the disopute, over at their executive blog.

Cecillia, didn't Comcast and Netflix recently make a sharing agreement of some sort?

Posted by: Hattrik | November 30, 2010 5:49 PM | Report abuse

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