Level 3 Communications calls Comcast fees for Netflix feeds unfair

By Cecilia Kang
Washington Post Staff Writer
Monday, November 29, 2010; 11:35 PM

An online networking company that carries video feeds for Netflix has accused Comcast of demanding unfair fees to provide that video to home subscribers, raising questions about the cable giant's power to control consumers' access to the Internet.

Level 3 Communications, a Colorado-based Internet company whose main client is the movie-rental service Netflix, said Monday that Comcast's action amounts to setting up a "tollbooth" 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 the condition of anonymity because they were not authorized to discuss the matter publicly.

Level 3's complaint also comes as the Federal Communications Commission prepares to issue more-formal rules that would force broadband providers to treat all content equally. The agency's authority over network operators was cast in doubt by a federal appeals court ruling in April.

The FCC declined to comment Monday. A Justice Department spokeswoman was not immediately available to comment.

Level 3's networks deliver content such as videos, Web sites and games to networks operated by cable and telephone companies, which then transmit the data over the "last mile" of Internet pipes into American homes.

On Nov. 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 network provider for Netflix, the mail-order DVD company that has also become a leader in Internet streaming. Netflix now accounts for 20 percent of all broadband traffic during peak hours, according to the analytics firm Sandvine. And analysts say it has propelled a recent wave of cable subscription losses.

Netflix's market value has more than tripled this year. On Monday, its 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."

Separately, Zoom, the nation's second-largest maker of retail modems, filed a complaint to the FCC on Monday saying that Comcast has unfairly imposed requirements that make it harder to compete with the cable company, which rents modems to its 17 million high-speed Internet customers.

Boston-based Zoom said in its complaint that Comcast demanded expensive and drawn out testing of its cable modem that was often duplicative and cost more than $25,000 last year. Zoom said its modems had already met industry-wide device requirements. It said in it FCC filing that it was forced to gain Comcast's approval because the cable and Internet giant controls 40 percent of the cable market.

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