Level 3, Comcast spar over Net 'toll booth'; Right to stream Netflix at stake?

Level 3 and Comcast are duking it out over transmitting online movies and here's the big question: Will the right to stream Netflix start a net neutrality debate? In a strong statement, Level 3 said that Comcast is asking for a "recurring fee" to transmit Internet online movies. Thomas Stortz, chief legal officer of Level 3, said:

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. 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.

Level 3 said it agreed to the terms Nov. 22 under protest.

Comcast disagreed with Level 3's claims. In a blog post, the company said:

Level 3 has inaccurately portrayed the commercial negotiations between it and Comcast. These discussions have nothing to do with Level 3's desire to distribute different types of network traffic.

Comcast has long established and mutually acceptable commercial arrangements with Level 3's Content Delivery Network (CDN) competitors in delivering the same types of traffic to our customers. Comcast offered Level 3 the same terms it offers to Level 3's CDN competitors for the same traffic. But Level 3 is trying to gain an unfair business advantage over its CDN 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.

To quantify this, what Level 3 wants is to pressure Comcast into accepting more than a twofold increase in the amount of traffic Level 3 delivers onto Comcast's network -- for free. In other words, Level 3 wants to compete with other CDNs, but pass all the costs of that business onto Comcast and Comcast's customers, instead of Level 3 and its customers.

There are two elephants in the room here. First, there's net neutrality, a card that Level 3 is playing now. The other elephant is Netflix. It is quite the coincidence that Level 3 just won a deal to be the primary content delivery network for Netflix's online streaming service.

If you connect the dots you get quite a tale for the Federal Communications Commission, which doesn't currently have the authority to do much on the net neutrality front. Level 3 gets Netflix's business. Netflix could be construed as a Comcast rival. Comcast asks for a carriage fee. Comcast CEO Brian Roberts earlier this year gave Netflix its due. Roberts said in July:

On Netflix, they have done a great job. They offer a nice product and I think all we can do is try to make our products better. A number of the on-demand offerings have improved dramatically. We have something we call [Project Infinity] that has a significant leap forward in the amount of on-demand content from libraries servers. We are very excited about the potential of that technology.

In the end, we get some high-profile negotiations, the FCC and perhaps an excuse to seriously start net neutrality as a topic again.