Comcast, Level 3, and the Future of the Net

How a spat between Comcast and internet backbone carrier Level 3 Communications is resolved will tell use a lot about how the economics of the internet will work in the future and perhaps whether, or how, the internet is regulated. What the noise dispute is not about is network neutrality, at least as the term has been used for the past couple of years.

The background is fairly simple. Until now, Comcast and Level 3 have handled traffic between their networks under a peering arrangement. That’s where each carrier agrees to handle the other’s traffic without any money changing hands. Peering works fine as long as the traffic each network seds to the other is roughly equal. But the nature of the net is changing. A study last year by Arbor Networks, Merit Network, and the University of Michigan found: “Today, the majority of internet traffic by volume flows directly between large content providers, datacenter/[content delivery networks] and consumer networks.” In other words, from backbone networks like Level 3’s to end-user delivery networks like Comcast’s.

This imbalance is about to get worse. Level 3 recently won a deal to deliver  video download content served by Netflix. A survey by Sandvine, a maker of network management tools, found that Netflix accounts for 20% of all downbound evening internet traffic in the U.S. and that can only grow as the popularity of streaming video increases. So Comcast says it plans to start charging Level 3 to handle the extra traffic.

Level 3 promptly went on the attack, wrapping itself in the flag of net neutrality.  “While the network neutrality debate in Washington has focused on what actions a broadband access provider might take to filter, prioritize or manage content requested by its subscribers, Comcast’s decision goes well beyond this,” says Thomas Stortz, Level 3’s chief legal officer. “With this action, Comcast is preventing competing content from ever being delivered to Comcast’s subscribers at all, unless Comcast’s unilaterally-determined toll is paid – even though Comcast’s subscribers requested the content. With this action, Comcast demonstrates the risk of a ‘closed’ Internet, where a retail broadband Internet access provider decides whether and how their subscribers interact with content.” This was a clever approach, especially since Comcast is under intense regulatory scrutiny because of its pending merger with NBC Universal.

Comcast Senior Vice President Joe Waz characterized the argument as an ordinary commercial dispute: “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.”

The truth lies somewhere between. As usually discussed, the principle of net neutrality bars carriers from discriminating among different types of traffic based on the sender or its content. It appears that Comcast’s objections have to do with the volume of traffic, not its content. They are not proposing to charge extra for Netflix content, at least not explicitly.

But it’s not that simple either. Level 3’s Netflix content competes with Comcast’s video on demand cable services, so any move by Comcast that might impede Netflix traffic has to be viewed at least a little skeptically. And if Comcast were to block Level 3 traffic because of a pricing dispute, many of its retail internet customers would have little or no recourse because of Comcast’s semi-monopoly position as an internet service provider.

Conventional net neutrality remedies seem to me to be fighting the wrong war.  The sweeping action under consideration by the Federal Communications Commission, classifying internet services as common carriers under Title II of the Communications Act, might help with the Comcast-Level 3 fight, but only with a much more intrusive regulatory scheme than the FCC has envisioned. (The FCC used to regulate the prices phone companies charged for handling each other’s traffic.) Other recent issues, including News Corp. briefly blocking Cablevision customers from streaming Fox TV shows and TV networks barring Goggle TV users access to their web sites, also fall outside the traditional definition of net neutrality. We need more creative thinking, by advocaters, regulators, and politicians, to resolve these disputes in ways that benefit consumers.






One Response to “Comcast, Level 3, and the Future of the Net”

  1. Hi Says:

    One piece of data you overlooked: Before Comcast had a backbone they paid Level3 a lot of money for transit. This, of course, makes sense… Comcast was sending more bandwidth over the L3 network than L3 was sending to Comcast, so L3 charged Comcast for that bandwidth use. That’s fair.

    Then, once Comcast had a backbone (built because of the crazy amount of money they were paying L3, ATT, etc. for transit), it turned out Comcast & L3 were sending/receiving about the same amount of traffic between their networks. Hence their “settlement free peering” agreement.

    Now L3 (is becoming a “content distributor” and) wants to send Comcast more traffic than Comcast is sending L3. The “pay for bandwidth” model L3 was so fond of with Comcast a few years ago is suddenly unacceptable and a violation of net neutrality? You’ve got to be kidding!

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