The Real Issue In Comcast’s Dispute With Level 3 Is About Power, Not Money

Updated post: Level 3’s Lower Cost Comes From Owning The Network, Not Free Peering

Yesterday, Level 3 went public with a statement saying that Comcast was for the first time demanding, “a recurring fee from Level 3 to transmit Internet online movies and other content to Comcast’s customers who request such content.” Level 3 is saying such actions by Comcast are at the heart of the network neutrality debate and as one would expect, we’ve seen a great deal of thoughts, posts and comments about this whole subject in the past 24 hours.

Some posts have done a really good job of educating readers on how things like settlement free peering work and have brought to light how content is delivered on the Internet and what some of the relationships amongst carriers and MSOs look like. Other posts I have read have strayed far off the subject, in some cases accusing Level 3 of “stealing” bandwidth from Comcast and many other posts simply want to make this whole issue out to be about money, or Netflix. There are a few points that I think are important that I haven’t seen addressed and are what I feel the real discussion should be about.

For starters, this is not simply about money. While Level 3 said that have, “agreed to [Comcast’s] terms, under protest, in order to ensure customers did not experience any disruptions“, the actual terms of the deal and the money being exchanged between the companies is not substantial. Everyone assumes we’re talking big dollars here, but we’re not. The real argument by Level 3, which in my mind is fair, the idea that last mile providers are asking for a payment when there is absolutely no competition and no other options for Level 3 if they say no. There is no one else that Level 3 could buy something off to get access to Comcast’s eyeballs. Comcast could make any rules they want, and if Level 3 wants to continue to distribute their customers content to Comcast eyeballs, Level 3, or any other carrier, would have to agree to Comcast’s demands.

This isn’t two commercial companies having a commercial discussion because the discussion is completely lopsided. And while Comcast is not gouging Level 3 today and the two companies aren’t really fighting as many make it out to be, Level 3’s point is that this could become a problem down the road and they feel someone has to stand up to it. Level 3’s argument is that the FCC should establish guidelines on how these relationships should work. Also, Level 3 is not “pushing” traffic to Comcast. This is content being requested by Comcast’s own subscribers, and being pulled from Level 3. The idea that Level 3 is simply trying to dump all of this traffic onto Comcast’s network is laughable. It’s Comcast’s traffic.

I’ve seen some suggest that Level 3 should just say no to Comcast, but that’s not a realistic approach since that immediately puts all of Level 3 customers, who are the content owners, in jeopardy of not being able to get their content to the consumer, who is Comcast’s customer. Of course some are making this whole story out to be about Netflix, but that’s not what this is about. If Level 3 had not announced their new contract with Netflix to distribute their content, no one would even be mentioning Netflix in this story. This about the underlying principle of just how much control any last mile provider should be allowed to have and whether or not they should be allowed to prioritize traffic.

Of course when you bring the whole NBC subject into the picture, then this gets even more interesting with some suggesting that if the deal with NBC goes through, Comcast could give the delivery of their content more priority over another content owner, from another carrier. On Comcast’s blog, the company was quick to say that, “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.” That may well be the case – today. But the real explosion of traffic on the Internet is from video, so while Comcast is not specifically calling out video related content from Netflix or anyone else, that’s really what we we’re talking about.

Another really big issue that seems to be missed in this whole discussion is that for the traffic that’s moving, there is no change to Comcast’s cost base. Level 3 may be sending Comcast more traffic, due to Comcast’s customers demanding it, but that does not mean it costs Comcast more money to deliver it. I simply see Comcast as using this as an opportunity to try and charge Level 3 money, hoping that folks won’t really ask what the real cost impact is on Comcast. You will notice that in the Comcast post on their blog where they commented on Level 3’s statement, nowhere did Comcast say that the additional traffic from Level 3 was costing them more money. And if it does, it’s Comcast’s burden to bear as it’s content that their customers are demanding. Comcast is basically asking Level 3 to subsidize their service by charging Level 3 a fee and this is where things become scary if Comcast is allowed to get away with this.

What I don’t see Comcast talking about, or anyone else suggesting, is the multiple ways that Comcast could work with Level 3 to help alleviate the traffic and cost on Comcast’s network. One way to do this would be for Level 3 to deploy deeper into the Comcast network, which would help alleviate the issue, yet I’m hearing that Comcast isn’t looking at this as an option. If Comcast expanded its peering and improved its internal network and worked with Level 3 to allow them to be deployed deeper in their Network, Comcast could even deliver better service while lowering its costs. The idea that they only way Comcast can combat this is to charge Level 3 is simply not the case. If there is an imbalance in traffic, like Comcast suggests, then why isn’t Comcast allowing Level 3 to carry the traffic further into their network to equalize the cost? No one at Comcast seems to be willing to answer that question.

Due to Comcast’s actions, Level 3 says it is, “approaching regulators and policy makers and asking them to take quick action to ensure that a fair, open and innovative Internet does not become a closed network controlled by a few institutions with dominant market power that have the means, motive and opportunity to economically discriminate between favored and disfavored content.” From my perspective, I’m glad to see Level 3 making this issue public and bringing it to everyone’s attention, as the topic needs to be debated. The discussion should not be about Netflix or the CDN business as that’s not what the crux of this is about. Net neutrality is really the heart of this debate.