Comcast demands Level 3 pay fee to deliver online movies to their subscribers

"“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."

...and other content.

I'd like to know the entire story here. Is Comcast demanding that Level3 Pay a fee to deliver online movies, or is Comcast demanding peering fees. One of those is content neutral, the other is not.

Note - as I read it, Comcast is demanding peering fees from Level 3. Big Whoop.

I'm fine with Comcast demanding money from inbound-feeds to transit their network, and shutting them off if they don't pay it. That's why any sane content provider multi-homes . Think about the position Netflix put L3 in by announcing an "exclusive" CDN deal with L3. Comcasts negotiating position with L3 got a whole lot better.

This is not unusual on the internet - think about how often cogent gets de-peered because it's unwilling to pay peering fees. I've had a ton of colleagues get blackholed because they made the mistake of single-homing through cogent. Ironically, L3 depeered from Cogent a few years ago... So, what's good for the goose...

For a taste of how this type of negotiating constantly is going on in the background, see: http://www.renesys.com/tech/presentations/pdf/nanog43-peerin...

Net-Net: Always Multi-home through at least a couple Tier 1 providers, so when one of them gets depeered, your customers can still communicate with you. Be wary of exclusive transit deals.

Anybody with some actual insight care to comment on what's really going on here?

This kind of thing is not an unusual event in the history of the Internet and can happen for any number of reasons -- including arguably justified criteria such as unbalanced traffic ratios, as well as business strategy (or greed, depending on which side you are on).

Level 3 has elected to frame this as a net neutrality issue and take the dispute to the press and the court of public opinion, but it's probably about a different question: who will pay, and how much will each party pay, for the infrastructure required to deliver content from L3's customers to Comcast's customers?

If viewed in this light, this peering agreement renegotiation is Comcast pushing back some of the costs on L3 and/or it's customers (i.e. streaming video providers). The other alternative would be to raise it's own customer rates.

It's possible that Comcast is being greedy and leveraging their position to rent-seek, but it's also possible that the traffic mix that resulted in the previous peering agreement is now significantly out of whack, justifying this renegotiation. It's definitely not black and white, and this is only one side of the story.

[1] http://en.wikipedia.org/wiki/Peering

Leave it. Level3 set a terrible precedent here by paying the shakedown money. Even with their subsequent complaints, they've now put Comcast in a much better position by implicitly acknowledging (whether true or not) that Comcast brings more value to the table by providing access to its subscriber base than content-providers bring to the table by supplying content to subscribers.

Like the old Churchill story goes, "now we're just negotiating the price."

(See PS #4 below for a more benign interpretation.)

--

PS #1: Yes, of course it might have been expensive for them to play hardball here, with respect to the short-term harm it might cause their customers. That's exactly the point. By acknowledging that the harm to Comcast would be lower (which I actually doubt), they've significantly strengthened Comcast's position against other carriers and perhaps even with regulators.

PS #2: Game theory would suggest that it's critical for Netflix to repel this assault now, even at the cost of short term pain. Once this precedence is established, Comcast will be able to extract nearly all of the profit from Netflix sales to Comcast customers. Each time Comcast raises the toll, it would be in Netflix's rational self interest to go along so long as they are still making some net profit on the channel (modulo opportunity costs and whatnot).

PS #3: It's not uncommon for carriers to play hardball. The big Tier 1's have been trying to prevent the ascension of Cogent into their club for years, which (along with Cogent's aggressiveness) resulted in some nasty peering dispute stalemates in 2005 (with Level3) and 2008 (with Sprint), each time "breaking the internet."

PS #4: It's also possible that Level3 is representing this as a net neutrality issue when in reality it's just a peering dispute. Traditionally local ISPs have had to pay for transit across the networks of the big carriers. When a local ISP becomes a large regional or national one (Comcast), they have enough leverage to extract no-charge ("settlement-free") peering agreements with most of the major carriers. This is probably the first case, though, of a cable-company ISP becoming large enough to extract transit fees from a big international carrier. That's noteworthy, but if it is content-neutral, it's still the way the internet has always worked.

"Netflix (NASDAQ:NFLX) announced Thursday (Nov 11th) that it has signed a multi-year deal with Level 3 (NASDAQ: LVLT) for Level 3 to become a primary content delivery network (CDN) provider for the online movie rental company."

Sadly, I'm beginning to envision the future of the Internet as a bunch of point-to-point VPN connections to trusted sites, almost exactly like UUCP or the BBSes of days past. VPNs are already essential if you live in certain countries (China, the US if COICA had passed, etc.) or want to BitTorrent your TV shows without getting sued for 30 million dollars. Someday, it might be required just to watch Netflix or search with Google. Sad.

In what world do 65536 octets representing a video cost more to deliver than 65536 representing an email? A world where greedy ISPs can tell the difference.

I do not understand how Comcast had leverage in that situation. Had Level 3 told them no then Comcast customers would have been affected. Why is Comcast even negotiating with Level 3 and not the content providers?

Peering Dispute.

"Comcast on Monday rebuffed the notion that the new fees were related to Netflix by saying that the type of traffic distributed by Level 3 was irrelevant. Joe Waz, a senior vice president at Comcast, says it has had a peering agreement with Level 3 to swap traffic fairly evenly. Now Level 3 is sharply increasing its traffic, he said, while resisting a commercial agreement to pay for that.

Comcast is “already carrying huge amounts of video to our high-speed Internet customers every day through commercial arrangements, and it seems to be working for everybody else,” Mr. Waz said. “Level 3 is trying to change the rules of the game.”"

http://blog.comcast.com/2010/11/comcast-comments-on-level-3....

Something concrete and egregious needed to happen before the average consumer would understand what it really means to allow companies to filter the type of traffic that people are allowed to get through their pipes.

In the long term, it's obviously disastrous. At some point, companies will have to refuse en masse to pay the protection money. In the areas where it has a monopoly, Comcast could stomach losing Netflix, but not another 10 or 20 big sites on top of it. There are antitrust issues with collective refusal to pay, but there's got to be a way around that.