Comcast, Level 3 Still At Impasse Over Internet Connection Fees

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Eight months after Level 3 Communications accused Comcast of abusing its dominant broadband market position by improperly erecting a "toll booth" on the Internet to charge content delivery networks, the two sides have not resolved their differences.

"The dispute is not over," Level 3 CEO Jim Crowe said on the company's quarterly earnings call Wednesday. "We feel just as strongly as we always have.... It's a huge battle."

In November 2010, Level 3 issued a press release complaining that Comcast demanded a recurring fee to deliver Internet video to broadband customers.

Comcast responded that Level 3 was trying to avoid paying standard content delivery network fees after Level 3 had recently signed a deal with Netflix to become a primary CDN provider and subsequently proposed to send twice the amount of traffic to the MSO's network.

According to Crowe, the core issue is that Comcast -- which in some markets has more than 70% share of residential broadband capable of delivering video -- should not be allowed to unilaterally dictate the price of delivering content to Internet users

"If there's no market -- that is, if one side or the other has a dominant position -- then the last person that gets to decide what the terms of the interconnection are is the individual with a dominant or monopoly position," Crowe said. "In that case, there's a role for government."

Comcast declined to comment on Crowe's latest statements.

Earlier this month, Level 3 reached an agreement with Cox Communications
under which Level 3 will provide high-speed IP and transport services
and which covered terms and conditions for exchanging IP traffic between
their respective backbone networks.

Level 3 has argued that the Federal Communications Commission's network neutrality rules explicitly forbid Comcast and other residential broadband providers from charging a "toll" to reach consumers. The network provider suggested earlier this year that it may seek to resolve the issue by filing a grievance under the "Open Internet" rules, but has not to date lodged a formal complaint with the FCC.

"We, as a generality, prefer market-based solutions and bend over backwards to look for market-based solutions," Crowe said on the call. "But let's face it, in parts of our industry, certain parts -- certain of the players have dominant positions as a result of previous government-granted exclusive franchises."

Previously, Comcast said it was willing to have the FCC oversee negotiations with Level 3 to resolve their dispute. 

The cable giant last fall told the FCC that Level 3's position "is not based on any principles of fair-play on the Internet, but instead is merely the result of its rash bid to carry Netflix traffic at radically low rates, based on the flawed assumption that it could use its Tier 1 Internet backbone status to cram its CDN traffic onto others' networks on a settlement-free basis."

The amount Comcast is seeking from Level 3 is "not material" to Level 3, Crowe reiterated. For the time being, Level 3 is paying the interconnection fees Comcast has asked for. "If for whatever reason those charges remain in place, we'll adjust," he said.

For several years before their current dispute, Comcast and Level 3 exchanged Internet traffic as part of a commercial interconnection agreement under which Comcast paid Level 3 for interconnection facilities.

According to Comcast, after Level 3 signed the Netflix deal, it approached Comcast to demand up to 30 new interconnection ports -- for free -- which would allow it to send a much greater amount of traffic onto Comcast's network.

The MSO provided Level 3 with six ports at no charge and offered 20 additional ports under a commercial arrangement. Comcast said providing new ports to handle additional Internet traffic required incremental 10 Gigabit Ethernet interfaces, line cards, router slots and optical backhaul capacity. Supporting a new port involves capital costs of about $50,000 and ongoing recurring costs of about $25,000 a year, according to the cable operator.