Level 3 Communications objected to Comcast asking for payment for local interconnections to the MSO's network -- which is a separate issue from backbone peering relationships, according to company president and COO Jeff Storey.
"We carry Netflix traffic or other traffic around the network deep into the Comcast network, and hand it off to them generally at the last point that we can," Storey said, speaking at the UBS Global Media & Communications conference Wednesday morning. "We respond to that request [for content by Comcast's subscribers]... in a way that we hand it off at the last possible minute, rather than the first possible minute."
Level 3 last week griped that Comcast was erecting a "toll booth" on the Internet by demanding payment to deliver additional traffic, after Level 3 landed a contract as a primary content delivery network for Netflix. Level 3 accused Comcast of violating network neutrality principles. In response, the cable operator said Level 3 was asking to dump twice the amount of traffic on its network without paying customary CDN fees.
Storey said the crux of the dispute was that Comcast now wants to charge for access at the local network level.
"If I were handing traffic to Comcast in New York for delivery in San Diego, I would expect to pay for that," Storey said. "But that's not what we're doing... We spent billions of dollars to get in this business and expect to use that infrastructure in an efficient way."
Level 3 said it has offered and continues to offer to use its own IP backbone to carry content to the edge of Comcast's local Internet access markets but that the MSO has refused that offer.
According to Comcast, though, the central issue is the enormous disparity in the amount of traffic exchanged between the two companies. Level 3 would be delivering five times as much traffic to Comcast as the MSO delivered to Level 3 -- to a total of 500 Gigabits per second.
"Level 3 also has a local access network, and, just like Comcast, it has customers trying to reach customers on other networks to send or receive traffic," Joe Waz, Comcast senior vice president for external affairs and public policy counsel, wrote in a blog post Tuesday. "In some situations, Comcast has content and CDN customers sending traffic requested by Level 3 customers, and in some cases, the situation is reversed. We'll say it again: So long as the traffic is in rough balance, this is not an issue; where it is significantly out of balance, settlement-free peering is not appropriate."
Waz added that "with its new CDN business, Level 3 expects Comcast and other ISPs to work under different rules designed to benefit Level 3, exclusively."
Level 3 has spent $14 million to support its CDN deal with Netflix, Storey said. That investment went toward servers, additional storage capacity for the Netflix library, caching servers and network components.
Storey declined to comment on how much Comcast is charging Level 3 for the additional capacity to deliver Netflix traffic, but he said the amount is not financially material to the overall business. In general, he added, when Level 3 is charged fees to deliver content those are passed on to customers.
Asked whether he believes the government will intervene in the matter, Storey said, "We hope it gets resolved in a way that every party is fairly and equitably treated... I'm not going to predict whether the government gets involved."
Level 3's content delivery network services represent less than 10% of revenue today. "CDN is a big opportunity for us, just as the nature of Internet traffic is continuing to change," said Storey, who from 1994 to 1999 worked at Cox Communications in various executive positions. "Now people are downloading huge amounts of content, whether it's video or games or software downloads."
Level 3 acquired Savvis's CDN business unit in 2006 for $135 million.