Level 3: Comcast Doesn't Have Right To Set Pricing For Network Access

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Level 3 Communications fired back Tuesday at Comcast, asserting that the dispute between the two companies isn't about network-peering terms but whether the MSO should be allowed to set pricing for network access.

On Monday, the Internet backbone provider charged that Comcast forced Level 3 to pay recurring fees to deliver video to cable customers. That, according to Level 3, violates the Federal Communications Commission's principles of open Internet access.

Comcast responded that Level 3 -- which earlier this month landed Netflix as a major customer for its content distribution network services -- was simply trying to avoid paying fees the cable company normally charges other CDN providers.

Comcast said Level 3 is proposing to pump twice as much traffic onto the MSO's networks. "Level 3 wants to compete with other CDNs, but pass all the costs of that business on Comcast and Comcast's customers, instead of Level 3 and its customers," said Joe Waz, Comcast senior vice president for external affairs and public policy counsel.

According to Level 3's rebuttal Tuesday, the issue is about Comcast's pricing power, not whether the amount of traffic exchanged in their peering agreement is equitable.

"[T]he fundamental issue is whether Comcast, as the largest cable company in the country with absolute control over access to its cable TV and broadband access subscribers, has the right to unilaterally set a 'price' for that access that effectively discriminates against competitors of Comcast's cable and Xfinity content," Level 3 assistant chief legal officer John Ryan said in a statement.

Added Ryan, "Our interest is in preserving and protecting openness and innovation within the Internet, which is threatened if those who control access to subscribers can charge a toll set at their discretion for delivery of independent content and applications."

Level 3's current position appears to contradict its earlier statements on the issue of peering. In October 2005, Level 3 cut off its connectivity with network provider Cogent Communications because the peering agreement with Cogent "was not equitable to Level 3," the company said at the time.

"Contrary to Cogent's public statements, reasonable, balanced and mutually beneficial agreements for the exchange of traffic do not represent a threat to the Internet," Level 3 said in 2005. "They don't represent a threat to anyone other than those trying to get a free ride on someone else's network."

Industry analysts sided with Comcast's version of the dispute as revolving around business terms, not network neutrality issues.

"In our view, Comcast is not discriminating against this type of traffic; rather it is simply requiring Level 3 adhere to the same type of commercial arrangement as the other CDNs it works with," Citadel Securities analyst Vijay Jayant wrote in a research note Tuesday.

Added Sanford Bernstein senior analyst Craig Moffett: "Level 3's implied claims of traffic discrimination -- that is, differentially charging for video traffic in an effort to prevent online competition -- appear unfounded."

But public interest groups warned that the Level 3 case, along with a complaint from cable modem Zoom Telephonics about Comcast's equipment-certification procedures, demonstrated the cable giant's anticompetitive behavior.

"This is just a preview of what a media monopoly will look like in the Internet age -- one company, consolidating its media power to squash competitors, stifle innovation and price-gouge consumers," Free Press president Josh Silver said. "Comcast has demonstrated time and again that it can't be trusted and will do anything and everything to undercut its competition, abuse its power and evade accountability. The FCC needs to launch an immediate investigation into these latest allegations by Level 3 and Zoom and do whatever it takes to protect Internet users."

Separately Tuesday, FCC chairman Julius Genachowski said the commission was looking into Level 3's dispute with Comcast.

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