November 30, 2010 / 3:41 AM / 9 years ago

Netflix partner Level 3 spars with Comcast on fees

NEW YORK (Reuters) - Comcast Corp and Level 3 Communications, a key network partner of Netflix Inc, launched into a vicious public battle over fees Comcast is levying at Level 3 for delivering content such as movies to the cable company’s customers.

Level 3, which recently won a deal to help popular video streaming provider Netflix deliver its service to consumers, accused Comcast on Monday of charging unfair fees, which it said it agreed to pay “under protest” to avoid service disruption.

But Comcast, the biggest U.S. cable provider, said that telecommunications network operator Level 3 had “misportrayed” commercial negotiations, in which it said it had offered the same terms to Level 3 as to its rivals.

The dispute comes as Comcast’s proposed merger with NBC Universal is being reviewed by regulators and regulators are also examining so-called net neutrality rules aimed at ensuring nondiscriminatory delivery of Internet traffic to consumers.

Level 3 helps Netflix improve online video delivery by navigating it over less congested Web routes. It said earlier this month it would need to boost its own network capacity due to its deal with Netflix, which accounts for about 20 percent of primetime U.S. Web traffic.

The operator called Comcast’s demand for a fee an “abuse” by the dominant cable company and said it will ask U.S. regulators to take action against Comcast in the context of net neutrality. For its part Comcast complained that Level 3 wanted to increase traffic more than twofold for free.

John Ryan, a Level 3 legal official told Reuters the fee Comcast was asking was unprecedented.

“Prior to Comcast’s demand, no other broadband access provider had demanded a toll in order to increase interconnection capacity,” Ryan said.

One source in the content delivery network industry said it is unusual but “not unheard of” for a last mile provider to charge for connectivity.”

A representative for Netflix CDN partner Akamai Technologies Inc was not immediately available for comment and another Netflix partner, Limelight declined comment on its own agreements with operators or those of its rivals.

NET NEUTRALITY FIGHT

Level 3 said Comcast informed it on November 19 that it would demand a recurring fee to transmit movies and other content to Comcast customers to ask for such content.

The operator said it had agreed to Comcast’s terms on November 22 only to ensure that customers did not experience disruptions and after it was told to “take it or leave it.”

Joe Waz, Comcast Senior Vice president for External Affairs, said in a statement that Level 3 is trying to save money on network fees in order to undercut its rivals in the competitive Content Delivery Network (CDN) market.

Waz said Comcast would meet with Level 3 later this week to negotiate a commercial solution, adding that Level 3 is proposing to send five times more traffic over Comcast’s network than Comcast sends over its network.

“We are happy to maintain a balanced, no-cost traffic exchange with Level 3. However, when one provider exploits this type of relationship by pushing the burden of massive traffic growth onto the other provider and its customers, we believe this is not fair,” Waz said.

If regulators sided with Level 3 in the fight it could potentially have ramifications for Comcast’s proposed NBC Universal deal, which is being reviewed by U.S. regulators. Comcast has said it expects approval for the deal by year-end.

The Federal Communications Commission, the telecommunications regulator reviewing the NBC-Comcast deal, declined comment on the statement from Level 3.

The FCC is scheduled to meet on December 21, with ‘net neutrality’ said to be at the top of its agenda.

Like other telecom operators, Comcast has repeatedly said it supports net neutrality, though it also argues that it should be able to manage traffic on its own network.

But Level 3 said the latest move is “preventing competing content from ever being delivered to Comcast’s subscribers at all, unless Comcast’s unilaterally determined toll is paid — is paid — even though Comcast’s subscribers requested the content.”

Level 3 said it was “willing to work with Comcast but “does not seek any special deals” not generally available to other network providers carrying Internet traffic.

Consumer advocacy groups such as Public Knowledge and Media Access Project spoke out against Comcast.

“Comcast’s request of payment in exchange for content transmission is yet another example of why citizens need strong, effective network neutrality rules that include a ban on such ‘paid prioritization’ practices,” one group, the Media Access Project, said in a statement.

Netflix shares closed 3.66 percent higher at $198.92, while Level 3 closed 2.04 percent higher at $1.00.

Reporting by Yinka Adegoke, Ritsuko Ando and Paul Thomaschin New York and Jasmin Melvin in Washington, D.C; Editing by Ted Kerr

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