

Comcast demands Level 3 pay fee to deliver online movies to their subscribers - jsm386
http://www.businesswire.com/news/home/20101129006456/en/Level-3-Communications-Issues-Statement-Comcast%E2%80%99s-Actions

======
tc
_"On November 22, after being informed by Comcast that its demand for payment
was 'take it or leave it,' Level 3 agreed to the terms, under protest, in
order to ensure customers did not experience any disruptions."_

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.

~~~
ghshephard
I don't think I've ever seen anyone cherry-pick various points from other
posts without attribution before. Anything wrong with responding in the the
thread instead of constantly updating your post with other people's (including
mine) comments?

Editing a post is typically for the purpose of fixing typos, making your (own)
thoughts more concise or clear.

It's not for the wholesale amalgamation of other people's posts, as useful a
function as you think you might be serving.

Let your original post stand on its own merit, or don't post it.

~~~
wmf
He's at the top of the thread, so those other comments will appear to be
duplicates of his post. :-/

~~~
ghshephard
Agreed. I recognized " This is probably the first case, though, of a cable-
company ISP becoming large enough to extract transit fees from a big
international carrier. " as being _your_ comment. The thing is - I learned
that from _you_. So I'd kind of like to remember who I can trust to provide
useful insight into these topics.

------
ghshephard
Read the press release carefully:

"“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...](http://www.renesys.com/tech/presentations/pdf/nanog43-peeringwars.pdf)

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?

~~~
wmf
While peering disputes have happened throughout Internet history, it is
unusual to see an eyeball ISP trying to charge a tier 1. Usually the money
flows the opposite direction.

~~~
InclinedPlane
How many internet backbone providers are also content delivery networks (other
than Google)?

~~~
wmf
Now, almost all of them: [http://www.renesys.com/blog/2010/10/internet-
transit-sales-2...](http://www.renesys.com/blog/2010/10/internet-transit-
sales-2005-10.shtml)

I wouldn't really consider Google a "backbone provider" since they don't sell
transit; they're more of an "extremely ginormous end site".

------
woodrow
If we can set aside the "Comcast is inherently evil" mindset for a moment,
this to me reads simply that Comcast notified Level 3 that they were
terminating a previously agreed upon settlement-free peering [1] agreement
where Comcast and L3 find exchanging traffic without charging each other
mutually beneficial.

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>

~~~
ohashi
Pretty damn good framing if that's what it is. However, if they really are
charging L3 just to deliver competitor's video content online that's pretty
much pisses everyone off. I write this using Google's DNS because last night
comcast's default DNS was broken. What a terrible company that only stays in
business because of near monopoly powers :/

------
joezydeco
I'm sure it had nothing to do with this announcement from two weeks ago:

 _"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."_

------
jrockway
This is why we need to use encryption for _everything_ , not just shopping,
SSH, and banking. The less distinguishable packets are from noise, the more
open the Internet can be.

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.

~~~
jodrellblank
You're doing that whole "charge by cost" thing that everyone here seems to
frown upon, preferring instead to recommend "charge by value".

In what world can you extract more cash from 65536 octets representing a video
than 65536 octets representing an email? A world where end users value them
differently.

~~~
kj12345
However in a truly competitive commodity market (and surely bits moving from A
to B are a perfect example of a commodity), "charge by cost" and "charge by
value" should converge, and when they don't we should be alarmed. If ISP X is
making 1% profit on regular bits and then decides to make 10% on premium bits,
why couldn't ISP Y come along and undercut them? Because the market is being
manipulated through monopolies on infrastructure and lobbying for special
treatment.

~~~
alttab
This truly is the clearest articulation of the economic danger of net
neutrality I've ever heard.

------
absconditus
"On November 22, after being informed by Comcast that its demand for payment
was ‘take it or leave it,’ Level 3 agreed to the terms, under protest, in
order to ensure customers did not experience any disruptions"

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?

~~~
jonknee
"Customers" in this situation mean the big streaming players like Netflix and
Hulu. Comcast would surely point fingers at the streaming services (Netflix,
Hulu, etc) who would then have to move off Level3. A pretty ballsy move and
exactly why Net Neutrality is important.

I think they went for Level3 because average users have no idea who they are.
Attacking Netflix gets you in the NY Times. Attacking Level3 gets you on a
BusinessWire press release.

~~~
donohoe
Actually, they made the NYTimes:

[http://mediadecoder.blogs.nytimes.com/2010/11/29/netflix-
par...](http://mediadecoder.blogs.nytimes.com/2010/11/29/netflix-partner-says-
comcast-toll-threatens-online-video-delivery/)

------
ghshephard
Update on this from:
[http://mediadecoder.blogs.nytimes.com/2010/11/29/netflix-
par...](http://mediadecoder.blogs.nytimes.com/2010/11/29/netflix-partner-says-
comcast-toll-threatens-online-video-delivery/?hpw)

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.”"

------
woodrow
Comcast responds, seeming to claim that Level 3 wants CDN peering with a
tier-1 peering agreement:

[http://blog.comcast.com/2010/11/comcast-comments-on-
level-3....](http://blog.comcast.com/2010/11/comcast-comments-on-level-3.html)

~~~
drusenko
This makes the most sense, especially considering Level 3's _very_ careful
wording in their press release.

This kind of thing happens all the time, relatively speaking. There's really
nothing to care about here.

If you get upset over this, you're just playing into Level 3's hand. They're
exploiting the "net neutrality" concept to try to get a better deal out of
Comcast, even when this has nothing to do with it.

How extremely disappointing of them.

------
jaysonelliot
I'm glad this is happening now. The concept of Net Neutrality has been too
abstract for most consumers and legislators thus far, so it's been easy for
telcom lobbyists to manipulate the narrative.

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.

~~~
maqr
Comcast is going about it in a way that consumers won't understand. I've seen
a lot of people expecting things like tiered pricing (think the "YouTube
package"), but this is much more dangerous.

Comcast is going to isolate the content upstream so that consumers won't ever
know that there was other content accessible, just like they don't know about
the TV channels that Comcast doesn't carry.

~~~
Benjo
Comcast isn't being overt about it, but it's easy enough to explain that
Comcast is making things more expensive for Netflix. It doesn't take much for
consumers to understand the conflict of interest between those two entities.

Of course, you can frame this as either the correct operation of the free
market, or as an example of why net neutrality is critical to the free market.

------
smutticus
If we had proper amounts of competition in ISPs the entire net neutrality
problem would simply disappear. It's only because we're forced to negotiate
with monopolies that net neutrality is an issue at all.

------
NathanKP
If I was Level 3 I would have said "leave it" to Comcast and let Comcast block
the service for all their customers. It would have caused a bigger media
sensation and outrage by Comcast customers against their ISP. By giving in
Level 3 has just encouraged this "tollbooth" attitude that ISPs are
developing.

~~~
Terretta
Netflix's software traffic balances among Akamai, Limelight, and Level(3).

If Comcast blocked Level(3)'s Netflix hosting, customers would still get
streams, just pulled from Akamai and Limelight.

I'd guess that Level3 is counting on "Tier 1 backbone" peering agreements to
make delivering this bandwidth affordable while avoiding having to negotiate
with each cable co separately, while Akamai and Limelight have direct
agreements with the cable companies already.

If this is what's going on, that would give Comcast leverage.

~~~
mwcremer
Which suggests Comcast's real aim may be to force Level 3 to peer.

~~~
TheCondor
Could be. Comcast is easy to hate for whatever reasons as so many people
actually have contact with them. Level 3 in my experience is run by complete
incompetents and perhaps just as aggressive with lock-in tactics.

Anyone know anything about L3's current strength? Their stock doesn't look
good but I have no idea what's going on inside. I wouldn't at all be surprised
if this is because L3 wouldn't peer to comcast or wanted to give them some
sort of premium tier pricing for no added value or some other mess happened in
the past between the two...

------
akozak
Bad news for the Internet, especially considering how central Level 3 is to
the current landscape. It was inevitable that they'd shake down the CDNs.

------
karzeem
If enough Netflix customers live in Comcast-only areas, Netflix would have had
little choice but to lean on Level 3 to capitulate. Even if the customers are
willing to switch ISPs just to get Netflix, they wouldn't have had the option.
That translates to less money for Netflix, more pissed off customers for
Comcast, and a true win for nobody. With Netflix and Level 3 falling on their
swords, their customers at least come out ahead in the short term.

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.

~~~
bbatsell
It seems to me that Netflix management is a little more forward-thinking than
that. Hastings, et al. know that streaming is going to be their primary market
and if they're having to pay off every possible intermediary in the future,
their margins are going to disappear completely.

While certainly not an ideal situation, I could _easily_ see Netflix going
after Comcast with highly-visible notices to their Comcast customers rather
than pay them off and set a very, very bad precedent.

------
iopuy
There is a Comcast employee who occasionally posts on HN, he was active in the
OpenDNS thread over the weekend. I would like to get his input on this.

------
kevinpet
Ideal solution would be for Netflix to offer a discount to users on ISPs that
don't do this. Importantly, send an email with "this is what you would pay on
the different ISPs serving your area".

------
danielnicollet
How can Comcast argue they incur so much costs? when other providers are able
to offer triple-play (isp/cable/phone) offerings for a third of the price or
less. Example: in France Proxad (<http://www.free.fr>) offers 179 cable
channels, on demand movies and shows, 18 Mbits DSL, free unlimited VOIP calls
to the whole country + 40 foreign countries - all for $40 flat (no catch - I
have used them happily for 5 years and I am still a customer in France where I
own a home).

~~~
kooshball
Comparing France to the US is nonsensical. US is obviously way bigger and thus
the network infrastructure required is much more complex, which greatly
increases the cost to provide connection to each household.

------
tsotha
This is BS. If Level 3 is paying Comcast why am I paying Comcast?

------
10smom
I am so looking forward to the day when the Comcast monopoly is brought to
it's knees! Bring it on GOOGLE!

------
cedsav
Comcast pulled quite a bluff, but I don't see how they can win in the long
term. As a Comcast subscriber, I'd more than happy to switch to a different
ISP if Comcast starts to limit access to Netflix or any other content
provider.

~~~
donaldc
_As a Comcast subscriber, I'd more than happy to switch to a different ISP if
Comcast starts to limit access to Netflix or any other content provider._

How many broadband ISPs are there in your area? In many areas, there are no
more than two. If they both adopt this policy, without net neutrality you're
out of luck.

------
fennecfoxen
Yep. This is just your local television monopoly protecting its interests. We
all knew it was coming sooner or later.

------
tdok
I wonder if this has anything to do with Comcast being down last night.

------
peapicker
Absolutely chilling. Glad I abandoned comcast a few years ago.

------
CountHackulus
Well, there goes the (net neutral) neighborhood.

