With demands on Level 3, Comcast ups its fight with Netflix

November 30, 2010, 6:48 AM UTC

The battle between the video giants — one cable, one streaming — moves from the screen to the fiber.

In a press release today, Level 3 laid out the issue at hand.  Comcast (CMCSK) made Level 3 “an offer it couldn’t refuse.” Either pay up or Comcast would block its services.

“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. By taking this action, Comcast is effectively putting up a toll booth at the borders of its broadband Internet access network, enabling it to unilaterally decide how much to charge for content which competes with its own cable TV and Xfinity delivered content. This action by Comcast threatens the open Internet and is a clear abuse of the dominant control that Comcast exerts in broadband access markets as the nation’s largest cable provider.

This sets a scary precedent.  If Comcast can charge an extra fee to Level 3 for hosting Netflix (GOOG)  content, it could (and probably will at some point) charge Google (GOOG) to stream YouTube movies or Apple (GOOG) to broadcast iTunes content.  Because Comcast owns the last mile, they hold the keys.

What does this mean for consumers?

This particular action by Comcast will probably reach customers in the form of increased rates for Netflix customers.  Netflix has to pay more for Level 3’s services so the gouging is passed to consumers.

Ironically, this move comes on the very week that President Obama’s FCC Chairman Julius Genachowski will announce whether he’ll fulfill Obama’s promise to protect the open Internet and Net Neutrality — which would prevent this type of corporate abuse.

For its part, Comcast claims that it is now carrying a significant amount more of Level 3’s traffic without any additional compensation.  Previously, Comcast had a deal with Netflix’s content delivery network, Akami to share the costs of delivering the content.  Now that Netflix went to Level 3, it will no longer see that revenue.

“Level 3 has misportrayed the commercial negotiations between it and Comcast,” Joe Waz, Comcast’s senior vice president for external affairs, said in a statement. “This has nothing to do with Level 3’s desire to distribute different types of network traffic. Comcast has long established and mutually acceptable commercial arrangements with Level 3’s content delivery network competitors in delivering the same types of traffic to our customers.”

It should be interesting to see how this plays out next week.