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Comcast Starts Web ‘Toll Booth,’ Netflix Supplier Says

Comcast Corp. has begun imposing a fee on Internet middleman Level 3 Communications Inc., one of the companies that Netflix Inc. has hired to deliver movies and TV shows to Web customers.

Comcast, the largest U.S. cable TV company, has set up an Internet “toll booth,” charging Level 3 whenever customers request content, the Broomfield, Colorado-based company said in a statement yesterday.

Level 3 plans to complain to U.S. regulators who may enact so-called net-neutrality rules next month. The Federal Communications Commission is seeking to bar phone and cable providers from interfering with legal traffic on their networks. The rules are backed by President Barack Obama and companies led by Google Inc., EBay Inc. and IAC/InterActiveCorp. Phone and cable companies say rules aren’t needed and may hurt investment.

“This action by Comcast threatens the open Internet and is a clear abuse of the dominant control that Comcast exerts in broadband access,” Thomas Stortz, Level 3’s chief legal officer, said in the statement. “With this action, Comcast is preventing competing content from ever being delivered to Comcast’s subscribers at all, unless Comcast’s unilaterally determined toll is paid.”

Photographer: Matthew Staver/Bloomberg

Level 3 announced on Nov. 11 that it will carry films and TV shows for the Web streaming service offered by Netflix. Close

Level 3 announced on Nov. 11 that it will carry films and TV shows for the Web... Read More

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Photographer: Matthew Staver/Bloomberg

Level 3 announced on Nov. 11 that it will carry films and TV shows for the Web streaming service offered by Netflix.

Comcast, which is seeking regulatory approval to acquire majority ownership of NBC Universal, defended the fee in a statement, saying it is based on “long established and mutually acceptable commercial arrangements” with Level 3’s peers.

FCC Chairman Julius Genachowski said today the agency will examine Level 3’s complaint.

Traffic Jam?

Level 3 is preparing to more than double the traffic it puts on the cable provider’s network and has tried to pressure the company into accepting it for free, Joe Waz, Comcast’s senior vice president for external affairs, said in an e-mailed statement.

Level 3 announced on Nov. 11 that it will carry films and TV shows for the Web streaming service offered by Netflix.

Netflix accounts for more than a fifth of the traffic downloaded during the peak hours of 8 p.m. and 10 p.m. in the U.S., according to a report from broadband network company Sandvine Inc. Level 3 has said it will add capacity to its network to handle the extra load from Netflix’s movies.

Steve Swasey, a spokesman for Netflix, declined to comment.

Genachowski

Genachowski, in proposing net neutrality rules last year, called for a principle of non-discrimination by Internet-service providers. The FCC will meet on Dec. 21.

“This means they cannot block or degrade lawful traffic over their networks,” he said.

Public Knowledge and the Media Access Project, two Washington-based advocacy groups, backed Level 3 yesterday. The groups said the request for payment to carry Level 3 traffic shows the need for stronger net neutrality legislation and more scrutiny of Comcast’s NBC deal.

Comcast fell 18 cents to $20.04 at 4 p.m. New York time in Nasdaq Stock Market trading. Shares of the Philadelphia-based company have gained 19 percent this year. Level 3, down 34 percent this year, rose 1 cent to $1.01. Netflix, based in Los Gatos, California, gained $6.98 to $205.90.

NBC Deal Risk

Comcast is seeking to buy 51 percent of NBC from General Electric Co. and needs FCC and Justice Department approval to complete the deal, which was announced almost one year ago.

Critics, such as Representative Rick Boucher, a Virginia Democrat and head of a U.S. House panel on communications, are concerned that a merger would restrict customers’ access to content, particularly programs available online.

Rebecca Arbogast, a Washington-based analyst for Stifel Nicolaus & Co., said the investigation into the Level 3 fees could delay the approvals that Comcast needs to complete the merger. She had said previously that it was likely the review of the deal would extend into early 2011.

Comcast remains “focused on regulatory approval by year end,” Sena Fitzmaurice, a Washington-based spokeswoman for the company, said in an e-mailed message. “This is a business dispute” that is unrelated to the transaction, she said.

Genachowski declined to comment today on a timetable for reviewing the NBC merger.

Also yesterday, Boston-based Zoom Telephonics Inc. told the FCC that Comcast requires unreasonable tests of modems used to connect to the Internet. Zoom asked the FCC to set aside Comcast’s testing regime.

Comcast didn’t ask Zoom to submit to testing that is any different than what it asks of other cable modem manufacturers, Fitzmaurice said in an e-mailed message.

“Comcast wants to make sure devices our customers purchase at retail will work well and are safe,” Fitzmaurice said.

To contact the reporters on this story: Amy Thomson in New York at athomson6@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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