Level 3 Says Comcast Fee Is Meant to Guard TV Business

Level 3 Communications Inc., accusing Comcast Corp. of setting up a “toll booth” for Web traffic, said the cable carrier is trying to protect its TV business by charging Level 3 for delivering video to its customers.

“Online distribution of movies, TV shows and other content threatens Comcast’s traditional ‘closed’ video distribution model,” the company said. Broomfield, Colorado-based Level 3, which provides broadband services to customers including Netflix Inc., made the statement in a 19-point public letter today.

The dispute revolves around the Web traffic that the two send to each others’ networks. Comcast says that because Level 3 sends more data its way than Comcast sends, Level 3 should pay for the difference. Level 3 says that argument isn’t valid, because it’s an Internet middleman who delivers traffic from content providers, while Comcast provides Internet service to consumers and controls that end-user relationship.

“You simply cannot ‘route around’ Comcast to provide requested content to Comcast’s subscribers,” Level 3 said.

Level 3 has accused Comcast of violating U.S. Federal Communications Commission guidelines by demanding the payments. By erecting the fee, Comcast is trying to prevent competing content from being delivered to its subscribers, Level 3 says.

Photographer: Tim Boyle/Getty Images

Level 3 has accused Comcast of violating FCC guidelines by demanding payments for delivering video to its customers. Close

Level 3 has accused Comcast of violating FCC guidelines by demanding payments for... Read More

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Photographer: Tim Boyle/Getty Images

Level 3 has accused Comcast of violating FCC guidelines by demanding payments for delivering video to its customers.

Comcast has said it offered Level 3 the same terms it gives to other content delivery networks, and that Level 3 is trying to pressure Comcast into accepting more than a two-fold increase in the amount of data put on its system for free.

No Customer Impact

“The most important thing to know about this dispute is that Comcast will do absolutely nothing to impact our high-speed Internet customers, who can and will be able to access any Internet content that they want, including streaming video from all sources,” said Sena Fitzmaurice, a Comcast spokeswoman, in an e-mailed statement.

Comcast is committed to resolve the dispute fairly and “consistently with industry principles,” she said.

Level 3 said on Nov. 11 that it will carry films and TV shows for Netflix. The popular Web-streaming service 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 broadband network company Sandvine Inc.

Not About Netflix

Level 3 is trying to send five times more traffic to Comcast than Comcast sends to Level 3 and if the positions were reversed, Level 3 would also demand a fee, Comcast said.

“Comcast’s characterization could not be more misleading,” Level 3 said today. “What is truly at state is whether consumers should have unfettered access to all the content on the Internet.” Level 3 maintains that the spat is about preserving the free and open Internet and not about its deal with Netflix.

The accusation comes at an inopportune time for Comcast. The largest U.S. cable operator is currently undergoing FCC and Justice Department reviews’ for its proposed takeover of General Electric Co.’s NBC Universal Inc.

Critics of the deal, 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.

FCC to Investigate

Rebecca Arbogast, a Washington-based analyst for Stifel Nicolaus & Co., said this week 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 spokeswoman for the cable company, said on Nov. 30. The dispute with Level 3 is unrelated to the NBC Universal transaction, she said.

The FCC will examine Level 3’s complaint, Chairman Julius Genachowski said on Nov. 30. A day later, he set a vote on rules to bar Internet service providers from interfering with subscribers’ Web traffic.

Comcast fell 1 cent to $20.71 in Nasdaq Stock Market trading. Shares of the Philadelphia-based company have gained 23 percent this year. Level 3, down 36 percent this year, rose 1 cent to 98 cents.

To contact the reporter on this story: Kelly Riddell in Washington at kriddell1@bloomberg.net

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

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