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Comcast’s Demand for a Video Surcharge From Its Level 3 “Peer”

According to Level 3, a major long haul Internet Service Provider, Comcast has demanded a “recurring fee” when Level 3 hands off movie and other high capacity video traffic for delivery by Comcast to one of the cable company’s subscribers (see Level 3 Communications Issues Statement Concerning Comcast’s Actions). This demand warrants scrutiny, perhaps less in the context of Network Neutrality and more in terms of further diversification (unraveling) of the peering process.

I will leave to others the advocacy for and against another Comcast innovation in non-neutrality. The company must consider its merger with NBC a done deal as it continues to maintain a high profile for provocative actions that raise rates to rivals and subscribers alike.

My interest lies in the evolution of peering, a process that used to be symmetrical and largely uniform between similarly sized ISPs. Under the old school model, Level 3 would have similar peering agreements with Comcast as with other national cable operators. Likewise Level 3 would have symmetrical terms for the carriage of its traffic downstream via a “peering partner,” such as Comcast, and for Level 3’s carriage upstream of traffic originated or passed onto Level 3 by Comcast. So under the old model, if Comcast wants to single out a particular type of traffic for a surcharge payment from Level 3, then all things being equal at least in terms of traffic volume, Level 3 could require a similar payment from Comcast.

Under the traditional peering model, if traffic volumes are roughly equal, the surcharge Level 3 would have to credit for payment to Comcast would be offset by a roughly equivalent credit to Level 3 for video traffic originated over the Comcast network, or transiting through it. If Comcast unilaterally has demanded and received the right to a video delivery surcharge without a reciprocal payment to Level 3, then Comcast either has eliminated the conventional symmetry in peering, or much more traffic originates or transits through Level 3 networks destined for Comcast subscribers than Comcast hands off to Level 3. The fact that Level 3 has capitulated to Comcast’s surcharge demand points to a significant imbalance in traffic flow and commensurate negotiating clout.

Much of the Network Neutrality debate has focused on end user access, while peering changes are negotiated agreements about access upstream from end users. The peering process is obscured by Nondisclosure Agreements and the lack of readily available data on traffic flows. Comcast may be engaging in a shakedown designed to handicap competitive alternatives to Video on Demand, but the possibility exists that the company is responding to unequal traffic volumes. We may never know which.

By Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law

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