Level 3 pushes for Comcast-NBC merge conditions

The public spat between Level 3 Communications and Comcast continues, as Level 3 now urges federal regulators to impose conditions on Comcast's merger with NBC Universal.

On Thursday evening, Level 3 sent a letter to the Federal Communications Commission and U.S. Department of Justice, asking the agencies to impose conditions on Comcast's impending merger that would require Comcast to allow Level 3 and other Internet backbone providers to interconnect their networks with Comcast's network for free. The company also asked that Comcast be required to connect to Internet backbone providers "on nondiscriminatory, fair, and reasonable terms (in any event no less advantageous than the terms effectively provided to its affiliates)."

Level 3 set off a public-relations war with cable and broadband giant Comcast last month, when it accused Comcast of violating Net neutrality principles. To sum it up, Comcast is asking Level 3 to pay a fee for sending additional traffic over the Comcast broadband network. The additional traffic, which will more than double the amount of traffic that Level 3 sends to Comcast, will come as a result of a deal that Level 3 has struck with online-video heavyweight Netflix.

The two companies' dispute comes down to whether Level 3, which will double the amount of traffic it will soon send to Comcast's network as a result of the Netflix deal, should have to pay to interconnect its network to Comcast. Level 3 says it should not have to pay, since it has a peering arrangement with Comcast. Comcast disagrees and says it should pay to send more traffic on its network, since the traffic between the two companies will be drastically out of balance.

Since it waged its war against Comcast, Level 3 has claimed that the dispute has broader implications regarding how traffic is handled on the Internet. Meanwhile, Comcast has maintained that it is nothing more than a commercial "peering" negotiation.

"Comcast's recent decision to charge for the delivery of content to Comcast, which has been requested by Comcast's subscribers clearly, has important competitive and public-policy implications," James Crowe, CEO of Level 3, wrote in his letter. "While Comcast has attempted to portray Level 3's disagreement with the charges that Comcast wants to impose as merely an 'old-fashioned peering dispute' or merely a 'commercial disagreement,' it is clear to us that much broader policy implications are at stake, significantly impacting competition in the delivery of all video programming and the future of the Internet.

Comcast defended itself in a letter of its own today. The cable operator said in its letter to the FCC that it has presented a number of options to Level 3 to settle their dispute.

At a high level, Comcast said its proposal would provide a real-world assessment of Level 3's proposal; be fair to both parties and respect Level 3's immediate business concerns; and ensure that network performance and services were not degraded or artificially manipulated. But after face-to-face discussions that lasted up until this week, Level 3 walked out on the talks.

"Rather than engage in any discussion, Level 3's response to (our) offer was to terminate the meeting, and file its December 16 letter with the FCC and the Department of Justice--with no reference to Comcast's good-faith offer," Lynn Charytan, vice president of legal regulatory affairs for Comcast, wrote in her letter. "Level 3's actions in this regard are in bad faith, and its insistence that this is not a peering dispute rings hollow, as we have previously explained in other submissions. Indeed, under Level 3's proposed regime, the FCC would, for the very first time, insert itself into regulating the interconnection of thousands of constituent IP networks, which have, for over a decade, worked out efficient and mutually beneficial means of interconnecting, in the U.S. and around the globe, without government intervention."

Charytan went on to accuse Level 3 of asking the government to regulate those parts of the Internet that would benefit large backbone providers, such as Level 3.

Level 3's CEO attempted to paint a different picture of the negotiations between the two companies in his letter to federal regulators.

"Although we have tried to resolve matters amicably with Comcast by offering to deliver the content as close to its subscribers as is technically feasible at no cost to Comcast, it is apparent to us that no resolution is possible because, fundamentally, Comcast wants to charge for delivery of content to its subscribers, regardless of any network-engineering concessions we offer."

The dispute with Level 3 comes at a tricky time for Comcast, which is hoping that its merger with NBC Universal will get final approval from the FCC by the end of the year, as expected. Some news agencies are reporting that it could have a decision as early as next week. Comcast plans to buy a 51 percent controlling stake in the TV network, in a deal announced in December 2009.

The FCC is also about to vote on Tuesday for new Net neutrality rules it has been drafting for more than a year.

Several companies and public-interest groups have proposed putting certain conditions on the Comcast-NBC merger; Level 3 is just the latest company to make such a request. But Comcast's legal team says Level 3's letter asking for conditions is out of line in the context of the dispute the companies are having.

"Level 3's attempt to interject this dispute into the NBCU transaction review is grossly improper," Comcast's Charytan said in her letter. "A significant number of parties have already sought to use this particular transaction review process to advantage themselves in business dealings with Comcast or NBCU, but Level 3's approach represents an exceptional affront to the commission--and to the Justice Department."

Charytan went on to say that in all the documents filed with the FCC regarding the merger, and in all the hearings held before Congress and questions requested by the FCC regarding the merger, not once has anyone brought up the issue of peering.

AT&T, which is a backbone provider and a last-mile broadband provider, has publicly criticized Level 3 for its attack on Comcast. In a blog post today, the company said Level 3's calls for additional regulation on Internet connections are unnecessary.

"This is a pretty remarkable call for regulation of Internet interconnection arrangements that have worked remarkably well without regulation," Hank Hultquist, vice president of federal regulatory affairs at AT&T, said in the post.