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Summary:

The fight that erupted today between Level 3 and Comcast involves an esoteric agreement and equally esoteric policy arguments, but at its core this fight is about money. Yet what has begun as commercial dispute may change how the web works and who pays for it.

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The fight that erupted today between Level 3 and Comcast involves an esoteric agreement between two of the Internet’s big players colliding with a series of equally arcane policy arguments, but at its core this fight is about money. Yet what began as a commercial dispute may end up fundamentally changing how the web works and who pays for it.

So what’s the issue? Level 3 told the world that Comcast had hit it up for more money in order to deliver traffic from Level 3’s customers (such as Netflix) to Comcast’s 17 million broadband subscribers. Level 3 said Comcast’s demand for more dough violated the principles of the Open Internet, which is shorthand for net neutrality. On the other side, Comcast, said Level 3 was trying to sell itself as a CDN while not having to pay fees to Comcast as other CDNs do. In short Level 3, was calling itself a CDN to its customers and a backbone provider to Comcast. This (plus the fact that Level 3 owns one of the largest Internet backbone networks) enabled it to undercut its competitors in the CDN business because it didn’t have to pay the fees that Akamai or Limelight did to get content onto Comcast’s network.

For example, Level 3 even told people back in 2007 that it could deliver CDN services for the same price as Internet access, a feat made possible because it owned its own networks. So when Comcast pointed out the traffic Level 3 was sending to its network would more than double to reach a 5:1 ratio when compared to the Comcast traffic sent over Level 3′s network, it was justifying its decision to act, something covered in Comcast’s peering agreement . (For detailed analysis of Comcast’s peering agreement check out this post from Vijay Gill.)

Peering is the face of this issue — the idea that Internet Service Provider A allow traffic from similarly sized and loaded networks to traverse its own for free because ISP A‘s traffic gets a pass when it’s on networks owned by ISP B or ISP C. However, the soul of this issue is how it exposes how uncompetitive the nation’s broadband networks really are. The very threat that Level 3 alleges Comcast made — essentially that Level 3 could accept the proposed fee or Comcast wouldn’t deliver Level 3’s content — should lead to concern.

This is a problem the Congress and regulators cannot ignore. Just as in the recent retransmission fights in the pay TV world, these rumblings between giant companies leaves consumers in the lurch, even though they’ve actually paid for access to the Internet — that is, the whole Internet, not one approved by Comcast or some other company. The problem, of course, is lack of competition in the broadband markets.

For the consumers who aren’t confused by their inability to access certain content and decide to switch to a provider working with Level 3, there aren’t a lot of choices. Typically, areas have only two ISPs — a cable company and a telco — and many ISPs are now offering service with annual contracts which could lock a consumer in. Plus, what happens if AT&T or Verizon decide to address this imbalance of traffic with Level 3? It is, after all, fairly common for there to be an imbalance of traffic given that consumers tend to request data from Level 3 and backbone providers far more often than they upload content to Level 3’s end customers.

It’s not far-fetched, given that by getting Level 3 to pay more for delivering a CDN service that essentially is the same as its Internet access, but does send more Level 3-specific traffic onto Comcast’s network, Comcast is getting Level 3 to pay for the increase in traffic on its network. One can wonder if Akamai’s CDN fees are calculated on the traffic it sends to an ISP or how much space its servers take up in the ISP’s data center, but with Level 3 and Comcast, there’s no need to wonder. It’s about the traffic. This idea of content providers paying ISPs to deliver the traffic to consumers, while consumers pay ISPs for access to the pipe isn’t a new one.

If that flies, then companies such as Google or Hulu may find themselves paying more for peering. That’s great for the ISPs, but again, it’s not like there are myriad opportunities for a company like Google to exert its market power short of building its own networks. For example, if a large content provider wants its services to reach folks in Rochester, N.Y., it has to work with either Frontier or Time Warner Cable. So while Comcast and Level 3 fight their commercial disagreement over peering in the press and possibly in front of regulators, the real people to suffer will be those who depend on the web. Not because Comcast has decided to call Level 3 on it being a CDN, but because of the lack of real competition in our broadband networks.

Yup, we have a problem!

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  1. Sorry, but what does CDN stand for? Doesn’t GigaOM have a Style Guide (SG) for acronyms? It’s Journalism 101: adopt a SG.

    1. CDN = Content Delivery Network. I’m no expert but if I had to explain it, it’s a “data delivery” service you buy from Akamai, Limelight, … if you have a lot of data (e.g., pictures, videos) on your server/”warehouse” and want to make sure several 100m people all over the world can access it speedier and more reliably than if you were to host it yourself from a single location – or, if you’re FB, GOOG, …, you can of course set up your own CDN.

    2. CDN is a Content Distribution Network or Content Delivery Network. It works under a “all your apples in a bunch of baskets” concept. Multiple servers with your content would be placed in various areas of a network, less hops means better use of your available bandwidth. Hope this helps, and yes I agree, a Style Guide is warranted.

      1. Stacey Higginbotham Chris Tuesday, November 30, 2010

        Guys, my bad on not spelling out CDN on first reference. We do have a style guide but editors enforcing it are rare at 10 pm. Thank you to our commenters who helped people out on that.

  2. Great post! Thanks for explaining this so clearly.

  3. Thanks for the nice post. Hope it all works out for the good of everyone. mainstreethost

  4. Wait, what’s wrong with charging for more traffic? If there is a balance of traffic in a peering agreement, then all are happy. But if there is a 5:1 ratio I agree that the ISP has a right to charge to deliver that extra traffic.

    The point of net neutrality is that all *types* of traffic be treated equally. There’s nothing wrong with charging for added traffic volume by source… unless of course those prices are not controlled by any real competition. (The real issue!)

    1. @Mark: The point of Net Neutrality is also that all *sources* of traffic be treated equally. As a comcast user i should have the same access to Akamai’s content as i do to Level 3’s content. Remember that Level 3 is already paying for their bandwidth (they’re maintaining their own servers, etc.). If Comcast can’t find a way to be profitable with the amount of bandwidth they’re serving, they need to raise the rates for their subscribers, the people who are actually consuming Level 3’s bandwidth.

      1. Jim, I have to disagree. Both sides (consumer and provider) should have a stake in paying for bandwidth utilization/transmission. The electric utilities have been doing so for a long time.

        IPV6 will help, but will not solve this problem, since there will inevitably be disagreements on classification and sub-segmenting of traffic beyond what IPV6 allows. But it’s a start.

        Additionally, while we bash Comcast and the infrastructure providers as being “greedy”, their operating margins are a FRACTION of those of Google et al (and yet they still pay a whole lot more in taxes than Google, but that’s another story).

        There does need to be a tiering of QoS and pricing based on the nature of the content if we’re ever going to enable mission critical applications to leverage the public internet (telemedicine, smart transportation, smart energy and water distribution, etc.).

  5. @Tony Content delivery network

    super post thanks for the info!

  6. Most peering relationships have stipulations that if there is an imbalance, then the company responsible for the imbalance pays.

    The irony of Level 3 doing this is that they’ve been on the “comcast side” of this a couple of times, including when they went as far as temporarily cutting off their relationship with Cogent in 2005.

    1. Stacey Higginbotham jason Tuesday, November 30, 2010

      Man, who hasn’t cut off Cogent? :)

      Anyhow, the imbalance issue is real and I tried to address it in the story, however I do want more information on what Comcast charges Akamai and what those fees actually buy. Comcast makes it seem as if Akamai can undercut Level 3 simply because it doesn’t pay a CDN fee, but Level 3 does own its own network, which Akamai doesn’t. Akamai buys bandwidth from folks like Level 3. So even if if this Comcast fee is charged to both Akamai and Level 3 as CDNs, Level 3 should still have a price advantage.

      1. Why should you, a blogger, have the right to ask for proprietary and sensitive information such as a contract between Akamai and Comcast? Further, why should you (or anyone for that matter) get to decide if these contracts are “fair”? My favorite part is how you blame Comcast for the lack of competition. Blame local governments for restricting entry!

      2. Well, she’s actually a journalist who happens to work for a news site operating on a blog platform. Regardless, this is America; anyone is entitled to ask questions, it’s up to the other side to decide if it wants to respond.

        But back to the point: If Akamai has a different peering agreement with Comcast, isn’t that just the free market in action, i.e. Akamai did a better job of negotiating its contract? Could this really be all about Level 3 trying to gin up public leverage pursuant to renegotiating its deal with Comcast? Or is there some law/regulation that all peering agreements are supposed to be equal?

  7. Richard Bennett Tuesday, November 30, 2010

    My, how quickly they forget. I wrote a guest blog for GigaOm a year ago pointing out that the FCC’s proposed net neutrality rules could easily end up regulating peering and transit agreements, and now we see what? Net neutrality has been expanded by L3 to apply to peering and transit agreements.

    The comments to my guest blog featured adamant denials from employees of Google, Akamai, Netflix, YouTube and a host of frequent fliers to the effect that I was offering a wholly unreasonable interpretation of the Net Neutrality rules. I don’t want to say I told you so, but my goodness was I ever right.

    That blog post is: http://gigaom.com/2009/11/22/how-video-is-changing-the-internet/

    The comments are fun, especially those from Patrick Gilmore disputing his own published claims and Daniel Golding’s assertions that there is no possible way for net neutrality to affect network interconnection.

    What we’re seeing is the unbearable lightness of net neutrality: a vague cause that can be, and regularly is, redefined to cover all many of real or imaginary ills. Be careful what you wish for, kids. Net neutrality used to be about blocking access to web sites; now it’s about peering, retransmission consent for TV shows, down-level cable modem certification, and traffic engineering. What’s next, recycling and animal rights?

    1. Richard, you’re right. I wish I had remembered your post last night. However, Level 3 hiding behind net neutrality is pretty bogus. This is not so much a net neutrality issue so much as a lack of competition issue. Although I suppose if we had real competition we’d also have less to worry about with regards to net neutrality because people would just switch providers.

      1. Stacey, Akamai pays big time to be inside cable headends, Netflix is not dumb, they knew full well L3 is on outside looking in….

        No mam, the baddies here are Netflix and L3, let them decide how much they’ll ante up to Time Warner to compete with Akamai, everyone has their price – let them pay it.

        There is NO free ride. One way or the other WE pay, stop siding with companies and let them fight each other to the death – and we’ll pay the least.

        The last time your type yammered on and on about this kind of thing, we had the Government investigating MSFT for giving away a browser Netscape wanted to charge $40 for.

      2. There’s no difference between NN and the “lack of competition issue,” Stacy: The argument for NN all along has been that the ISP market isn’t sufficiently competitive for the market to discipline ISP behavior, so the government has to apply rules. I’ve always basically agreed with that, my beef is that the rules tend to not be narrow, clear, and well-focused. If cable modem certification and peering are NN issues, NN is too broadly defined.

      3. @morgan warstler: Akamai isn’t inside Comcast’s cable head-ends and never was. Comcast doesn’t sell rack space, they interconnect at various places far removed from DOCSIS.

    2. Next up in the complainer line-up, We have Bennet who it is said takes most of his consulting $ from “big telco” (e.g. AT&T). Again, obvious bias toward ISPs hoping to get $ from both content providers and consumers.Pretty straight forward.

      1. coldbrew

        whatever your feelings about richard might be, but the issue at at the heart of this matter is going to impact all of us, the Internet users. :-)

      2. I like the diverse crowd here, Om, you’ve got the full range.

  8. so the internet gets owned by big companies and small guys will be kicked out if they don’t pay? What about economies of scale where Google gets preferential rates of say $0.01/mb and individuals pay $0.04/mb… Scary

    STOP THIS NOW

  9. Digital Society » Blog Archive » Level 3 outbid Akamai on Netflix by reselling stolen bandwidth Tuesday, November 30, 2010

    [...] ignorant groups like Media Access Project and bloggers like Stacy Higginbotham claiming that “Comcast might break the web” despite the fact that the kind of contractual agreement between Comcast and Level 3 is [...]

  10. I agree that the lack of real competition in the broadband networks such as Time Warner Cable & Comcast have created monopolies where people are held hostage to them and their fees. We went through this before with the telephone company The Bell System, a.k.a. “Ma Bell”. The cable company franchising & licensing has to be changed to allow local competition. Competition has always driven prices down. The way it is working now is the towns, cities, etc are getting paid off by the cable company to allow a cable company an monopoly of their area under the disguise of an franchise.

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