Level 3 (s LVLT) is taking a new tack with its ongoing dispute over interconnection fees sought by Comcast: (s CMCSA) It now claims that the cable company lied to the FCC and to the public about its latest negotiations with the backbone provider. Not just that, but its says Comcast’s communications with the regulatory agency and on its blog violated a Nondisclosure Agreement with Level 3.
The letter, which was sent from Level 3 President and COO Jeff Storey to Comcast Cable President Neil Smit and made public Monday, is the latest escalation in what has become an epic catfight between Level 3 and Comcast. Level 3 wants to deliver online video streams, including those from CDN customer Netflix, (s NFLX) to Comcast customers, but to do so it’s seeking a peering agreement that would effectively make an increase in traffic it sends over Comcast’s network free.
Late last week, John Schanz, EVP of National Engineering and Technical Operations for Comcast, claimed on the Comcast Voices blog that Level 3 had walked away from the offer or a trial that would seek to “better understand the traffic, routing and economic considerations” between the two companies. But in Storey’s letter, he said the post was in “direct violation” of an NDA that the companies had during the negotiations.
Furthermore, Storey wrote that the blog post — and Comcast’s disclosures with the FCC — misrepresented the state of the dispute and the negotiations. While Comcast has argued that Level 3 turned down its offer of setting up a trial to determine the feasibility of routing traffic between their networks, Storey claimed that the trial offer “was not made in good faith and was designed to incorrectly imply that Level 3 is acting unreasonably.” In truth, Storey said that the trial would not have actually accomplished anything, since Level 3 believes that both companies already have “sufficient understanding” of each other’s networks and costs.
While Comcast has claimed that Level 3 wanted a “zero cost” outcome for connecting the networks, Storey says this mischaracterizes their discussions, since there’s no such thing as a “zero cost” solution. Instead, Level 3 said it would connect with peering points that Comcast designated, and incur any cost required in building out its network to reach those interconnection points.
Level 3 also sent a letter to the FCC last week that takes aim at Comcast’s proposed deal to merge its cable networks with the assets of NBC Universal and take a majority stake in the new entity. In its letter filed with the FCC , Level 3 has criticized Comcast’s actions during its interconnection dispute, implying that those actions contradict statements it has made in its filings with the FCC during the review process. Level 3 is asserting that Comcast is behaving in an anticompetitive manner, especially with respect to its upcoming NBCU deal.
By requiring service providers like Level 3 to pay for interconnection, the argument goes, Comcast be acting as a de facto gatekeeper, making it pricier for services that compete with NBC Universal’s online properties to reach Comcast subscribers. In Level 3’s letter to the FCC, Assistant Chief Legal Officer John Ryan wrote:
“Even if the market for online video is separate from the market for cable programming, the transaction impacts competition. At present, NBC Universal and Hulu have no ability to impact their competitors’ cost of access to online subscribers. After the transaction, NBC and Hulu will -– through Comcast –- have the ability and the incentive to increase cost of access to Comcast subscribers.”
While the FCC has been loathe to act in the dispute so far, making it part of the commission’s review of the Comcast-NBCU deal could ensure that the FCC takes a closer look at how the cable provider treats online video. Critics of the deal already say Comcast should be subject to conditions related to online video that could include the divestiture of NBC’s Hulu stake. Level 3 no doubt hopes that the letter will place more pressure on Comcast to strike a deal with it rather than come under closer scrutiny.
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