Comcast, Level 3, Peering, and a Bad Best Case Scenario

So Comcast and Level 3 are in a peering dispute following the Netflix partnership with Level 3 to distribute their streaming movie service. Studies suggest Netflix movie streaming has become a significant chunk of Internet traffic, particularly at peak times.

A quick primer on peering: the Internet is comprised of a bunch of networks that exchange traffic. Sometimes one has to pay another network for transit and sometimes (commonly with big carriers like Comcast and Level 3) networks have an agreement to exchange traffic without charging (one reason: the costs of monitoring the amount of traffic can be greater than the prices that would be charged). (Update: Read the Ars Technica story for a longer explanation of peering and this conflict.)

Comcast claims that Level 3 is sending Comcast 5x as much traffic as Comcast sends to Level 3 and therefore wants to charge Level 3 for access to Comcast customers. Of course, as Comcast only offers radically asymmetrical services to subscribers, one wonders how Level 3 could be 1:1 with Comcast…

At Public Knowledge, Harold Feld ties the dispute to network neutrality:

On its face, this is the sort of toll booth between residential subscribers and the content of their choice that a Net Neutrality rule is supposed to prohibit.  In addition, this is exactly the sort of anticompetitive harm that opponents of Comcast’s merger with NBC-Universal have warned would happen — that Comcast would leverage its network to harm distribution of competitive video services, while raising prices on its own customers.

Susan Crawford

Susan Crawford wrote a lengthier piece about Comcast, Netflix, network neutrality, set-top boxes and NBC that is well worth reading (as is just about anything she writes).

However, for the purposes of this post, we will assume the 5x traffic imbalance is true (and unique and that Comcast has no ulterior motive for charging Level 3 (and its partners like Netflix) a fee for anti-competitive reasons (like its own TV Everywhere service). I want to explore the world in which Comcast has pure motives to explain why even in that world, policy should address the market power of Comcast.

Comcast wants to charge Level 3 for access to their customers, which means that content distributed by Netflix has a disadvantage relative to content distributed by Comcast. Even before buying NBC (does anyone really expect the Obama Administration to halt this terrible merger?), Comcast owned content creators. In fact, it has long used its market power as a massive cable distributor to acquire a stake in channels -- as detailed here and here.

As a Comcast customer, it becomes harder and harder for me to choose content not owned by Comcast. Even if Comcast does not act anti-competitively, the content it owns is simply easier for me to find and access. This creates a barrier for new content providers (and encourages Netflix to give Comcast a stake in the company).

These inevitable barriers to entry, even when Comcast is not abusing its power exemplify the problems of massive scale for a company that owns both content and the (increasingly sole) means of transmitting it.

A far better arrangement is structural separation, where the network owner has no stake in the content transferred. This observation informs our preference for community owned networks -- ideally open access networks with a multitude of independent service providers. Even if Comcast behaves itself, it has too much control over the future of content -- from web sites to television programming.