Internet service providers and other network firms often squabble over Internet traffic agreements in private, but the tussle between Comcast and Level 3 exploded publicly last week. Coverage of the spat has been wide and varied—both sides come out with egg on their face depending on who you ask. On one side, Comcast is trying to squeeze money from previously fee-free agreements, while on the other Level 3 is attempting to use public opinion to win more favorable terms.
Regardless of which side you believe, Comcast’s move is an attempt to leverage their broad customer base to make Internet backbone firms to pay Comcast for access to those customers. Currently, Comcast pays Level 3 to carry its traffic, which is what backbone networks do. They are like the freight haulers of the Internet, carrying large amounts of data at high speeds and over long distances. But now Comcast is arguing that Level 3 is carrying more traffic to Comcast customers than it is taking from them, and they want Level 3 to pay.
Comcast has made their case using some disingenuous arguments. To be sure, Level 3 has not been particularly straightforward, either. The current dispute arose when Netflix paid Level 3 to cache movies on servers closer to the people who wanted to watch them. This would make Netflix streaming movies load faster and play more reliably while also reducing the amount of data Level 3 had to shuttle around. Comcast cried foul, claiming Level 3 was no longer just a backbone network but a content delivery network (CDN) and demanded payment. While other CDNs also pay Comcast (and other ISPs), it seems clear that they would rather not if they felt they had a choice. There are many CDNs, so the companies like Netflix could choose a different one if it offered speedy access to Comcast customers.
This is where Comcast starts to look bad. Comcast holds near exclusive access to millions of customers, many of whom want to view Netflix movies. Comcast is using their grasp on broadband subscribers to make CDNs to pay up, despite adequate precedent to the contrary. Now, keep in mind that Netflix is already paying Level 3 to carry their traffic, and subscribers are already paying Comcast to access the Internet, including Netflix. There is a case to be made that Level 3 greatly benefits from the arrangement, and so it should pay Comcast, but the reverse is also true—Level 3 is allowing Comcast to offer better service to its broadband subscribers at little expense.
This sounds familiar
Comcast is starting to look an awful lot like Ticketmaster. Though the metaphor becomes strained at times, bear with me. Ticketmaster is the exclusive ticket seller for a large number of venues, and the venue owners receive kickbacks in return. Ticketmaster uses this exclusive access to venues to charge exorbitant “service fees.” Artists and fans have little recourse. If an artist wants to play at a venue, they must sell through Ticketmaster. And if a fan wants to attend a show by that artist, they must purchase through Ticketmaster. Comcast’s broadband customers play a role similar to venues—the company has exclusive access to them. Comcast is demanding other companies pay up for access to broadband subscribers.
Unlike Ticketmaster’s monopoly on particular venues, Netflix’s servers will always be able to access Comcast’s customers, but that connection would be slower without a CDN, making Netflix streaming unreliable or even unusable. To see how this would work in the Ticketmaster example, let’s pretend there were a way to purchase the tickets without the fees. But to do so, concert-goers (who equate to Netflix movies here) would have to access the venue through a special gate that only allowed one person through every ten minutes. The people who chose the fee-free gate would likely miss the show. Netflix movies would similarly fail to reach customer’s eyeballs.
Ironically, Comcast would save money by allowing Level 3 to access their customers for free. Customers will still want access to certain sites and services, which Comcast provides through other arrangements that cost it money. But Comcast also knows that Netflix needs a CDN to offer fast and reliable streaming. If Comcast customers cannot access Netflix movies via Level 3’s network, Netflix will find another CDN. Comcast has realized its leverage, and has decided to stick it to Level 3.
Where this metaphor breaks down is that Comcast’s ultimatum would do little to benefit broadband subscribers. In the Ticketmaster model, the venue owners benefit through increased revenue. In the case of Comcast, it’s not clear that anyone benefits but Comcast.
Shane Greenstein, a professor of management and strategy and an expert on network economics, is watching the situation closely. Though he’s uncertain who is right in this case, he thinks Comcast may win the battle but lose the war. “All I know is that charging high fees to both application firms and users is eventually a losing proposition, though it can be very lucrative in the short run under some circumstances.”
Peering Disputes: Comcast, Level 3, and You at Voxel Blogs.
Peering problems: digging into the Comcast/Level 3 grudgematch at Ars Technica.
Photo by BedtimeChamp.