http://www.businessweek.com/news/2010-11-30/comcast-starts-web-toll...

Nov. 30 (Bloomberg) -- Comcast Corp. has begun imposing a fee on Internet middleman Level 3 Communications Inc., one of the companies that Netflix Inc. has hired to deliver movies and TV shows to Web customers.

Comcast, the largest U.S. cable TV company, has set up an Internet “toll booth,” charging Level 3 whenever customers request content, the Broomfield, Colorado-based company said in a statement yesterday.

Level 3 plans to complain to U.S. regulators who may enact so-called net-neutrality rules next month. The Federal Communications Commission is seeking to bar phone and cable providers from interfering with legal traffic on their networks. The rules are backed by President Barack Obama and companies led by Google Inc., EBay Inc. and IAC/InterActiveCorp. Phone and cable companies say rules aren’t needed and may hurt investment.

“This action by Comcast threatens the open Internet and is a clear abuse of the dominant control that Comcast exerts in broadband access,” Thomas Stortz, Level 3’s chief legal officer, said in the statement. “With this action, Comcast is preventing competing content from ever being delivered to Comcast’s subscribers at all, unless Comcast’s unilaterally determined toll is paid.”

Comcast, which is seeking regulatory approval to acquire majority ownership of NBC Universal, defended the fee in a statement, saying it is based on “long established and mutually acceptable commercial arrangements” with Level 3’s peers.

Traffic Jam?

Level 3 is preparing to more than double the traffic it puts on the cable provider’s network and has tried to pressure the company into accepting it for free, Joe Waz, Comcast’s senior vice president for external affairs, said in an e-mailed statement.

Level 3 announced on Nov. 11 that it will carry films and TV shows for the Web streaming service offered by Netflix.

Netflix accounts for more than a fifth of the traffic downloaded during the peak hours of 8 p.m. and 10 p.m. in the U.S., according to a report from broadband network company Sandvine Inc. Level 3 has said it will add capacity to its network to handle the extra load from Netflix’s movies.

Jen Howard, a spokeswoman at the FCC, and Steve Swasey, a spokesman for Netflix, declined to comment.

Comcast fell 27 cents to $19.94 at 9:38 a.m. New York time in Nasdaq Stock Market trading. Shares of the Philadelphia-based company had gained 20 percent this year before today. Level 3, down 35 percent this year, fell 2 cents to 98 cents. Netflix, based in Los Gatos, California, lost $1.86 to $197.06.

Genachowski

FCC Chairman Julius Genachowski, in proposing net neutrality rules last year, called for a principle of non- discrimination by Internet-service providers. The FCC will meet on Dec. 21.

“This means they cannot block or degrade lawful traffic over their networks,” Genachowski said.

Public Knowledge and the Media Access Project, two Washington-based advocacy groups, backed Level 3 yesterday. The groups said the request for payment to carry Level 3 traffic shows the need for stronger net neutrality legislation and more scrutiny of Comcast’s NBC deal.

Comcast is seeking to buy 51 percent of NBC from General Electric Co. and needs FCC and Justice Department approval to complete the deal, which was announced almost one year ago.

Critics, such as Representative Rick Boucher, a Virginia Democrat and head of a U.S. House panel on communications, are concerned that a merger would restrict customers’ access to content, particularly programs available online.

Zoom’s Complaint

Also yesterday, Boston-based Zoom Telephonics Inc. told the FCC that Comcast requires unreasonable tests of modems used to connect to the Internet. Zoom asked the FCC to set aside Comcast’s testing regime.

Comcast didn’t ask Zoom to submit to testing that is any different than what it asks of other cable modem manufacturers, Sena Fitzmaurice, a Washington-based spokeswoman for Comcast, said in an e-mailed message.

“Comcast wants to make sure devices our customers purchase at retail will work well and are safe,” Fitzmaurice said.