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Netflix streaming causing bandwidth price dispute

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TEXT OF STORY

Kai Ryssdal: Somewhere on the list of important companies a lot of people have never heard of, you'll find a firm called Level 3 Communications. It runs a $20 billion set of Internet pipes that helps companies like Netflix stream their content all over the world. To get to customers, that data has to go through Internet service providers and one of the big ISPs, Comcast, has told Level 3 the price tag for the high-volume video content from Netflix is going to be going up.

Marketplace's Steve Henn reports.


Steve Henn: A recent study found that 20 percent of all the bandwidth used up on the Internet during after-dinner hours is devoted to streaming Netflix movies. Just think about that. And Netflix is just getting started with online streaming.

All this new traffic means companies like Comcast -- which connect consumers to the net -- are having to spend a lot of money to build out their networks to keep up. And this is why Comcast says it raised the fees it charges Level 3.

Michael McGuire: They have a point.

Michael McGuire is a media analyst at Gartner.

McGuire: If consumers want to use more bandwidth to enjoy more content services, there is probably a fair charge they should be paying.

And if Level 3 and Netflix need to use Comcast's network to reach their customers, they should pay more too. Or at least that's Comcast's side of the story.

But John Ryan from Level 3 doesn't trust Comcast to be an honest broker. He believes Comcast sees Netflix as a threat and would love to crush the company.

John Ryan: For consumers what's at stake is preservation and protection of openness and innovation within the Internet.

Ryan says if Comcast is free to start charging higher prices to its direct competitors, it could gain a big, unfair advantage for its cable business. And Washington is watching. The Federal Communications Commission's widely expected to wade into these issues next month.

In Silicon Valley, I'm Steve Henn for Marketplace.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.
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If you and a neighbor agree to let each other borrow garden tools for free, but then your neighbor starts a landscaping company, you'd be well within your rights to cancel the agreement rather than let him use your tools in his business. That's what's going on here: Comcast and Level 3 agreed to carry traffic from each other's networks without either paying the other because the bandwidth usage either way was about the same as the other. Now that this Netflix thing has surfaced, that's no longer the case, so Level 3 is entirely right to cancel the agreement and ask for money to carry the large volume of traffic.

Comcast, with it's mon/du-opoly on the markets it's in, is trying to force Level 3 to be reclassified from an internet backbone entity to a content distribution network.
This way they can charge the additional rates that they charge other companies like Akamai and Limelight.

The problem is that Level 3, in this situation, is not using Comcast's network to send data to other parts of the internet, they are sending data to Comcast's customers. Comcast is just trying to double dip in data charges. Comcast is already charging it's customers for access to the internet, now they are trying to charge companies for access to its customers.

This is exactly what net neutrality is supposed to prevent, ISP double dipping and prioritizing of an ISP's own services to ensure higher revenue for it's own services (i.e.- Xfinity).

Steve Henn: A recent study found that 20 percent of all the bandwidth used up on the Internet during after-dinner hours is devoted to streaming Netflix movies. Just think about that. And Netflix is just getting started with online streaming.

All this new traffic means companies like Comcast -- which connect consumers to the net -- are having to spend a lot of money to build out their networks to keep up.

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This is inaccurate. Comcast and other incumbent, investor owned Internet Service Providers are NOT "building out" their infrastructures. Why not? Because they've concluded it's not sufficiently profitable to do so. It has nothing to do with the set to between Comcast and Level 3. Telecom infrastructure due to the high cost of construction and maintenance is a natural monopoly (or duopoly at best). Comcast is simply exercising its sizable market power since it owns the Internet pipeline that Level 3 uses.

Fred Pilot
http://eldotelecom.blogspot.com/

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