Two Stories about the Comcast/Level 3 Dispute (Part 1)

Like Steve and a lot of other people in the tech policy world, I’ve been trying to understand the dispute between Level 3 and Comcast. The combination of technical complexity and commercial secrecy has made the controversy almost impenetrable for anyone outside of the companies themselves. And of course, those who are at the center of the action have a strong incentive to mislead the public in ways that makes their own side look better.

So building on Steve’s excellent post, I’d like to tell two very different stories about the Level 3/Comcast dispute. One puts Level 3 in a favorable light and the other slants things more in Comcast’s favor.

Story 1: Level 3 Abuses Its Customer Relationships

As Steve explained, a content delivery network (CDN) is a network of caching servers that help content providers deliver content to end users. Traditionally, Netflix has used CDNs like Akamai and Limelight to deliver its content to customers. The dispute began shortly after Level 3 beat out these CDN providers for the Netflix contract.

The crucial thing to note here is that CDNs can save Comcast, and other broadband retailers, a boatload of money. In a CDN-free world, content providers like Netflix would send thousands of identical copies of its content to Comcast customers, consuming Comcast’s bandwidth and maybe even forcing Comcast to pay transit fees to its upstream providers.

Akamai reportedly installs its caching servers at various points inside the networks of retailers like Comcast. Only a single copy of the content is sent from the Netflix server to each Akamai cache; customers then access the content from the caches. Because these caches are inside Comcast’s network, they never require Comcast to pay for transit to receive them. And because there are many caches distributed throughout Comcast’s network (to improve performance), content delivered by them is less likely to consume bandwidth on expensive long-haul connections.

Now Level 3 wants to enter the CDN marketplace, but it decides to pursue a different strategy. For Akamai, deploying its servers inside of Comcast’s network saves both Comcast and Akamai money, because Akamai would otherwise have to pay a third party to carry its traffic to Comcast. But as a tier 1 provider, Level 3 doesn’t have to pay anyone for connectivity, and indeed in many cases third parties pay them for connectivity. Hence, placing the Level 3 servers inside of the Level 3 network is not only easier for Level 3, but in some cases it might actually generate extra revenue, as Level 3’s customers have to pay for the extra traffic.

This dynamic might explain the oft-remarked-upon fact that Comcast seems to be simultaneously a peer and a customer of Level 3. Comcast pays Level 3 to carry traffic to and from distant networks that Comcast’s own network does not reach—doing so is cheaper than building its own worldwide backbone network. But Comcast is less enthusiastic about paying Level 3 for traffic that originates from Level 3’s own network. (known as “on-net” traffic)

And even if Comcast isn’t paying for Level 3’s CDN traffic, it’s still not hard to understand Comcast’s irritation. When two companies sign a peering agreement, the assumption is typically that each party is doing roughly half the “work” of hauling the bits from source to destination. But in this case, because the bits are being generated by Level 3’s CDN servers, the bits are traveling almost entirely over Comcast’s network.

Hauling traffic all the way from the peering point to Comcast’s customers will consume more of Comcast’s network resources than hauling traffic from Akamai’s distributed CDN servers did. And to add insult to injury, Level 3 apparently only gave Comcast a few weeks’ notice of the impending traffic spike. So faced with the prospect of having to build additional infrastructure to accommodate this new, less efficient method for delivering Netflix bits to Comcast customers, Comcast asked Level 3 to help cover the costs.

Of course, another way to look at this is to say that Comcast (and other retailers like AT&T and Time Warner) brought the situation on themselves by over-charging Akamai for connectivity. I’ve read conflicting reports about whether and how much Comcast has traditionally charged Akamai for access to its network (presumably these details are trade secrets), but some people have suggested that Comcast charges Akamai for bandwidth and cabinet space even when their servers are deep inside Comcast’s own network. If that’s true, it may be penny wise and pound foolish on Comcast’s part, because if Akamai is not able to win big customers like Netflix, then Comcast will have to pay to haul that traffic halfway across the Internet itself.

In my next post I’ll tell a different story that casts Comcast in a less flattering light.