Bad Timing: Comcast, Netflix, NN, Cable Modems, and NBCU

Comcast, the largest broadband provider, largest pay-TV company, and third-largest telephone company in the country, distributes communications services to more than a third of the country.  Today Comcast’s existing overwhelming market power was on display in major public battles with (1) Level 3 and (2) cable modem manufacturer Zoom.

The takeaway from today::  No market forces are constraining Comcast – or any of the other major cable distributors, none of which compete with each other.  How will consumers and innovation be protected from their machinations?:  The FCC is currently facing two defining moments in US telecommunications policy, and it’s unclear what the Commission is going to do in either case.  Will the FCC act to relabel high-speed Internet transmission services, reversing the radical Bush-era deregulatory turn? Will the FCC block the Comcast/NBCU merger?:  Can we expect that anything will happen (at all) to ensure that local monopoly control over communications transport isn’t leveraged into adjacent markets for devices and content?

What will the legacy of the FCC be, as the looming cable monopoly stops looming and starts muscling levers into place?

Brian Stelter has an excellent overview of the Level 3/Netflix issue here.  Briefly, relationships between the big pipes that travel between cities aren’t regulated by the FCC.  The assumption has been that there is enough competition to keep everyone working well together – and that they can make their own arrangements for “peering” (free exchange of traffic) and “transit” (asymmetrical traffic that costs money to pass through the gates) without oversight.

There are sharp limits to this competition that can no longer be ignored.  Level 3 just ran into a wall with Comcast and felt it had no choice but to cave.  Until November 19, Level 3 was treated as a peer by Comcast – no payment exchanged, the two networks just sent traffic back and forth.  On November 19, Comcast demanded that Level 3 pay for transit to Comcast’s subscribers.  No big deal, right – a private arrangement.  But the Comcast demand happened hard on the heels of Netflix’s announcement that it was going to be moving its streaming business from Akamai to Level 3.  Just eight days after that announcement, Comcast lowered the boom on Level 3.

Then, three days following Comcast’s request for payment from Level 3, Netflix announced it was moving to a $7.99/month streaming plan.  (I immediately signed up.):  Comcast then apparently said the demand for payment from Level 3 was take-it-or-leave-it.  No negotiation.

Now, there are different versions of what happened here.  The crucial, undeniable core of all this, though, is that Level 3 didn’t feel it was being treated fairly but also felt it had no choice but to knuckle under.  If it wanted to reach Comcast’s 25 million subscribers, it had to do the deal on Comcast’s terms.

Comcast, for its part, has an undeniable motive to serve its TV Everywhere plans (described here) by making it expensive for Netflix to reach its subscribers.

Comcast is now wearing more hats than any terrifying Hydra – if a Hydra wore hats.

So it isn’t surprising that another one of Comcast’s market-powerful dimensions came into play today.  Zoom, a competitive maker of cable modems, has had enough – so it has filed a petition before the FCC.  Have you noticed how much it costs each month to rent your cable modem from your carrier?

Zoom would like to be able to sell you a cheaper modem at Best Buy or any other retailer.  But it keeps running into testing issues.  And then more testing issues.  And then a final set of tests run by Comcast itself, for which Comcast charges $25K, that can only happen when Comcast says they can, and that take nine weeks.  It took Zoom five months to introduce a DOCSIS 3.0 modem this year – much longer than they had planned.

And when it wanted to introduce a new DOCSIS 2.0 modem (for slower speeds, for people who don’t want to pay as much), Comcast dragged the process along and raised innumerable hurdles.  Zoom maintains that Comcast is requiring all kinds of things that have nothing to do with preventing harm to Comcast’s network or theft of Comcast’s cable signals.  Zoom says that’s against the law.

Maybe Comcast just doesn’t want cheaper devices out there.

Look, these may sound like small things.  So Comcast doesn’t want to connect to other networks or other devices without its terms being met – big deal.  But these are precisely the kinds of schemes that the old pre-divestiture AT&T carried out with aplomb and great seriousness of purpose for decades.

This is how companies that don’t face competition act.

It may be that transmission service is so expensive to install and needs to be at such a large scale in order to be maintained that it is, indeed, a natural monopoly.  If we have gotten to that point (and I think we have), then regulatory oversight needs to be in place to protect consumers and innovation.

Comments

  1. I’ll be contrary here, just to be certain that there is a contrary voice.

    Peering relationships between carriers have been a source of friction ever since they started. When traffic flows are asymmetric, someone has to pay.

    This account from 2001

    http://www.irbs.net/internet/nanog/0101/0354.html

    describes 7 peering battles up until that time. “The battle over imbalanced traffic flows” is one of the archetypes. Public spats about the terms and conditions of peering relationships should be seen in this context.

    As to Zoom, this is from the complaint:

    > Zoom failed the first time because of a chip problem due to delay registering modem w/network after power outage.

    Coming from a part of the country which has power outages frequently enough to be too frequent, I can certainly sympathize with Comcast rejecting a device that was not robust in the face of power blips. All of those failures are going to be blamed on Comcast, and of course there is plenty of blame to go around, so why would you not try to screen out devices that were going to cause more customer service calls?

    Mind you, I don’t want to take sides here; it’s entirely possible to construct a scenario where Comcast is being arbitrary and capricious and misusing its market power. That does not however look like the simplest description of what is going on.

  2. You could be right – hubris has caused Comcast to overstep the mark just as the crucial NBCU decision approaches. Or maybe they are just sure of their ground. I see their response to the Level 3 situation here – essentially that it’s the pot calling the kettle black.

  3. Here’s a second relevant comment re Zoom:

    http://www.dslreports.com/forum/r25136532-I-can-see-why

    I can see why…
    Comcast does do more testing than CableLabs.

    If this the same Zoom DOCSIS 3 modem that’s being referred to then yes, it should undergo more testing. It’s a re-branded Hitron modem. The same company that supplied D-Link with the DOCSIS 2 modems for D-Link to brand their name on them, that caused a huge headache for Comcast and their customers to deal with.

  4. Well, personally, I was inclined to believe it was just an asymmetric peering arrangement blowing up… until I saw those dates. That’d be one huge, HUGE set of coincidences for Comcast to have done all that so close to the dates on those announcements. So now, going by that, I think Comcast is definitely being abusive.

    Although I think this may be more of a case where someone overstepped their authority at Comcast. That is, the person (or persons) in charge of negotiating with Level 3 saw the Netflix announcements and took it upon themselves to hassle Level 3 beyond what authority they truly had. I won’t be surprised if this ends with Comcast backing down, apologizing, and firing a VP very publicly. I doubt (and hope) that this isn’t the kind of thing that’s become company policy within Comcast.

  5. Andy Crain says:

    I work for Qwest and I will try to keep this free of company advocacy, but I want to clarify three points:
    1. Level 3, as one of the big players in carrying data, is a Tier 1 peering partner, but Comcast isn’t (it is not a big player). So Level 3 has not traditionally treated Comcast as a “peer.”
    2. This dispute is a result of Level 3 entering a new business: content delivery networks, which locate data closer to users, thus relying less on data carriers (such as Level 3′s traditional business). Level 3 won the Netflix business from Akami, which is by far the biggest player in the CDN business.
    3. Comcast charging Level 3 for this traffic is not changing how Netflix traffic is treated. Akami has been paying for this traffic to be terminated. So while the company paying has changed from Akami to Level 3, how Comcast is treating that traffic has not changed.

Trackbacks

  1. [...] wrote in her blog that the Level 3 incident coincided with an action by Comcast against modem maker Zoom that appears [...]

  2. [...] Susan Crawford, a professor of law at Cardoza, said the dispute provides a defining moment for the FCC, as it looks to institute net neutrality rules, which it could take up at a Dec. 21 meeting. She said the fight should prompt the FCC to decide how far it needs to go in checking the power of cable giants such as Comcast. Crawford said the timing of the rate hike, shortly after Level 3 secured a deal to handle Netflix’s video traffic, along with Comcast’s own competing video products including its TV Everywhere service, gives it motivation to fight Level 3. “This is how companies that don’t face competition act.: It may be that transmission service is so expensive to install and needs to be at such a large scale in order to be maintained that it is, indeed, a natural monopoly.:  If we have gotten to that point (and I think we have), then regulatory oversight needs to be in place to protect consumers and innovation,” Crawford wrote. [...]

  3. [...] are like a toll booth that allow Comcast to take unfair advantage of their dominant position (they provide communication service to more than 1/3 of the country) as an Internet [...]

  4. [...] 3 Is Now Backed Into a Corner, explains Susan Crawford, a professor at Cardozo Law School in New York: The Comcast demand happened hard on the heels of [...]

  5. [...] a “turning point in US Internet policy.” Law professor Susan Crawford calls Comcast a terrifying, hat-wearing hydra—and she’s looking for a Hercules to cut it down to size. Harold Feld of Public [...]

  6. [...] a “turning point in US Internet policy.” Law professor Susan Crawford calls Comcast a terrifying, hat-wearing hydra—and she’s looking for a Hercules to cut it down to size. Harold Feld of Public [...]

  7. [...] most these regions, Comcast’s market power reigns uncontested, with few to no other companies vying to compete with the cable giant for this package of services. [...]

  8. [...] is also in the television business, causing many a public interest advocate to see this action as: an anti-competitive move, and just the sort of thing that happens when there are no: network neutrality protections for [...]

  9. [...] Crawford writes that Comcast is even trying to control which modems its customers use by refusing to certify cheaper Zoom modems for its own network. She writes, “Look, these may [...]

  10. [...] Bad Timing: Comcast, NN, Cable Models, and NBC-U [...]

  11. [...] and forth prompted law professor Susan Crawford to cut through the crap and get to the point with some painfully pointy rhetorical questions. The takeaway from today: No market forces are constraining Comcast – or any of the other [...]

  12. [...] week a”turning point in US Internet policy.”Law professor Susan Crawford calls Comcast aterrifying, hat-wearing hydra—and she’s looking for a Hercules to cut it down to size. Harold Feld of Public [...]

  13. [...] the precise rules of engagement have never really been codified, at least formally. There are no government regulations in the U.S. or elsewhere: that govern such exchanges and no industry body exists to promulgate [...]

  14. [...] managers have opinions to share. Is Comcast breaking the web with an entirely unprecedented act of extortion, is this simply an obscure commercial dispute between two Internet giants, or is Level 3 trying to [...]

  15. [...] Bad Timing: Comcast, Netflix, NN, Cable Modems, and NBCU (Susan Crawford). Thanks for the idea of a hydra wearing hats! [...]

  16. [...] to be used by Comcast customers. The problem is that the agreement is secret. As Comcast becomes an ever more powerful internet monopoly, it will be able to dictate what equipment is manufactured and what content is made available on [...]

  17. [...] NY Times – Media Encoder Blog Ars Technica Susan Crawford [...]

  18. [...] managers have opinions to share. Is Comcast breaking the web with an entirely unprecedented act of extortion, is this simply an obscure commercial dispute between two Internet giants, or is Level 3 trying to [...]