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Winning its bid to be a primary content delivery network for Netflix's (Nasdaq: NFLX  ) streaming service seemed like a godsend for Level 3 Communications (Nasdaq: LVLT  ) earlier this month.

Now it's time to pay the Comcast (Nasdaq: CMCSA  ) piper.

In an incident that skirts the thorny net neutrality issue, Level 3 is blasting Comcast's demands for recurring payments if it plans to stream Netflix movies to Comcast broadband customers.

"By taking this action, Comcast is effectively putting up a toll booth at the borders of its broadband Internet access network, enabling it to unilaterally decide how much to charge for content which competes with its own cable TV and Xfinity delivered content," Level 3 Chief Legal Officer Thomas Stortz claims in its press release.

Level 3 is reluctantly agreeing to the terms -- under protest -- as it hopes to stir up even more public hatred for the cable giant that readers voted the Worst Company in America this year.

This doesn't mean that Comcast isn't without its supporters. Digital Society's George Ou accuses Level 3 of trying to weasel its way out of a peering agreement with Comcast. Ou suggests that Level 3 was able to underbid rivals Akamai (Nasdaq: AKAM  ) and Limelight Networks (Nasdaq: LLNW  ) on the Netflix deal by baking in its ability to pilfer Comcast's bandwidth into its lowball price.

Hoping to take the high road, Comcast countered Level 3's claims in its blog yesterday by simply explaining the practice of peering. Defending its stance by pointing out how it's not necessarily a net neutrality issue may score it some style points, but it's going to be an uphill battle. I can't be the only one fed up with Comcast.

In short, this is going to get a lot messier before it clears up.

Netflix, whose shares hit all-time highs earlier this week, will hope that this issue is resolved quickly -- and quietly. It has suffered a few streaming outages of its own in recent weeks. The last thing it needs is for quarrelling third parties to interrupt its streams.

Stay alert, investors. The fisticuffs are just starting to fly.

Are you on the side of Level 3 or Comcast? Share your thoughts in the comment box below.

Akamai Technologies is a Motley Fool Rule Breakers recommendation. Netflix is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2010, at 2:13 PM, PhulishMortal wrote:

    I have to wonder if Comcast is cutting off its nose to spite its face. It is problems like this that will reignite the net neutrality debate and possibly lead to legislation.

  • Report this Comment On December 01, 2010, at 2:40 PM, Netteligent09 wrote:

    Dish and Comcast are the Worst Providers. Unfortunately, others are not much better.

  • Report this Comment On December 01, 2010, at 2:40 PM, yankeegil wrote:

    It costs money to lay cable and service it to bring

    hi speed internet service. When a group like

    Netflix and their service companies take over 20%

    of the available space to the exclusion of others, it

    is only fair to have them share in the cost of these

    better services that allow them to make huge



  • Report this Comment On December 01, 2010, at 3:57 PM, jumpstop wrote:

    Akamai, the previous Netflix provider, paid Comcast. L3 has made the same arguments as Comcast when other providers sent much more traffic over their network than they received.

    Now L3 is crying to the FCC and deceptively tying this to Net Neutrality. Don't get the government involved, work it out.

  • Report this Comment On December 01, 2010, at 4:21 PM, beauars wrote:

    I posted a similar comment on the comcast website. See if they publish it.

    If comcast were a 3rd party to the traffic, if the traffic went through their backbone to say, an AOL user, then sure, they should charge someone extra. But comcast users are the ones consuming the bandwidth and therefore comcast should bear the cost. Otherwise, they are expecting Level 3 to pay for Comcast's bandwidth. Doesn't make sense.

    Is it just me or does anyone else see Comcast as the next AOL? I don't plan to keep paying Comcast $150 per month much longer. Go Netflix! Start streaming more TV shows and live sports so I can cancel my Comcast subscription!

  • Report this Comment On December 01, 2010, at 4:30 PM, JJAlley wrote:

    I thought Comcast was bad too,until I signed up to VERIZON.Lord have mercy they have one screwed up company,the left hand doesn't know what the right hand is doing. The first year we signed a contract for the Fios internet for two years,We found out,without our consent they severed our copper land line and installed fios on it. We were upset to say the least as we did not sign up for it and our alarm company wasn't compatible with FIO's, I also have health problems and MUST have a reliable phone line,Cable lines are not reliable,they will tell you they are,but they are not,even with back up battery,our FIOS cable phone went out 2 times one time for a few hours the other for 4 days! It took me a year to get them to change this,but this was only after I wrote the FCC with a complaint,they wrote me back via a Verizon corp employee who works at the FCC as their( Verizons) rep,by this time they had one of their contacts Philly high level customer care reps talking with me , When their man at the FCC wrote me back he added fuel to my fire as he did not read all of my letter completely as my letter had stated the date day and year and attached copies of my emails and contract we signed , WITH the date and year, it CLEARLY showed was one year ago that the mistake was made and yet to be fixed.The Verizon FCC rep said in part in his letter,which was short and terse,he did not see what the big deal was, as it had only been a month since it was installed! The poorman whom they given my case was appalled. He was only one of maybe 3 out of maybe 50 or so employees we had dealt with over the year who were kind. The rest were hands down mean stupid or rude, Over that one year I was lied to by at least 5 people about the cable. phone.

    Said it was not possible to install copper once the line was cut,I was also told by more then 6 of them,why in the world would I want to have copper back? One asked me something like , 'are you for real lady? What have you been smoking! ' I KID YOU NOT, But after all this I guess I am a glutton for punishment and only wish I had the excuse ofr"smoking" something ... Comcast had to go, we were unhappy with some of the stuff that had been going on,their customer service had became really good we had never had a problem getting in touch,so there was no complaints there, it was their price and the paying for the high speed which really isn't that great,Fios has me hooked and is far cheeper.The bundled they offered was out of this world,so dummy me,I bit on it while someone most likely thought SUCKER! ...LONGER story short,They severed the line AGAIN and they installed the cable wrong so on a long holiday weekend we had no phone as THEY REALLY SEVERED IT and NO TV or Internet, it took one week and 4 trucks, 8 guys to get the cable working and another 2 weeks to get the phone fixed and 5 more trucks,THEN we still could not get the Boxes to DVR our shows and the number for our phone would not work for in coming calls for over a month,we still have not been given a refund for lost days of cable and phone,Also it should be noted Copper and Digital fios phone people cannot see each others pc screen so they cannot bring up ,your order or see what your problems are,you have to repeat to each person what the problem is,and then they have to switch back and forth from fios to copper techs to get the job done! This is why there is so much craziness at their consumer level and why the customer care people are so rude,who wants to be screamed at all day? ,they also close their costumer service at 7 pm and don ot work weekends! This is just a VERY few of the problems we have had ,we have never been compensated for our time or trouble,no freebees nothing offered nadda

  • Report this Comment On December 01, 2010, at 6:17 PM, CMFStan8331 wrote:

    The Comcast argument that this not a net neutrality issue escapes me. Comcast's customers pay for an Internet connection. Comcast steps in and says "whoa, if you want to use your Internet connection to stream Netflix, the company that sends out the Netflix streams has to pay us a special fee. Otherwise, you folks - our customers - are SOL".

    If Comcast wants to charge all its customers a higher fee, or a metered fee, they're free to do that. And those customers would in turn be free to switch a different ISP who offers them a better deal. What Comcast should NOT be free to do is erecting toll booths that give their cable service a competitive advantage versus other methods of delivering content.

  • Report this Comment On December 01, 2010, at 8:18 PM, tobernator1000 wrote:

    Net Neutrality is specifically about charging for specific content rather than charging for bandwidth in general. If Comcast says "You must pay X dollars to stream Netflix," that violates Net Neutrality. If Comcast says "You must pay X dollars to stream Y bytes of data," that does not violate Net Neutrality. Reasonable people recognize that bandwidth is a limited and costly resource, but the specific data that goes across a company's network doesn't change the cost. If a company charges a set price for bandwidth, that's just recognizing the costs associated with running a network and those costs can be set by the market. If a company sets a different price for one kind of data vs. another kind of data (Netflix vs email, for example), that's anti-competitive and should be prohibited by law.

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