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 Consumerist.com 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.
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