Behind the Level 3- Comcast Peering Settlement

In one of the shortest press releases ever issued, Level 3 and Comcast yesterday said they have “resolved their prior interconnect dispute on mutually satisfactory terms.” Details will not be released, the companies said.

Internet peering has become a contentious issue cloaked in more secrecy than ever since Netflix began streaming video over the Internet a few years ago. That service has been hugely popular and was key to Level 3 and Comcast’s initial dispute, which dates back to 2010.

At that time Comcast told Level 3 it would no longer exchange Internet traffic for free. Netflix had just started to take off and Level 3 was a key backbone provider for Netflix. Accordingly Level 3 was sending more traffic to Comcast than Comcast was sending to Level 3 and Comcast wanted compensation. And it didn’t help that Neflix’s streaming service was a direct competitor to Comcast’s paid video services.

Since then a few things have changed.

Network operators have realized that a good way of minimizing the amount of traffic that has to flow across backbone networks to support streaming video is to store popular content closer to end users, minimizing the distance the content has to travel.

Netflix earlier this year launched a program called Open Connect through which the company puts servers in broadband provider point of presence in exchange for free peering – and only broadband providers participating in that program can get Netflix’s Super HD content. At last count at least two cable companies had agreed to this but others, including Comcast, had not been able to come to an agreement with Netflix.

Some broadband providers think they should get paid for allowing content providers to put servers in their points of presence. An example is Verizon’s Partner Ports program.

Verizon has been involved in its own dispute related to peering and Netflix. Netflix currently uses several backbone providers, including Cogent Communications – and Cogent has accused Verizon of delaying upgrades to the ports through which the two companies exchange Internet traffic. Like Comcast, Verizon offers paid video services that compete with the Netflix streaming offering.

I suspect the resolution of the Level 3 and Comcast dispute involved some sort of network re-engineering. There is a possibility that this included the use of servers at Comcast points of presence – or short of that, it may have involved a network architecture similar to what Level 3 advocates in its own peering policy that ensures a minimum number of geographically disperse exchange points.

At least two carriers – including TWTelecom and XO Communications – have agreed to exchange traffic for free with Level 3 based on this policy. But neither of them specializes in residential broadband. Accordingly it’s unlikely that either of those carriers is seeing the level of traffic imbalance that companies like Verizon and Comcast are seeing.

It would appear to be in both Comcast’s and Level 3’s best interests to move to that sort of network design and to maintain adequate port speeds, however. If both companies can justify the investment, that approach should give end users better service and minimize overall transport costs. What isn’t clear is whether Comcast was willing to make that investment without some type of compensation.

Although the two companies aren’t talking about the agreement, the industry before long should have some good guesses about what may have happened based on surrounding events that occur. If each party found a way to satisfy the other’s demands, each will undoubtedly try the same terms and tactics on the next party it needs to negotiate with.