You might recall some time back I boldly suggested that one way CSPs could start generating revenues from internet traffic was to charge other ISPs or CSPs that were transiting their network, much like interconnect works in the voice world. A fascinating email has arrived in my mailbox from Dave Burstein, editor and publisher of Dave is ‘the voice’ of internet news and what he had to report will send shivers down many CSP spines.

According to Burstein, Comcast, America’s largest broadband provider, has (excuse the pun) cast the first stone at none other than Level 3, one of the largest Internet backbones in the world, by demanding a fee from them to deliver Internet video to Comcast subscribers.

Level 3 Communication issued the following statement:

“”On November 19, 2010, Comcast informed Level 3 that, for the first time, it will demand a recurring fee from Level 3 to transmit Internet online movies and other content to Comcast’s customers who request such content. 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. This action by Comcast threatens the open Internet and is a clear abuse of the dominant control that Comcast exerts in broadband access markets as the nation’s largest cable provider.

“On November 22, after being informed by Comcast that its demand for payment was ‘take it or leave it,’ Level 3 agreed to the terms, under protest, in order to ensure customers did not experience any disruptions.

” Level 3 operates one of several broadband backbone networks, which are part of the Internet and which independent providers of online content use to transmit movies, sports, games and other entertainment to consumers. When a Comcast customer requests such content, for example an online movie or game, Level 3 transmits the content to Comcast for delivery to consumers.

““Level 3 believes Comcast’s current position violates the spirit and letter of the FCC’s proposed Internet Policy principles and other regulations and statutes, as well as Comcast’s previous public statements about favoring an open Internet.

“While the network neutrality debate in Washington has focused on what actions a broadband access provider might take to filter, prioritize or manage content requested by its subscribers, Comcast’s decision goes well beyond this. With this action, Comcast is preventing competing content from ever being delivered to Comcast’s subscribers at all, unless Comcast’s unilaterally-determined toll is paid – even though Comcast’s subscribers requested the content. With this action, Comcast demonstrates the risk of a ‘closed’ Internet, where a retail broadband Internet access provider decides whether and how their subscribers interact with content.

“”Given Comcast’’s currently stated position, we are approaching regulators and policy makers and asking them to take quick action to ensure that a fair, open and innovative Internet does not become a closed network controlled by a few institutions with dominant market power that have the means, motive and opportunity to economically discriminate between favored and disfavored content.“

Comcast says:

“What Level 3 wants is to pressure Comcast into accepting more than a twofold increase in the amount of traffic Level 3 delivers onto Comcast’s network — for free. In other words, Level 3 wants to compete with other Content Delivery Network (CDNs), but pass all the costs of that business on Comcast and Comcast’s customers, instead of Level 3 and its customers.

“Level 3’s position is duplicitous. When another network provider tried to pass traffic onto Level 3 this way, Level 3 said this is not the way settlement-free peering works in the Internet world. When traffic is way out of balance, Level 3 said, it will insist on a commercially negotiated solution.

“Now, Level 3 proposes to send traffic to Comcast at a 5:1 ratio over what Comcast sends to Level 3, so Comcast is proposing  the same type of commercial solution endorsed by Level 3. Comcast is meeting with Level 3 later this week for that purpose.

“We are happy to maintain a balanced, no-cost traffic exchange with Level 3. However, when one provider exploits this type of relationship by pushing the burden of massive traffic growth onto the other provider and its customers, we believe this is not fair.

Although both side claim to be keen to reach an amicable solution one wonders what may have triggered the motion in the first place. More disturbing are the implications on ‘free’ internet traffic and net neutrality. Comcast is a dominant player enjoying strong margins that sees delivery of video over its network potentially erosive and a heavy use of resources without any associated incremental revenue.

It may also set a precedent that others will attempt to follow. This might be great news for CSPs that are transiting or terminating large volumes of data traffic but for others it may be a nightmare to monitor and bill for. Of course, someone will have to pay and that will most likely fall on the consumer in due course. Whatever the case, we are in for some very interesting debate in the coming weeks.