Comcast/Level 3 Fight Is the Fix: Tech Edge

NEW YORK (TheStreet) -- Comcast's(CMCSA) so-called video tax on Level 3(LVLT) might be a sign that the streaming media industry has found a workable fee agreement.

Ten days ago, Level 3 acquiesced to Comcast's request for a recurring fee to deliver Internet video. Then Monday, Level 3 protested the deal.

Commerce comes first, it seems. Complaints about open Internet policy (read: Net neutrality) apparently come second.

Level 3, mindful that Comcast is under review for its merger with NBC Universal(NBCU), said in a statement that it wants regulators 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."

But regulators might just applaud the fact that two industry giants have actually come to terms on something without any federal intervention.

"Clearly Comcast felt it was in the right, knowing they had the NBC Universal review pending," said Bay Bridge Capital's Blake Bath.

Network operators have two types of traffic agreements. One is symmetrical, meaning two companies agree that the amount of traffic each handles is roughly equal and therefore the costs are off-setting. The other is asymmetrical, meaning one side uses more than the other. To compensate, there is a fee agreement.

Until recently, Comcast was paying Level 3 to handle its Internet backbone traffic. But following Level 3's recent Netflix(NFLX) deal, the ratio has flipped, putting Level 3 traffic at a five-to-one higher rate than Comcast's. At least, that's what Comcast thinks.

"This is far from the first case of this kind. Negotiations about asymmetrical traffic exchanges are routine," said Bernstein analyst Craig Moffett. "What's new is Level 3's attempt to cast this as a Net neutrality issue."

If regulators ignore the complaint and recognize the agreement, Comcast and other last-mile Net players like Time Warner Cable(TWC), Cablevision(CVC) and even AT&T(T) and Verizon(VZ) may sidestep the political battle and just collect tolls like happy superhighway operators.

--Written by Scott Moritz in New York.

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Editor's note: "Tech Edge" is a blog written and compiled by Scott Moritz, TheStreet's senior tech correspondent. The blog explores behind-the-scenes tech news, rumors and reports that Wall Street folks are talking about.

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