Level 3 and Zoom Telephonics Challenge Comcast on Fees and Policies

ComcastInvestors will be watching Comcast Communications (CMCSA) shares closely on Tuesday after news of disputes with two of its partners surfaced late Monday.

Level 3 Communications (LVLT) issued a statement condemning Comcast's move to charge a fee for Level 3 to deliver its content to Comcast customers. And cable modem supplier Zoom Telephonics (ZMTP) filed a complaint with the Federal Communications Commission alleging that Comcast is using an equipment-certification program to prevent subscribers from attaching modems to Comcast's network. Both disputes accuse Comcast of using its position as the nation's largest cable system to restrict the open nature of the Internet.

"The Risk of a 'Closed' Internet"

In its statement, Level 3 said it agreed to Comcast's "take it or leave it" terms under protest in order to ensure that its customers didn't experience disruptions in delivery of the movies, sports programming, games and other entertainment that Level 3 provides. The company also said it would be taking the issue of Comcast's actions to regulators.

"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," the statement read.

"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."

"Trying to Gain an Unfair Business Advantage"

Zoom Telephonics' complaint charges that Comcast has implemented a modem-testing regime that has nothing to do with ensuring its systems are not harmed by customer modems. It alleges that Comcast instead is focusing on things such as a modem's weight, labeling and packaging as well as its physical appearance following the application of various substances, such as waxes. It also charges Comcast with requiring cable modem manufacturers to pay a fee for Comcast personnel to conduct site inspections at the manufacturer's facility, with business-class airfare and expensive hotels also paid for by the manufacturer.

In a statement Zoom President and CEO Frank Manning said: "If Comcast's testing regime is allowed to stand, the availability of cable modems from retailers in the United States will be restricted; and that will affect anyone who wants to save money by buying a cable modem instead of leasing one from a cable operator, no matter which operator's service a customer uses."

In a blog post on its Comcast Voices site, Senior VP Joe Waz wrote in response to Level 3's complaint: "Level 3 has inaccurately portrayed the commercial negotiations between it and Comcast. These discussions have nothing to do with Level 3's desire to distribute different types of network traffic. . . . Level 3 is trying to gain an unfair business advantage over its [content delivery network] competitors by claiming it's entitled to be treated differently and trying to force Comcast to give Level 3 unlimited and highly imbalanced traffic and shift all the cost onto Comcast and its customers."

Investors are likely to weigh in on the controversy during Tuesday's trading, and afterward.


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