Until now, network neutrality was largely a theoretical concept, a solution without a problem. That era has ended. In a statement from Level 3 Communications (NYSE:LVLT, news, filings) today, it has emerged that Comcast (NASDAQ:CMCSA, news, filings) is formally demanding payment for movies delivered over its network from an internet backbone and CDN provider in response to its own users' clicks. The target of this action isn't really Level 3 of course, but rather Netflix (NASDAQ:NFLX, news, filings) and its brethren which have been making actual inroads recently by going over the top. Whether they have made similar requests of Limelight Networks (NASDAQ:LLNW, news, filings), Akamai (NASDAQ:AKAM, news, filings), and others isn't yet clear, however if they haven't yet then they surely will sooner or later.
By leveraging its position as a last mile provider and establishing such an obvious toll booth, Comcast is forcing the Network Neutrality issue. They're doing so at a time when the Obama administration is at its weakest following the mid-term election drubbing and a year of completely useless dithering by the FCC. And they're doing it not by cutting off (and pissing off) their own customers, but by attacking what may be at present the most vulnerable of the major backbones and CDNs, one which can't possibly fight back alone due to its debt position and resulting need for organic growth. None of these are coincidental, Comcast has clearly been planning this for a while.
And Level 3 has immediately knuckled under while appealing for regulatory intervention to prevent the closing of the internet. They will have to in some way pass on the costs to the content providers, but exactly how this money gets collected and transferred is unclear. After all, Comcast doesn't actually know what content was purchased or from whom when one of its customers buys a movie online and the bits start flowing. So who writes the bill and itemizes it before sending it to Level 3?
At least now we have swept away the fig leaf of 'reasonable network management'! Now we are left with a stark choice whether a last mile provider can unilaterally tax content that is in competition with its own services over that last mile. If they succeed, the obvious logical conclusion will be for AT&T and Verizon and the rest to follow suit, both for wired and wireless customers.
So what will Genachowski say? And the rest of the vocal proponents of network neutrality? And will the other internet backbones and CDNs follow Level 3's path or might someone like Akamai fight back more directly?