Looks like the net neutrality posse thinks it has a Trojan horse it can use to penetrate the walls of Troy. According to an article in The New York Times, Level 3 Communications is whining about recurring fees it is being “forced” to pay to Comcast for delivering traffic from Netflix.
Netflix, known for delivering DVDs of your favorite movies to your home for cheap, is also in the streaming movie business. Because of its emerging business model, Netflix considers itself a competitor of Comcast’s on demand video delivery service.
Now, the last time I checked, Level 3 Communications was also a telecommunications company. Level 3 enters into interconnection agreements with other communications companies for the delivery of traffic. Given the other portion of its business model, ie., delivering media traffic, audio/video feeds, dedicated Internet access, Level 3 has to interconnect with other networks to bring its clients like Netflix any value. Level 3 also provides long distance and local service and as such it also receives interconnection fees from the termination of traffic on its network.
The other irony is that Public Knowledge has jumped into the fray, describing this incident as another example for why we need net neutrality. Public Knowledge can’t have it both ways. If the network neutrality posse wants the broadband Internet access ecosystem regulated under Title II, it means that there will be recurring fees for inter carrier compensation. As demand for video streaming increases, the cost for congestion caused by these services will be recovered in these fees and these fees will increase.
Level 3 knows this. Netflix knows this. So why is Level 3 whining? Well, have you seen their stock prices lately? They are practically a penny stock and definitely not the darling of the street. Level 3’s return on equity is -257%. Its return on assets is -0.90. Earnings per share is also negative, at -$0.46. In Street parlance, the company is a dog. The last thing they need are increased costs that may lead to further questioning of their company’s value.
So, rather than hide behind the bogus net neutrality argument, maybe Level 3 needs to focus more on operating efficiently and getting that bogus stock price up. Time to find a new Trojan horse because this dog don’t hunt.