Comcast and Level 3 feud over Internet

There's an interesting battle shaping up between cable giant Comcast and Level 3, a networking company that provides some infrastructure for the cable giant's high-speed Internet service.

I won't go into all the gory details here, but it involves Internet backbones, Net neutrality—the concept of a free, open Internet—and more. For the full scoop, check out this excellent summary from The New York Times and the statements issued by Comcast and Level 3 executives.

In a nutshell, Comcast claims Level 3 is hogging too much bandwidth. Not coincidentally, Level 3 signed up Netflix as a client just last month. Hmmm. Level 3 contends that Comcast's demand for more money amounts to "a toll booth" controlling access to content that competes with Comcast's own programming. Level 3 has agreed to pay the higher fees but is asking the government to sort this out. In the meantime, at least, subscribers aren't being asked to foot the bill, as they sometimes are when service providers feud over money.

Interestingly, all this is taking place as Comcast is fighting for FCC approval for its acquisition of NBC Universal, a move that Consumers Union, our parent company, questions.

All of this raises intriguing issues about who's using how much of the Internet bandwidth, both upstream (providing content) and downstream (viewing it); whether providers and users should pay by the amount they consume; and who makes the call on that.

There's no question Netflix floods the pipes. As you might have heard, a study found that its streaming services account for fully 20 percent of all Internet downstream traffic during peak times. Netflix is pushing streaming big-time, putting less emphasis on the DVD delivery that got it started. You can now sign up for a streaming-only plan for $7.99 a month. Subscribers have ardently embraced streaming: Netflix says 61 percent of its 15 million subscribers streamed movies and TV episodes in the second quarter, up from only 37 percent a year earlier.

I doubt any cable or satellite company is thrilled about the growing popularity of streaming videos. Theoretically, viewers can cut the cord to paid TV service and rely solely on Internet streaming for their entertainment. However, a recent study cited by TV Predictions shows that only 1 percent of consumers have dropped a paid service and gone all Internet, and less than 3 percent of consumers overall rely solely on Web content for their entertainment. Many if not most viewers use Netflix and rival services mostly for movies, rather than as a primary source of TV programming.

But still, if you're willing to settle for a limited selection of TV episodes, often a step or even a season behind the live feeds, and supplement that with over-the-air HD broadcasts of the major networks, you can get by paying $8 a month to Netflix rather than $75 to $100 or more to your cable or satellite company. Of course, you'll still have to pay for broadband access, and don't be surprised if costs jump for subscribers who don't also have TV service.

It's ironic that the cable companies are the ones enabling the competition to reach your TV, isn't it? What's your take on the situation? Scroll down to the comments section below and share your opinions.

—Eileen McCooey