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Level 3 Spat Could Affect Comcast-NBCU Merger Approval Level 3 Spat Could Affect Comcast-NBCU Merger Approval

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Level 3 Spat Could Affect Comcast-NBCU Merger Approval

The investment firm Stifel Nicolaus said Tuesday that a dispute involving a new fee Level 3 says Comcast has imposed for transmitting online movies and other content could hamper Comcast's push to gain regulatory approval by the end of the year for its merger with NBC Universal.

Level 3, a broadband Internet backbone provider, said Monday that Comcast had informed the firm earlier this month that it would impose a "recurring fee" for transmitting online moves and other content to Comcast customers who request such content. The new fee was imposed soon after Level 3 announced it had inked a deal with Netflix to serve as its primary content delivery network for streaming movies over the Internet and also will provide storage for the Netflix library of content.

"By taking this action, 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," Level 3 Chief Legal Officer Thomas Stortz said in a statement Monday. "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."

Comcast Senior Vice President Joe Waz shot back with his own statement saying that Level 3 has "misportrayed" its negotiations with Comcast and has offered Level 3 the same terms as it offers the firm's content delivery network competitors. He argued that Level 3 is trying to "undercut" its competitors and get Comcast to accept a "more than a twofold increase in the amount of traffic Level 3 delivers onto Comcast's network -- for free."

Stifel Nicolaus said in a research note that it is still "sorting through the allegations and their potential fallout, but they come at a bad time for Comcast, and unless they're definitively and quickly knocked down or explained away, they could further complicate its push to receive final regulatory approval for the NBCU deal by year-end," the investment firm said.

It also noted that the controversy could have implications for the ongoing debate at the FCC about whether to approve network neutrality rules, which would bar broadband providers from discriminating against Internet content, services or applications. The controversy "raises the question of why Comcast picked this moment to impose the new charge, which if nothing else could muddy the merger review and net neutrality proceeding," Stifel Nicolaus added.

Meanwhile, public interest groups are using the controversy to pressure the FCC to block the Comcast-NBCU deal and to move forward on net neutrality rules. The Progressive Change Campaign Committee said Tuesday that it will run online ads urging the FCC to act on net neutrality and is urging supporters to sign an online petition.

"This outrageous abuse of power by Comcast comes on the very week that President Obama's FCC chairman, Julius Genachowski, will announce whether he'll fulfill Obama's promise to protect the open Internet and net neutrality -- which would prevent this type of corporate abuse," the group said in its e-mail alert to supporters.

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