"On November 22, after being informed by Comcast that its demand for payment was 'take it or leave it,' Level 3 agreed to the terms, under protest, in order to

"On November 22, after being informed by Comcast that its demand for payment was 'take it or leave it,' Level 3 agreed to the terms, under protest, in order to ensure customers did not experience any disruptions." Leave it. Level3 set a terrible precedent here by paying the shakedown money. Even with their subsequent complaints, they've now put Comcast in a much better position by implicitly acknowledging (whether true or not) that Comcast brings more value to the table by providing access to its subscriber base than content-providers bring to the table by supplying content to subscribers. Like the old Churchill story goes, "now we're just negotiating the price." (See PS #4 below for a more benign interpretation.) -- PS #1: Yes, of course it might have been expensive for them to play hardball here, with respect to the short-term harm it might cause their customers. That's exactly the point. By acknowledging that the harm to Comcast would be lower (which I actually doubt), they've significantly strengthened Comcast's position against other carriers and perhaps even with regulators. PS #2: Game theory would suggest that it's critical for Netflix to repel this assault now, even at the cost of short term pain. Once this precedence is established, Comcast will be able to extract nearly all of the profit from Netflix sales to Comcast customers. Each time Comcast raises the toll, it would be in Netflix's rational self interest to go along so long as they are still making some net profit on the channel (modulo opportunity costs and whatnot). PS #3: It's not uncommon for carriers to play hardball. The big Tier 1's have been trying to prevent the ascension of Cogent into their club for years, which (along with Cogent's aggressiveness) resulted in some nasty peering dispute stalemates in 2005 (with Level3) and 2008 (with Sprint), each time "breaking the internet." PS #4: It's also possible that Level3 is representing this as a net neutrality issue when in reality it's just a peering dispute. Traditionally local ISPs have had to pay for transit across the networks of the big carriers. When a local ISP becomes a large regional or national one (Comcast), they have enough leverage to extract no-charge ("settlement-free") peering agreements with most of the major carriers. This is probably the first case, though, of a cable-company ISP becoming large enough to extract transit fees from a big international carrier. That's noteworthy, but if it is content-neutral, it's still the way the internet has always worked.