Couple of points: Comcast isn't buying bandwidth from Level 3. "Settlement-free peering" means no money is exchanged. The reason they don't charge each other is because it is mutually beneficial; Comcast gets to charge it's customers for access to content that passes through Level 3 and Level 3 gets to charge it's customers for access to the Comcast subscribers.

The problem is that there is only a market solution for the Level 3 customers' side; if Level 3 can't accept all the traffic that their customers are sending it, they have other options with who to connect to, as there are other backbone providers. It is in their financial interest to maintain their network capacity, or their clients will go elsewhere.

Comcast, on the other hand, has no market pressure. If they can't handle all the data that their customers are trying to access, their customers have no other option. They are stuck with Comcast.

And therein lies the rub; what both Level 3's and Comcast's customers want is access to each other. Neither company can provide that service on their own; Comcast doesn't have a global network that can send data around the world, while Level 3 doesn't have a last-mile network that connects to all the end users. However, only Level 3 has to worry about losing its customers to a competitor. Comcast can essentially hold all parties hostage; they can demand payments from every party: end users, Level 3, and Level 3's customers. Of course, holding everyone hostage hurts everyone, including their own customers; however, since their customers have no other options, they aren't really in danger of losing them. They can hold out longer than Level 3 can, because if Level 3 doesn't agree to pay Comcast's ransom, someone else might, and Level 3 will lose their customers to whoever pays Comcast's ransom.

> "It seems like it would be great if they could figure out a mutually beneficial situation, but I guess I fail to see the moral hazard."

This article in particular is making the argument that at the level that L3, Comcast, AT&T, Netflix and others are operating, it's almost always mutually beneficial to peer. The article also makes the point that the capital expenditure is negligible compared to the benefit to both sides.

The moral hazard here is that Comcast is (shrewdly) taking the bet that their customers won't blame them for what appears to be Netflix's reduced performance. If there was actual competition in the local ISP space, customers would catch on that the performance is only worse on Comcast's network, but that's not the world we live in.

> Barring, of course, the monopoly argument, I see no moral hazard here.

You can't just ignore the monopoly argument. There's nothing inherently unfair about a monopoly, but if you use it to extort money from people then its no surprise that people call you out on it. In the Good Old Days, you'd see monopolies try to squash their competitors. This is more nuanced than that. Monopolistic-extortion-action-at-a-distance, if you will.

There's a huge problem with the monopoly status of Comcast in this case: I'd dump an ISP for not quickly (ie, in a 3-4 month span) working something out with Netflix if I could.

Comcast's monopoly status is greatly impacting their negotiating position, and is core to this issue.

I mean, I'm trying to get a deal worked out with Netflix where they send me some information. For various technical reasons, this deal needs to go through a couple middlemen. Literally the only middleman I can hire is refusing to work out a deal with them that doesn't give an unusual benefit to that middleman (while Netflix's middleman is offering the standard package), and is screwing me in the process. I'd take literally any other middleman if I could, but this particular middleman has political connections, and stops that from being possible.

If the ISP is letting a connection become saturated in order to place pressure on a third party provider to provide settlement, they are doing so at the cost of any other providers running over those trunks. Since switching to AT&T, I've noticed decreased Netflix performance and sometimes Imgur loads like I'm on dial-up again. I haven't checked the routes but it has me wondering if it's shared congestion. To your point, I'm not sure this is a moral hazard yet but it does seem like one of those things that could be very bad for the customer and the ISP can simply get away with it due to lack of competition.

> I also see no reason that this has anything to do with net neutrality. It seems like Netflix is simply so big they have to act more like an ISP than they used to.

When Comcast let links to peers get saturated it is a network neutrality issue. Those services they provide will perform and competitors will not. Those who pay for access will also perform better than those who don't pay. It is by definition not neutral.

There's nothing wrong with the action of not delivering traffic, except that it goes against the spirit of their contract with their customers and the obvious damage it will do to capitalism if their customers have no option to leave for a better company.