Successful peering agreements and their inner workings usually don't get their own press releases, but not so today's settlement-free peering agreement between Level 3 Communications (NYSE:LVLT, news, filings) and TW Telecom (NASDAQ:TWTC, news, filings). But while it hasn't been in the news lately, Level 3 has been on the warpath regarding the way such agreements ought to be designed ever since the dispute with Comcast a couple years back.
In this agreement, tw telecom and Level 3 publicly agreed to a bit-mile model that sounds a lot like the one Level 3 has been pushing. It measures both the volume of traffic exchanged and the average distance that traffic is carried, and strives to balance the product of the two. Unlike the increasingly silly 'traffic ratio' metrics that are often seen, this one has a much more readily understood relationship to the underlying cost structure.
For Level 3, the benefit here is gaining a public ally for its proposed model. If bit-mile peering becomes the norm, it would make it easier for carriers to manage their traffic relationships as video traffic dwarfs everything else on the backbone. Since Level 3 owns the largest CDN of any carrier, it's something they care about a lot. The dispute with Comcast was never fully resolved, and could easily flare up again in some form.
On the other side, tw telecom gets an upgraded peering agreement for its IP backbone, which has never been the company's focus and according to Wikipedia had a paid peering relationship with Level 3 before now. tw telecom has always viewed IP transit as something that makes its metro fiber more valuable, and not so much the other way around. Their IP backbone may not be their main business, but it is nevertheless an important part of the company's cost structure.
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