The Struggle Over Interconnection and Peering Heats Up

March 21st, 2014 by · 17 Comments

This week has seen an escalation in the battle over net neutrality, as both content providers and transit networks are now demanding that the murky world of peering gets added to the agenda. While the original FCC net neutrality regulations never went past the last mile, ISPs have been applying pressure recently in the form of refusals to upgrade interconnections to relieve growing congestion. Their apparent aim? To get paid on both ends, by consumer and content, while forcibly cutting out the middlemen.  

Netflix’s Reed Hastings has taken the gloves off at last, going public with a strongly worded blog post yesterday.  While for now Netflix is paying for interconnection to Comcast and soon other last mile operators, Hastings is basically saying that he is doing so under protest while he waits for action.  He is explicitly calling this a toll, which is of course a fighting word when it comes to net neutrality.

Meanwhile, Cogent this week asked the FCC to reclassify broadband providers as common carriers, thus making all this easier to regulate. Cogent was one of the providers Netflix had been using to reach Comcast subscribers until performance dropped precipitously.  They’d have gone to the mat with Comcast if Netflix had a higher pain tolerance.  If they had, this would all have come to a head quickly, as the way traffic growth tends to be the congestion would have quickly turned into something much worse.

And of course earlier this week, Level 3’s Michael Mooney weighed in with a blog post likening the behavior of last mile operators to playing chicken with the internet. A major point Mooney made was that the tactic of using congestion as pressure doesn’t just slow down Netflix, it also may interrupt 911 VoIP calls and interfere with online commerce in various ways.  We use the internet in so many complex ways it isn’t that hard to break.

As for games chicken, I had a little fun with that myself calling for any chicken battles to be performed in the buff. Strangely I got few volunteers, but I have hopes for the future. But the point that I was trying to make is that one of the reasons the world of peering and interconnection is vulnerable to pressure in this form is that it is largely done with elbows in the dark. As a reader noted, sunlight is a powerful disinfectant, it must be part of the solution – if we ever find one.

Will other providers take sides too, or sit on the sidelines of the chicken match.  Akamai?  Large foreign ISPs with both their own last mile elsewhere in the world and a big transit backbone like Teliasonera and NTT?   Independents like GTT, Hurricane Electric?  Where is Google on all this anyway?  (Besides Kansas City!)

Is there any way to find middle ground here? Something we can all live with? Some metrics that can encourage innovation and investment at both ends of the network?  Because if we can’t find it, sooner or later someone’s going to let the internet break (not just bend) to make a point.

Right now we mainly have posturing, but little in the way of concrete proposals.  At least ‘free interconnection for all’ as Reed Hastings seems to be calling for is hopefully just a bargaining position, because it sounds like a can, nay a barrel, of worms.

Tom Wheeler, I wish you luck untangling this one. Better get those new net neutrality rules out there before someone lights a match out here.

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Categories: Government Regulations · ILECs, PTTs · Internet Backbones · Internet Traffic

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17 Comments So Far

  • mhammett says:

    Did NetFlix do any consumer education on the matter? Have they implemented a system that during piss poor network conditions, they prompt the user to call their service provider and specifically state, “Your network connection to X provider and Y location is specifically to blame for my current dissatisfaction. Fix it.”

    Taking customer support calls is far more expensive than upgrading interconnections or any money they’re making ff of video.

    • Rob Powell says:

      A very interesting thought…

      • I call my cable provider every time I get (repeated) buffering from Netflix or Pandora or YouTube. They have ZERO Clue. I doubt there is a way to track those tickets at the Duopoly to know when you have spent $100K on tech support. I even explain when they ask me to do those level 1 gyrations to forget it — it’s your pipe to content – not my last mile.

  • Cost Causation Lover says:

    Obviously I’ve said a lot about this issue on these pages over the years. (And I’ll have a lot more to say on this issue going forward.)

    It would be way too easy to gloat (which I’m doing here anyway) and say “i told you so.”

    If anyone thinks we are not heading towards a Switched Packet Access Regime (SPAR) similar to the one that was created for voice when Ma Bell was broken up, you clearly haven’t read your telecom history 101 books.

    The only question will be whether the Eyeball Owning Network Operators (EONOs) can achieve this state of nirvana SPAR outside the regulatory oversight that governed switched access. (I don’t think they will but EONOs will sure try to convince regulators “we can all get along just fine” w/o their intervention. I even think a few content players will believe they can do it w/o regulator intervention. They won’t think that for long when they hit that negotiation deadlock moment or after a few crappy deals get negotiated .)

    Rob, the model for your “naked chicken” already exists for network interconnection agreements under section 251/252 of the ’96 Telecom Act (TA96). Go to any state PUC/PSC/BPU and you will find those interconnection agreements (ICAs).

    If you think ILECs thought it was a great idea to make those agreements available for all to review I’ve got some great ISDN equipment for you to buy.

    TA96 compelled the ILECs to make those agreements available and even afforded a hotly contested but never thoroughly resolved “pick & choose” provision that permitted CLECs to adopt in their entirety or choose elements of those complete agreements.

    This battle is just picking up momentum. A key part of it will be CMCSA’s effort to keep the DOJ and FCC from extending the 2018 net neutrality condition in the NBCU/CMCSCA approval.

    Why is that so important? Extending that date to 2022, for example, makes it more challenging (but not impossible) for ATT, VZ and other EONOs to assess a SPAR on content providers. This is because the Content community will tell their users that they will pay a premium or have to charge for services they provide over networks on which the content community incur SPAR fees. Since only CMCSA is restricted from assessing them, the Content Community will tell their subscribers/users to sign up w/CMCSA to avoid fees.

    I’m sure I’ll have plenty more to say on this, but I’ve said enough for now.

  • disconnected says:

    I think we are missing the business reasons here. Comcast AT&T etc charge a flat monthly rate for internet service, it is not the 95% with bursting that business use. You get charged $50 etc per month for a open pipe that is rate limited.

    “ISPs sometimes point to data showing that Netflix members account for about 30% of peak residential Internet traffic, so the ISPs want us to share in their costs. But they don’t also offer for Netflix or similar services to share in the ISPs revenue, so cost-sharing makes no sense. When an ISP sells a consumer a 10 or 50 megabits-per-second Internet package, the consumer should get that rate, no matter where the data is coming from. ”

    Hasting would have a much better case if consumers were charges fees for data transmitted, i.e. a internet cell phone plan, because then the providers AT&T etc would be increasing their revenue.

    If one application is taking 30% of the traffic and choking and taking resources from other end users who are not using the that application, then I think they have a fair discussion to ask for additional fees.

    Do I want my Netflix rate to go up or do I want my ISP rate to go up. I would take the Netflix rate increase (should I choose to use their service) over a consumption based IP rate increase.

    Its a duel edge sword here, but I would rather pay the “tax” on specific applications that are bandwidth intensive than to my ISP.

    BTW I have AT&T Uverse for my ISP and use Netflix often..

    Just my thoughts..

    • Nope says:

      The EONOs set their own rates within the market. If *their* pricing structure isn’t working for *them*, then they should change it.

      As for whether this is a simple choice between paying more for bandwidth or content, here are some obvious replies:

      1) Charging content providers doesn’t solve the incentive problem that you describe.
      2) There’s a huge hole in the “content creator pays” model. What if Netflix moved to a distributed distribution model, like BitTorrent?
      3) Charging for content reduces innovation in countless ways covered elsewhere.

      The model advocated by the network operators replaces a model that *they* broke (and can fix) with one that’s truly broken — in a way that advantages them at the expense of everyone else — and that’s why they’re fighting to tear down the system that’s brought us to this point.

    • Cost Causation Lover says:

      Disconnected, why charge NFLX? The NFLX subscribers requested the data (e.g., the movie). NFLX is merely doing what every content provider has done since the advent of the internet — delivering the content the user asked and, in some cases, paid for.

      CMCSA, T, VZ, etc. should charge you, the cost causer. That may sound like I want internet access rates to go up. I don’t. I repeat, I don’t want internet rates to go up. But if they do, a new entrant must know what rates they can charge prospective subscribers so they can build a business case and raise money to build a competing ISP.

      Why should a new entrant know what rates he can charge? Let’s take a step back before addressing that. For starters in virtually every fixed line market you have an effective oligopoly (if not duopoly) for internet service. The oligopolist’s are incentivized to keep new entrants out of the market. The most effective way to achieve that is by distorting the economics so that a new entrant can’t generate enough revenue to justify a build out. The best way oligopolists can distort the economics is to hide the sources of revenue and utilize cross-subsidies (e.g., content packet charges) to make entry impossible.

      Because no data packet can move from content provider to subscriber (and vice versa) w/o transiting through an EONO’s network, the EONO can seek rent from one or both.

      If EONOs decide to start charging content providers, they’re essentially redefining the internet. They can certainly do this, but let’s call it what it is.

      This also becomes quite arbitrary b/c EONOs also own their own content (e.g., CMCSA owns NBCU). Do we now require some type of imputation rule where NBCU must pay their sister company CMCSA to deliver the content when a subscriber watches online a CNBC or NBC newsclip? Or do we say there’s nothing wrong with this vertical integration and if CMCSA wants to charge Bloomberg a fee but not assess the same one on CNBC for streaming content, that’s their prerogative? If they must “impute” that charge on CNBC, who polices it? Does it even matter because the money simply moves from one CMCSA division to the other. Doesn’t this incentivize the EONO to set the the access fee to the highest possible level they can get away with?

      The best way to avoid EONOs from gaming the scenario described above is to charge the subscriber for the content they consume.

      If Eyeball Owning Network Operators (EONOs) can cross-subsidize their subscriber rates by assessing content providers with an access charge, the resulting low subscriber rates will keep new entrants out of the market which is exactly the outcome EONOs want to maintain. An ancillary benefit of the content access fees is that it will harm (meaning raise the costs of) content providers unaffiliated with the EONO.

      • Nope says:

        Really interesting point — hadn’t considered that issue before.

      • This wouldn’t really be a problem if there was in fact competition. A Duopoly is never going to work, unless it is a rate regulated utility.

        • Cost Causation Lover says:

          Pete, I agree. That’s my point. In most markets there is pretty much an EONO duopoly on fixed lines. (Wireless is a different issue. Wireless throughput is not a reasonable substitutes for fixed line EONOs.)

          But the government can’t mandate more competition. Of course, if they stopped approving all these horizontal mergers, we actually might see an EONO in one market enter a neighboring market, but that’s a topic for another day.

          Although the government can’t force more competition, they can and must create an environment that fosters it. Permitting EONOs to cross-subsidize subscriber rates with content provider paid access fees is a sure-fire way NOT to enable/foster competitive entry.

          • mhammett says:

            What about fixed wireless? 😉

            • Cost Causation Lover says:

              Sadly fixed wireless hasn’t reached the point where it’s a reasonable subsitute for the fixed wireline solutions. I wish it were. I had hoped by now WiMax would have developed to the point where it could compete. I’m not aware of any WiMax players in any NFL cities offering a high speed internet service for consumers. Are there any?

              • mhammett says:

                Some went to WiMax, but most providers (there are about 2,000 of them in the US) use proprietary equipment by Cambium Networks (formerly Motorola), Ubiquiti Networks and Mikrotik.

                Most fixed wireless providers have abandoned traditional residential service in the NFL cities. Pretty much all of the cable companies deliver a product with good value, though some are better than others. They go after smaller towns and rural areas, businesses, multi-tenant facilities, etc.

                • Cost Causation Lover says:

                  Again, that’s my point. Fixed wireless technology has not yet proven to be a reasonable substitute for DSL, FIOS, cable modem, etc. Also, Broadband over Power Lines (BPL) has been a near failure.

                  At the price point consumers currently pay for internet access, those other technologies may not be profitable. However, if the EONOs begin charging content providers an access fee that is ultimately passed on to consumers in the form of higher or new content subscription fees, the actual monthly amount a consumer pays directly for internet access AND, indirectly for content will be much higher.

                  In short, with the access fees collected from the content providers, the EONOs can subsidize internet subscriber rates (and keep them artificially low). Unfortunately, the subsidy keeps the above-referenced alternative internet technology solutions out of the market.

  • disconnected says:

    Great points… Thanks for adding.. more food for thought..

  • mhammett says:

    @Cost Causation Lover

    It’s a viable alternative in most situations to DSL. It won’t beat cable and fiber on a single-unit basis. It can in multi-tenant facilities.

    Yeah, BPL was doomed since the beginning. Terrible idea.

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