Cogent Gearing for Another Peering Battle

Dave Schaeffer knows he has a reputation in the telecom industry as a fighter. The Cogent CEO is not one to back down.

He and his company have taken on some global giants: Deutsche Telekom AG (NYSE: DT), Level 3 Communications Inc. (NYSE: LVLT), AOL Inc. (NYSE: AOL), and several more, in a battle to maintain its status as an Internet service provider, worthy of swapping Internet traffic as peers without additional charges. (See The Great Peering War Rages Again.)

Schaeffer is now ready for Cogent Communications Holdings Inc. (Nasdaq: CCOI) to engage in this familiar battle with Verizon Communications Inc. (NYSE: VZ) on behalf of its customer, Netflix Inc. (Nasdaq: NFLX), which this week is talking about what it says is a 14% drop in delivery speed of its video services over Verizon's FiOS network.

The issue is whether Verizon is being reasonable in refusing to upgrade the quality of the peering connection it makes with Cogent -- the primary but not exclusive Internet backbone provider for Netflix -- unless it receives more money for the higher and very asymmetrical traffic load the video service generates.

Schaeffer insists he doesn't like to fight, but, in an interview with Light Reading, he doesn't hesitate to offer what he considers a strong case for Cogent and Netflix to get better delivery from Verizon. Here are the highlights:

On why Cogent gets into all of these Internet battles:
"We have had more peering disputes than anyone," Schaeffer admits. "But that is because we have only one business, the Internet. Everybody else has multiple tiers of influence -- voice, wavelength services, private line, or even their own content. We are very one-dimensional; we are all about the Internet. I don't like to fight, but we fought when others didn't care that much. And we have prevailed every time. "

On how the process works:
A Verizon FiOS customer requests a movie, generating a data message Schaeffer agrees is quite small in terms of bits. That message is directed to Cogent's network to reach Netflix, which responds by directing transmission of the video content from one of its 13 global server farms over Cogent's Internet backbone, an average of 2,400 network miles to a connection point with Verizon, probably at a carrier hotel or similar interconnection site. From there, Schaeffer says, it travels an average 300 network miles over Verizon's facilities to the end customer's device. So from Schaeffer's perspective, Cogent is carrying eight times the amount of "bit miles" of traffic to deliver Netflix videos than Verizon, and Verizon is being paid for its 300 miles of video delivery by the end customer.

On the asymmetric nature of the traffic exchange:
Schaeffer admits his company is handing off a much higher volume of traffic -- all the bits needed to deliver a movie -- than Verizon sends over its facilities. "The nature of the customer bases and the products the two different companies sell creates an inherent traffic imbalance," he admits.

That isn't true with all of Cogent's operations. Cogent connects with more than 5,000 other networks that pay Schaeffer and crew to carry their traffic and with 50 network peers, such as Verizon, in operating 81,000 fiber miles of network.

What Verizon could do to address this issue:
The reported Netflix data proves that the latency is occurring in the peering router, where congestion has reached the point that dropped packets now represent 7% to 8% of the overall traffic, Schaeffer says. That degrades not just Netflix traffic but all traffic traversing those congested areas.

Normally, when a peering point approves 50% to 60% congestion, the peers agree to upgrade their equipment at that point to handle the higher volume, and each company incurs the same expense to do that, he adds, with the companies alternating turns paying the cross-connect vendor, often someone like Equinix, to handle that part of the connection. Verizon is refusing to do that upgrade, Schaeffer says, without higher fees.

The Cogent CEO insists Verizon could make the whole problem disappear at very low cost: one-thousandth of a cent per customer.

On why peering is still the best Internet model:
Schaeffer is willing to wade into the technical weeds, unlike many of his fellow CEOs, and he says continuing to let big networks share traffic as peers, so that the Internet continues to be able to route traffic over the best available path, is what works for everyone, not just Cogent. He also argues that, unlike other networks that treat traffic like "hot potatoes" and pass it off to other networks as soon as possible, Cogent takes a "cold potato" approach and carries that traffic as far as possible for its customers. Thus, Cogent, on average, carries eight times the "bit miles" of Netflix traffic than Verizon does, because that is the business for which it is being paid.

On this battle:
Netflix and Cogent will take their fight anywhere necessary, including the Federal Communications Commission (FCC) , other federal regulators, and state attorneys general, Schaeffer says. He does expect the FCC to consider peering issues as part of the next round of open Internet rules and discussions that the agency this week said it will undertake.

— Carol Wilson, Editor-at-Large, Light Reading

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joecook 2/24/2014 | 12:45:25 PM
Netflix Deal with Comcast Looks like Netflix finally decided to pay for the bandwidth they are using so much for the position Cogent had.
MarkC73 2/24/2014 | 11:31:25 AM
Re: NFLX postscript I just saw the recap on CNBC which makes sense they get the scoops from their parent company.  Vz Deal is probably just around the corner, story also announced on CNBC.  This is a loss for Cogent.
mendyk 2/23/2014 | 4:32:29 AM
NFLX postscript There's a report that NFLX and Comcast have reached some sort of peering agreement. This is the better way for NFLX to go -- through the front door.
mendyk 2/23/2014 | 3:23:06 AM
Re: Netflix should choose other suppliers Cogent/Netflix and Aereo aren't about the same technology issues, but they are linked because in both cases, the real business issue boils down to unfair use of resources. In the Netflix case, operators know they have to be able to support the massive influx of OTT video traffic, no matter the source. But why should NFLX and its ISP get what amounts to a free ride on someone else's investment? With Aereo, retransmission of content without paying a fee (but in turn charging users for that retrans service) seems like outright piracy -- although there's more than an even chance that the Aereo case will pass legal scrutiny. We've seen more than a fair share of disruptive technologies and services in the past two decades, and much of that has been for the better. Business models that hinge on unfair use of resources are not disruptive in a positive sense.
joecook 2/22/2014 | 10:19:33 PM
Re: Netflix should choose other suppliers You cannot look at this issue as just the interconnect point, the network is engineered and planned end to end, when the size of the itnerconnect is increased the planning engineer needs to understand where that traffic is going and make sure the whole IP network can handle the extra capacity.  This means everything, the metro ring, the Optical Long Haul Network, the large core IP routers etc.  Historically if you look at the Public IP bandwidth growth it has far outpaced the amount of revenue the carrriers can get in return for their investment.  The original internet was based on best effort and we have come a long way since then but the peering arrangements still require that the major carriers carry large amounts of traffic without any direct compensation.
brookseven 2/22/2014 | 5:07:13 PM
Re: Netflix should choose other suppliers  



I have looked at the high water mark of the queue counters on the internal queues of FiOS Access systems.  The biggest number of items stored in any system at any time on any blade was 2.  That's right 2.

Have you ever actually looked at the queue measurement depth of an in use DSLAM or OLT?

The router network might - might have some congestion.  Of course, that is NOT the Access Network.


joecook 2/22/2014 | 11:16:01 AM
Re: Netflix should choose other suppliers There are some access network that run fully utilized it really depends on the metro area busy time of the day etc.  The issue here is really one of fair trade, peering is based on trading traffic, basically if I carry 1Gbs of your traffic then you should carry 1Gbs on my traffic not 1Kbs.  The IP backbone capacity and the ability to carry peak traffic load is what cost the big buck that the OTT players do not want to invest in.
mendyk 2/22/2014 | 5:24:33 AM
Re: Disengenuous FakeM -- You seem to know this business better than I do. I'll stand by my semi-informed take that NFLX is taking advantage of outdated arrangements to make its business model work. It's not a situation that any network operator is happy about. Nobody likes freeloaders, especially ones that grab most of the vittles under a warped sense of entitlement.
brookseven 2/21/2014 | 5:49:43 PM
Re: Disengenuous I don't see this as black and white for either side. I think saying Verizon is disingenuous about it is partially true. I also think we have traffic conditions and business models that were not envisioned even 5 years ago. I have a political principle that might apply here. This principle deals with the times when we have actual conflicting rights and it's called "The Principle of Maximum Unhappiness". In this idea if any party is happy then we are probably wrong and end to make sure all sides are somewhat unhappy with how the baby gets split. Making sure everyone is happy seems impossible. Making sure everyone is unhappy seems feasible. Seven
Mitch Wagner 2/21/2014 | 2:49:50 PM
Re: Disengenuous mendyk -  Netflix support is not a goodwill issue for Verizon. It's a competitive advantage for them.

Or rather it's table stakes. If the carrier does not offer Netflix, customers will take their business elsewhere.
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