Net Neutrality

Interconnect Deals Bear Net Neutrality's Stamp

Conveniently ahead of June 12, the date when the FCC's new Open Internet rules are scheduled to take effect, several major ISPs have signed new multi-year interconnection deals with middle-mile network operators.

The terms of the deals have not been disclosed. But the fact that the companies involved have signed agreements means they are working together to try to eliminate traffic bottlenecks and help data flow more smoothly from one network to another.

Most recently, AT&T Inc. (NYSE: T), Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Verizon Communications Inc. (NYSE: VZ) have all signed deals with Level 3 Communications Inc. (NYSE: LVLT). Verizon has also signed an agreement with Cogent Communications Holdings Inc. (Nasdaq: CCOI).

Interconnection deals have come under intense scrutiny in the wake of very public arguments about who is responsible for making sure that connection points have the capacity to handle escalating online video traffic. In 2014, several large service providers signed deals to connect directly with Netflix Inc. (Nasdaq: NFLX), which has been the cause of much of the downstream traffic overload. (See Why Netflix Traffic Keeps Soaring and Netflix Adds AT&T to Pay-to-Peer List.)

However, those Netflix agreements -- while taking Netflix traffic off the table -- didn't entirely address the issues between ISPs and edge providers like Level 3 and Cogent. Nor did they solve the remaining problem of what to do when downstream traffic still heavily outweighs traffic flowing in the opposite direction.

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Service providers can argue that middle-mile network companies should pay them money to interconnect because of the imbalance in traffic flows. Yet those middle-mile companies also want assurances that they're not taking on more than their fair share of the economic burden.

In net neutrality terms, the debate is about whether ISPs are imposing an unjust toll on online content, given that they already collect subscription fees from consumers.

And that's how the story works its way back around to the new Open Internet rules.

As part of the Open Internet ruling, Federal Communications Commission (FCC) Chairman Tom Wheeler said the agency will now review interconnection agreements to determine whether they are "just and reasonable." By signing new deals with Level 3 and Cogent, ISPs may be hoping to avoid pressure from the FCC, which could decide that they're extracting unfair fees for interconnection service. (See FCC Vote Shows Net Neutrality Strains.)

There's another tricky angle, however. Even with independent oversight, it may be difficult from the outside to determine when someone is acting unfairly in interconnection negotiations. That's because there's often no easy way to understand and prove who (or what) is responsible when Internet quality is degraded.

The group Battle for the Net recently unveiled an Internet Health Test that's supposed to check for service degradation in traffic flowing between individual ISPs and several of their interconnection partners. Over time, the group hopes that if enough consumers test their connections, the data will start to reveal if there are any patterns of poor performance.

On the one hand, the approach is a good one. Rob Malnati, vice president of marketing at Cedexis , a company that also uses real user data to measure Internet performance (Cedexis calls it real user measurements, or RUM), explained that the Internet Health Test could paint an accurate picture of performance at specific interconnection points if enough consumers participate. (See Hey, FCC: Cedexis Has That Peering Data You Need.)

On the other hand, it would still be hard to tell just from that data why a particular link might be underperforming at any given time. It would also be hard to tie financial responsibility to performance at the interconnection site both because the nature of the failure could be unclear, and because the terms of the agreement are unknown to outside parties. For example, an interconnection deal could be taking into account just a peering relationship -- where an ISP only passes data on to the subscribers it has direct access to -- or it might also cover the transit costs of carrying data to users who can only be reached through connections to other networks.

Interconnection agreements have always been hard to assess because the negotiations take place behind closed doors. But that's not where the murkiness ends. If the FCC does have to wade into the process in response to complaints, it could get very complicated very quickly.

Right now, ISPs appear keen to avoid that possibility. The question is whether they'll be able to continue working out their differences with edge providers, or whether it's only a matter of time before public fights between the two flare up again.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

Owner30815 5/29/2015 | 11:54:17 PM
Net Neutrality or a Closed Rent-Seeking Window? The notion that ISPs have an incentive, based on relative bargaining power, to degrade interconnection quality (or raise prices for interconnection facilities) has been theorized since the beginning of the commercial Internet--though it has never been demonstrated, even given wide disparities in relative market share. 

In the only instance the theory went to court (a Cogent complaint against France Telecom), the court agreed with the French competition authority, and held that there was no quality distinction between direct interconnection and Internet transit. Thus, the idea that any on party holds "market power" with respect to interconnection has been impossible to reconcile with the way the Internet really works.  Today, I wrote this blog looking for the historical evidence of dominant ISP interconnection discrimination.  http://bit.ly/1FkphXM

Instead of the threat of Net Neutrality complaints, I suspect you are seeing the recognition by the parties seeking regulatory advantage (unsuccessfully, so far) that the opportunities for the FCC to replace the Internet dynamic of mutually-beneficial, negotiated, terms with regulation are dwindling.  Thus, if regulatory rent-seeking has ceased to be a possible outcome, then the "usual suspects" will make do with good faith negotiation (the process followed by every other ISP/CDN/Transit Provider on the Internet).  Here's a discussion: http://bit.ly/1FtoQN4

marjsdad 5/29/2015 | 2:18:39 PM
Interconnect Deals Bear Net Neutrality's Stamp Very interesting that some who have complained loudly about having to pay interconnection fees are apparently not at all interested in having their own practices come to light, which they surely would if the issue were brought before the FCC through a Title II complaint.
Duh! 5/29/2015 | 10:22:08 AM
Market failure The core of the problem is that the interconnection market is completely opaque.  Neither competitors, regulators nor the public have visibility into pricing, terms and conditions.  We have no way to know whether an interconnect deal is 'just and reasonable', save for self-serving assertions in press releases. 

A transparent market is an efficient market.  The FCC should open an NOI on interconnection practices, ultimately leading to new disclosure rules. 
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