Internet Backbone Next Battleground, Officials Predict

The Internet backbone is becoming the next telecom battleground as the demand for online video throws traditional peering agreements out of whack, industry officials said. “There are constant discussions about how backbone providers, content providers and access providers learn to coexist in this new, video-driven world,” said Dennis Brouwer, senior vice president and general manager of backbone provider Savvis. “The thing that people don’t realize or tend to gloss over is that, depending on how those conversations go, it'll determine who’s going to invest, how much and where."

Last month, as the FCC was finishing its net neutrality order, Level 3 accused Comcast of violating neutrality principles by demanding new fees for delivery of content to Comcast subscribers (CD Dec 1 p3). Earlier this month, TW Telecom asked the FCC to require CenturyLink to keep honoring Qwest-signed peering agreements as a merger condition (CD Jan 6 p3). These disputes are portents and “current carrier disputes will increase in frequency, intensity and importance” as more traffic moves to the backbone, said Paul Kouroupas, senior counsel in charge of regulatory affairs for Global Crossing. It’s one of several companies to urge the FCC to take a more active role in backbone disputes.

Kouroupas said he'd like to see the agency hold “workshops to educate itself and to forge industry consensus on a dispute resolution process.” The commission is “reviewing the issue to determine what action, if any, may be appropriate,” an agency spokesman said.

The old peering model of the mid-1990s is collapsing for three reasons, Brouwer said: Exponential expansion of traffic (most of it driven by video), accelerated adoption (mostly through video-capable mobile phones like the iPhone) and the decline of fully integrated Internet service providers. These trends will only intensify as use of video-capable wireless devices continues to grow, Brouwer said. Sales of smartphones leapt 96 percent in the third quarter from a year earlier to 81 million units, research firm Gartner reported. A February analysis by Cisco predicted that mobile data traffic will double every year between 2009 and 2014. By 2014, nearly two-thirds of the world’s mobile data traffic will be video, Cisco analysts predicted.

This explosion disrupts the old symmetry between networks, Brouwer said. Netflix, for instance, uses up to one-fifth of North America’s downstream traffic (CD Nov 15 p6) in some time periods. Level 3’s dispute with Comcast didn’t erupt until after Level 3 was chosen as Netflix’s new backbone carrier. “What we've seen over the last few years is a bifurcation of the eyeball side and the content side,” Brouwer said.

After buying control of NBC Universal, Comcast will be an exception, in that it will create its own content and have its own applications to show it, Brouwer said. Some analysts think companies like Netflix still pose a threat to Comcast as a content provider (CD Jan 10 p9). And that’s exactly why Level 3 took its case to the FCC so publicly, Level 3 Chief Legal Officer John Ryan said. Level 3 thinks Comcast put up the so-called “toll” because of the proposed NBC Universal merger, he said. A Comcast spokeswoman didn’t respond to requests seeking comment.

Ryan said he disagrees that Comcast-Level 3 is a canary in the coal mine. On the backbone, there are five to 10 other companies that firms can peer with, so “the market disciplines price and competition,” he said.

When the commission adopted its net neutrality rules last month, it moved from “promoting competition to promoting openness,” said Scott Cleland, chairman of Net Competition, members of which include AT&T, Verizon and Comcast. “This is all politics and regulatory opportunism,” he said. “What’s going on is companies that can’t get traction on the facts are trying to get political traction with new arguments.”

And for all the recent vitriol, past peering disputes have been more harmful to Internet customers, a tier-one company official said, referring to Cogent’s battles with other companies earlier this century. Savvis’ Brouwer said he thinks the backbone disputes are less about net neutrality and more about intercarrier compensation. A CLEC lawyer said he expects backbone concerns to be a big part of the FCC’s intercarrier compensation proceedings in the next month or so.