Net Neutrality NPRM Will Seek Comment on Peering Arrangements

The net neutrality NPRM under circulation “will seek comment on the question” of “how networks exchange Internet traffic, such as through peering,” Wheeler said in a blog post Tuesday (http://fcc.us/S7aUoc). Although “outside of the proposed scope of the Open Internet NPRM,” the commission will seek comment “in order to hear from those who may disagree with this suggested treatment of peering/traffic exchange,” he said. “The manner in which networks interconnect to exchange Internet traffic” is “a question that must concern the Commission,” Wheeler said. “Right now, through both written filings in the ‘remand’ docket and through presentations made by networks and others to the Commission, we are receiving points of view on the manner in which current traffic exchange regimes are, or are not, working. We encourage such dialogue with networks, edge providers and end users. The bottom line is that interconnection has always been a key component of telecom policy.”

A Netflix spokesman tweeted Monday the company had reached an interconnection agreement “that we hope will improve performance for customers over the coming months” (http://bit.ly/S70Qvs). A Verizon spokesman confirmed the deal, declining to comment on whether the company has any other such deals in the works with other edge providers. Details of the agreement were not released.

"This will keep happening,” said Vishal Misra, associate professor of computer science at Columbia University. Misra pointed to the rumored talks between Comcast and Apple for priority connections to set-top boxes. Such a deal would likely fall under the FCC exemption for “specialized services,” but comes down to the same thing, he said. “You can call it by different names, but ultimately these providers are paying money to the ISP to get a faster connection to the consumers.” ISPs charging for faster peering connections, which the FCC doesn’t regulate, is “a back end around network neutrality,” Misra said. Rules that impose network neutrality, and concerns over paid peering, are all “symptoms” of the deeper problem: Lack of competition in the last mile, he said. Misra calls that “the eyeball end."

Net neutrality and interconnection “stem from a common problem in market structure,” said John Bergmayer, senior staff attorney at Public Knowledge: “Lack of competition in the last mile.” ISPs can abuse their control over millions of customers “who face no real broadband choice,” while extracting fees from edge providers that, in a competitive market, they wouldn’t be able to, Bergmayer said. There are real differences between net neutrality and interconnection, though: With net neutrality “there are no costs associated with delivering one edge service’s traffic versus another’s,” he said. With interconnection, “there are real costs involved with setting up equipment, labor, and so on,” he said. “It’s not per se unreasonable for the connecting network to bear those costs instead of the ISP eating them and making them back from its customers at large."

The 2010 FCC net neutrality rules had an “arbitrariness” to what was and was not covered, said Geoffrey Manne, executive director of the International Center for Law and Economics. But “what a lot of people really miss in talking about all of this is that the Internet is inherently non-neutral,” and it would be a “Sisyphean task to try to impose neutrality,” Manne said. Interconnection, collocation, peering agreements -- and even ensuring video bits stay together so a movie comes through without stopping -- all require prioritizing some bits over others, he said. “You can’t have perfect neutrality, so let’s stop assuming that that’s an attainable ideal that we're trying to preserve.” What the FCC really seems concerned about is ensuring competitiveness, he said.

Antitrust Laws

Paid peering deals are already governed by antitrust laws, said Berin Szoka, president of TechFreedom. “Prophylactic regulation should be applied only in special circumstances where there is a demonstrated problem that antitrust cannot handle,” he said. “Here, there is no evidence of a problem at all, let alone one that antitrust cannot handle.” To Szoka, it’s a question of where there exists sufficient market power to make a preemptive judgment that “abuse is so likely” that the benefits of prophylactic regulation outweigh the costs. “I don’t think that case has been made regarding what people have always called ‘net neutrality,’ but it certainly has not been made with regards to interconnection."

There is a logic as to why net neutrality rules should only apply to ISPs’ last-mile services and not to interconnection points between an ISP and a content provider like Netflix, said Free State Foundation President Randolph May. There’s little argument about “the competitiveness of the transit and interconnection market where it is relatively easy for content providers to route Internet traffic around any supposed bottlenecks,” he said by email. “There are many more providers of these non-last mile facilities that serve as options for getting traffic from a content provider to an ISP for delivery on to an end user. So, as a matter of policy, there is no reason for the Commission to intervene in the peering and transit marketplace in light of the competitive alternatives."

Wheeler is likely to establish some type of agency oversight over peering disputes “in the foreseeable future,” said analyst Paul Gallant of Guggenheim Partners, in a research note Tuesday. “If the Chairman takes such a step, we would view it as a material positive for content/apps/edge companies by giving them a place to bring complaints about ISPs (which they currently lack),” Gallant said. “Extensive” peering regulation seems “unlikely,” however: “We wouldn’t expect the agency to adopt a detailed, net neutrality-like policy framework. Instead, we suspect any FCC involvement in peering probably would be limited to unusual or exceptional situations between ISPs and those seeking paid peering deals,” Gallant said.

Netflix’s paid peering agreements raise “tricky policy questions that were traditionally not dealt with in the net neutrality debate,” said Center for Democracy & Technology General Counsel David Sohn. The agreements will become an issue in net neutrality debate, although it may not be part of the “same rulemaking procedure at the FCC,” he said. One of the “big questions” is whether paid peering deals will be “confined to Netflix” or if “big Internet carriers are going to try to make this a general model” for other content providers, he said. The new interconnection agreements could present another way ISPs could “favor one content provider over others,” he said. This is a “similar concern that comes up in the net neutrality debate,” said Sohn.

The FCC is trying to maintain an open Internet, while accommodating “the reality that there is a nontrivial cost associated with delivering high-volume traffic” like video, said David Sokolic, vice president-marketing at Peer App, a software vendor that sells caching solutions to ISPs and other operators. “Video is a large and growing share of overall traffic” and “no one likes to see the buffering message” when viewing online content, he said. “There are some consumers who are willing to pay more” to have a premium experience, which goes back to “consumer choice,” he said. To be delivered at a “steady and constant bit rate,” video “needs a fast lane,” he said.

Regulators need to ensure there isn’t “preferential access given to ISPs” and that so-called fast lanes be made available “on fair terms to everyone,” said Sokolic. “It’s not clear” to Peer App that paid peering agreements are the “best way to achieve the goal” of improved content delivery, he said. Paid peering agreements “probably do give an advantage to large companies,” because peering agreements with ISPs require “a fair amount of traffic,” which smaller companies are less likely to have, he said. The recent agreement will “improve the delivery speed of Netflix’s content to Verizon,” but it won’t “provide an end-to-end solution,” he said.