Global Crossing has weighed in on the peering debate in a Friday letter to the FCC that argued ISPs were trying to use peering as a smokescreen to charge content delivery networks and web service providers more for access to their subscribers. The backbone provider submitted its comments tied to the argument between Level 3 (s lvlt) and Comcast (s cmcsa) that essentially questions who should pay for the increased traffic load associated with delivering Netflix (s nflx) content to Comcast’s 16.7 million broadband subscribers. This is the two-sided business model I argued that Comcast was trying to implement when I said the Comcast Level 3 argument might break the web.
In its letter, Global Crossing compares today’s circumstances to the issues faced by smaller competitive local exchange carriers that tried to build out telephone networks to serve businesses and homes in the late 90s. These companies put their own equipment in data centers but had to rely on the Bells for access to last-mile equipment since a CLEC couldn’t string copper to every house that wanted an alternate provider and charge a competitive rate when compared to the existing telephone company. The government regulated the service as well as the rates the Bells charged the competitive local exchange carriers in order to bring competition to the field.
The Internet and wireless access eventually changed the landscape such that competitive voice service exists and is almost moot. Now the big battle is over video and broadband. Global Crossing argues in its letter that we’re at this point again with the peering debate:
Fundamentally, while the Commission has recognized the need to permit some opportunity for cost recovery, it also has sought to guard against carriers’ improperly shifting all of their costs to other carriers by charging them excessive rates for the use of their networks. The Commission invoked that general principle in addressing the terminating access rates charged by CLECs, a scenario that is substantially similar to the one presented here. In that analogous context, the Commission observed that carriers seeking to deliver calls to a particular end user “have no choice but to purchase terminating access from the called party’s LEC,” which in turn has both the ability and the incentive to charge excessive terminating access rates regardless of whether it faces retail competition. The Commission recognized that by leveraging this “terminating access monopoly,” carriers could improperly shift a substantial portion of their costs onto other carriers, disrupting the development of competition.
Global Crossing calls on the FCC to recognize the issue and “apply its existing, long-held principles of cost-recovery and safeguards for terminating monopolies in the context of the instant dispute.” I met with several people on Monday when I was in Washington, D.C., and this letter was mentioned twice as a significant development, once by someone from the FCC and once by an industry source. Comcast and other ISPs have argued that this is not an FCC or net neutrality issue because it’s business. Level 3 is sending more traffic to Comcast, and it should pay more to offset the increase in cost to Comcast. That’s reasonable, provided that Level 3 has some negotiating power (which is doesn’t since Comcast is the only way for Level 3 to get to Comcast subscribers) and if Comcast is charging Level 3 a rate concurrent with the costs that Level 3 is foisting on the network.
That’s what Global Crossing wants the FCC to recognize and address. If it does, then nothing changes for the web companies or consumers. If it doesn’t, then ISPs may use peering disagreements as a means to charge middlemen more (and perhaps at uncompetitive and innovation-stifling rates) as ISPs’ end subscribers consume more content. While folks in Silicon Valley have been interested and involved in the network neutrality debate, the issue of peering is hard to get people riled up about. Global Crossing has tried to explain why it matters, as has Netflix in its earnings statement last month. It said:
Delivering Internet video in scale creates costs for both Netflix and for ISPs. We think the cost sharing between Internet video suppliers and ISPs should be that we have to haul the bits to the various regional front-doors that the ISPs operate, and that they then carry the bits the last mile to the consumer who has requested them, with each side paying its own costs. This open, regional, no charges, interchange model is something for which we are advocating. Today, some ISPs charge us, or our CDN partners, to let in the bits their customers have requested from us, and we think this is inappropriate. As long as we pay for getting the bits to the regional interchanges of the ISP’s choosing, we don’t think they should be able to use their exclusive control of their residential customers to force us to pay them to let in the data their customers’ desire. Their customers already pay them to deliver the bits on their network, and requiring us to pay even though we deliver the bits to their network is an inappropriate reflection of their last mile exclusive control of their residential customers.
That’s the issue, but will the FCC act on it?
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