Peering and transit: too important to leave to the market alone?

That's the contention of a new letter from New America Foundation, Media Access Project, and Free Press. The DC-based groups argue that the secrecy around such key network interconnection deals is bad for the Internet—and that both the FCC and Department of Justice should start investigating.

Oh—and that investigation should not be limited to the recent Comcast/Level 3 dispute which kicked off concern over peering agreements, but should be extended to examine “how peering agreements are negotiated and whether companies are acting in an anti-competitive manner.”

Bring in the feds

Last week, Internet backbone operator Level 3 raised a ruckus when it asserted that Comcast was brazenly violating “network neutrality” principles by suddenly charging Level 3 to deliver its traffic onto Comcast's network.

The reality, as we discovered after a lengthy investigation, is far more complex, and one of the things it actually shows most clearly is just how fast an older arrangement of networks that make up the Internet is giving way to a new one. In this new world, last-mile ISPs have gotten so big that they can begin to throw their weight around; since every Internet company needs to reach Comcast's 16 million US subscribers in a timely manner, the cable giant is now in a good position to leverage the control it has over those user eyeballs and turn it into cash.

This concern precipitated the new letter to the FCC and the Department of Justice. As the letter puts it, this dispute may be “one of the first times that a residential Internet service provider apparently has succeeded in trying to charge transit fees to terminate traffic, rather than charging such fees to transmit traffic from one network to another.” As a result, the signatories worry about how “last-mile providers might leverage their relationship with broadband consumers to act in an anticompetitive manner.”

That “anti-competitive manner” doesn't have to involve such thuggish tactics as outright blocking of content or throttling of streaming video traffic. Instead, the big Internet providers could resort to more subtle approaches, such as charging increased fees to content companies who need direct connections to their networks. This would raise costs for companies like Netflix—companies that in some ways compete with an ISP's own TV and video-on-demand offerings.

The letter makes this concern explicit. “In fact, over the past two quarters,” it says, “cable has lost an increasing number of subscribers, and a number of those consumers have substituted Netflix streaming video service for the cable service they have eliminated. It requires little imagination to view Comcast's behavior as an attempt to raise the distribution costs for Netflix and thus force that competitor to pass these expenses onto consumers in the form of higher prices.”

In the end, as the ISPs “increasingly attempt to leverage their position to extract more money out of their business partners,” truly Bad Things could happen to the Internet. Peering showdowns could become more common.

“Americans could face massive transmission failures as providers reroute traffic through a few alternative peering points. In the worst case, millions of consumers, businesses, and government users could lose access to the Internet,” says the letter. If Cablevision subscribers thought they were in pain when a recent retransmission dispute cut off their access to key baseball games on Fox, imagine the pain they might feel if Netflix, Hulu, or Google suddenly became glacially slow for two weeks.

Because of the secrecy involved in these interconnection agreements, it can be difficult for outsiders (including others in the industry) to have any real idea of what's going on. Free Press, New America Foundation, and Media Access Project want the feds to roll in, obtain the “relevant agreements” in this dispute, and make them available to other parties as part of the Comcast/NBC merger proceedings.

In addition, the investigation should look into “interconnection agreements more generally,” which would appear to involve government scrutiny (at least) of the whole web of peering, paid peering, full transit, and partial transit deals that make the Internet work.