FCC NPRM ban on Paid Peering harms new innovators
The current FCC NPRM would prohibit paid peering agreements and harm small content providers while ensuring Google’s dominance on content distribution. In paragraph 106 of the NPRM quoted below, broadband Internet access providers will no longer be permitted to offer application and content providers cheaper direct access. This means that smaller application, content, or services providers will no longer be able to purchase cheaper direct access to broadband consumers and they will be forced to purchase more expensive indirect transit bandwidth which is subject to much more congestion.
Meanwhile, Google has already built a substantial private Internet bypass network along with the necessary server farms which has allowed them to negotiate many free peering agreements with ISPs. By consigning the smaller competitors to more expensive and inferior transit bandwidth through new regulations or legislation, Google would ensure that their dominance on the Internet will not be challenged.
Banning any kind of enhanced or prioritized delivery
FCC NPRM Paragraph 106 – We understand the term “nondiscriminatory” to mean that a broadband Internet access service provider may not charge a content, application, or service provider for enhanced or prioritized access to the subscribers of the broadband Internet access service provider, as illustrated in the diagram below. We propose that this rule would not prevent a broadband Internet access service provider from charging subscribers different prices for different services. We seek comment on each of these proposals. We also seek comment on whether the specific language of this draft rule best serves the public interest.
FCC NPRM diagram 2 – Regulations on broadband access Internet Service Providers
While it isn’t entirely clear what services the NPRM prohibits because of the vagueness of the language, it is clear that “enhanced or prioritized” content delivery is now prohibited. The term “enhanced” and “prioritized” are broad and they can and will be used in a torrent of formal FCC complaints whenever someone somewhere doesn’t like something. What immediately comes to mind is that NPRM paragraph 106 will prohibit Paid Peering which is a service where an ISP offers cheaper and higher quality direct access to its broadband consumers, and this will have some very undesirable consequences for the Internet.
Transit versus Paid Peering versus Free Peering
Internet Peering is a very secretive subject and it is comprised of complex commercial agreements that are all under Non Disclosure Agreements (NDA). Even FCC inquiries on peering in the past have been rejected. The following information is based on William Norton’s Dr. Peering website which has some of the most extensive insider knowledge of peering agreements on the Internet, and information from the Arbor Networks study of Internet traffic. Norton also wrote this blog explaining why Google wants to end Paid Peering.
Transit: The traditional form of network access content providers use to offer web based content to consumers over the Internet. This is the simplest method of buying bandwidth where a company wanting a presence on the Internet leases space in a datacenter and pays monthly fees for bandwidth by the megabit per second (Mbps) per month. You only need to drop your bits off at a single location, and the transit service delivers your bits to any part of the Internet. The cost of this flexibility is that it is the most expensive form of bandwidth and it is the slowest and least reliable because packets have to traverse multiple networks which are shared with every other Internet user and is often congested. Uncapped (no limit on usage) transit bandwidth in 2009 typically cost between $2 and $9 per Mbps per month depending on quantity and commitment level. Some unusually large content providers like Google can get their transit costs down to $0.50 per Mbps per month.
Paid Peering: A newer form of network access that offers content and application providers a cheaper and more direct way of delivering bits to consumers over the Internet. This is a more complex method of buying bandwidth because it requires additional infrastructure to get close enough to various ISPs. This infrastructure can come in the form of a private network connection to the Internet Exchange Points (IXPs) where many ISPs and businesses congregate, or it can simply be caching servers located at the IXPs where data can be sent over expensive transit connections just once but it gets cached and retransmitted thousands of times more at cheaper Paid Peering rates. Paid Peering only grants access to the ISP that is being peered with but all data sent or received in this manner is diverted away from costly and congested transit connections. Not only is Paid Peering the least expensive form of bandwidth (next to free), it also offers the least congested and least contended content delivery to consumers and it offers the lowest latency access. Prices in 2009 for uncapped Paid Peering cost between $1 and $3 per Mbps per month depending on quantity and commitment level, and that makes it roughly 3 times cheaper than transit bandwidth while offering less congested throughput and lower latency.
Free Peering: Whenever two entities on the Internet feel that they can offer each other equal value, they can enter into a Free Peering agreement. Free Peering is the same as Paid Peering in terms of how the networks exchange traffic and it offers similar performance benefits, but the difference is that no money is exchanged between the two peers. This has traditionally been limited between Internet Network Providers of equal size but according to the Arbor Networks study of Internet traffic, Google is now valuable enough that they can negotiate free peering agreements directly with many ISPs. Where Google can’t negotiate Free Peering deals, they can still get extremely low transit rates because of their quantity and commitment level.
Net Neutrality and Google’s efforts to ban Paid Peering
Ever since former SBC/AT&T CEO Ed Whitacre’s infamous interview in 2005 where he appeared to give an ultimatum that application and content providers weren’t going to use his network for free, Net Neutrality proponents have seized the opportunity to make any kind of enhanced or prioritized content delivery illegal. Initial support for Net Neutrality was broad because Mr. Whitacre’s comments were widely perceived to be extortion where an ISP would either block or degrade a website unless the website owner paid the ISP even though Whitacre made no explicit demands. Years later, the fears have largely subsided since no ISP has attempted this type of extortion.
Furthermore, it turns out that ISPs didn’t have this kind of market power and in fact it was the opposite that was true. In 2006 when I was Technical Director at ZDNet, I first reported that ESPN may have been engaging in “reverse Net Neutrality” where ESPN blocks ISPs from accessing the ESPN360 website until ISPs paid ESPN a per-subscriber fee. That means every customer of that ISP whether they use ESPN360 or not have to subsidize the cost of ESPN360. Those reports were later confirmed to me by ESPN employees and later confirmed by the ISPs that paid per-subscriber fees to ESPN for access to the ESPN360 website.
Once it became clear that Ed Whitacre’s threats were more paper tiger than legitimate threat and that content was king, major Net Neutrality backers like Microsoft withdrew their support for Net Neutrality. More importantly, the ramifications of Net Neutrality legislation and now regulation in the form of the FCC NPRM means that it would be illegal for application and content providers to purchase cheaper and more direct access to consumers from the ISPs. So in the name of protecting application and content providers from services that were mistakenly viewed as extortionist, Net Neutrality regulations would actually cripple application and content providers by forcing them to buy more expensive and more congested transit bandwidth.
By coincidence or by design, Google as a major backer of Net Neutrality regulations like the FCC NPRM or legislation like H.R. 3458 will ensure an environment that will be hostile to Google’s competitors in the content or application space. Google has outgrown Paid Peering because they are one of the few application/content providers that has enough leverage to get Free Peering, but their smaller competitors have to rely on Paid Peering products. Taking the Paid Peering option off the table would mean much higher cost and much lower performance for Google’s competitors. Another benefit of banning Paid Peering is that it puts Google in a better position to negotiate Free Peering deals with the few ISPs that are trying to get a Paid Peering arrangement with Google.
While many Net Neutrality proponents may be well intentioned and they want to spur the next new innovators, it’s becoming clear that the unintended consequences of Net Neutrality regulation would produce the opposite effect. It appears that the NPRM regulations operate under the misguided vision of how the Internet works as illustrated in diagram 2 of the FCC NPRM, and it may be assuming that these ISP charges to content providers are levied on top of existing transit costs which would appear to be a form of extortion and double charging. The reality as illustrated in figure 1 is that these paid peering charges are levied in place of the transit costs providing better service at a lower cost. If we truly want to foster innovation on the Internet, the last thing we want to do is kill Paid Peering.
Richard Bennett also wrote a good explanation here at GigaOm on the changing landscape of the Internet and why it is a bad idea for the FCC to prohibit paid peering in the name of anti-discrimination.