The Internet backbone

Like any physical network, the Internet consists of pipes (“links”) and switches (“nodes” or “routers”). The pipes used in Internet communica-tions, like those in the telephone network, fall into two general categories.

Transportfacilities, also known as Internet backbonefacilities, connect one network node to another and one network to another. Access facilities, addressed later in this chapter, are “last mile” pipes that connect an end user’s computers to a network node and thence to the Internet.

As noted in chapter 2, there is enormous overlap between long distance telephone networks and Internet backbone networks. For example, the fiber strands that carry Internet backbone traffic often coexist along the same intercity routes as the fiber strands that carry conventional long dis-tance traffic. It is thus no coincidence that the largest voice long disdis-tance carriers, such as AT&T, MCI, Sprint, and Qwest, own some of the largest Internet backbone networks. These backbone providers sell transport serv-ices to the Internet’s major players, including Internet service providers (ISPs). ISPs serve as a kind of liaison between end users and the broader

Internet. For example, when you dial into the Internet over a regular tele-phone connection, your ISP performs (among other things) the “protocol conversion” functions that allow your analog computer modem to talk to distant computers on the Internet. Most of the key backbone providers, such as MCI’s UUNet, are vertically integrated with ISPs and sell Internet-related services directly to end users—particularly large businesses—and to content providers such as websites. Virtually all backbone providers sell transport services to unaffiliated ISPs as well.

When you use the Internet, whether at home or at work, you expect your ISP to provide access to the entire Internet, including all public web-sites and e-mail addresses. But there are many different ISPs and many dif-ferent networks that provide backbone transport services to those ISPs.

Your ISP will therefore want to do business only with a backbone provider that can arrange for your signals to reach any destination on the Internet.

This means that the ISP’s backbone provider must arrange for interconnec-tion with a number of other backbone providers. Particularly in the Internet’s early days, many backbone providers exchanged traffic at gov-ernment-sponsored Network Access Points (NAPs)—the Internet’s equiva-lent to public airports, where the routes of many different carriers converge. (When the government privatized the Internet, it transferred con-trol of these points to commercial providers.) Internet backbone providers now increasingly rely on privately arranged points of interconnection, largely because of congestion at the NAPs.

As a business matter, backbone-to-backbone interconnection agree-ments take two basic forms: peering and transit. As the name suggests, peering agreements are usually signed by two backbone providers of roughly equivalent market stature. Each “peer” arranges to hand off its Internet traffic to the other peer for ultimate delivery to the latter’s cus-tomers, such as ISPs. The hand-off normally occurs at the point of inter-connection closest to the point of origination—a convention known as

“hot potato routing.” Because no money changes hands in the process, such peering arrangements are a form of “bill-and-keep,” a concept further dis-cussed in chapter 9.

Transit agreements, in contrast, normally involve backbone providers of unequal market presence. As observed in one prominent FCC white paper, “[t]ransit and peering are differentiated in two main ways. First, in

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a transit arrangement, one backbone pays another backbone for intercon-nection, and therefore becomes a wholesale customer of the other back-bone. Second, unlike in a peering relationship, with transit, the backbone selling the transit services will route traffic from the transit customer to its peering partners.”²⁶The very largest providers, such as AT&T, MCI, and Sprint, have global networks of such comprehensive reach that they never need to purchase transit services from other backbones. These are known as “top tier” (or Tier I) backbones.

These peering and transit arrangements are completely unregulated.

Neither the FCC nor any other governmental authority regulates the prices that a larger backbone network may charge a smaller one for transit serv-ices or mandates that backbone providers interconnect at all. This deregu-latory approach has worked so far because no backbone provider has grown large enough to dominate the market and charge inefficiently high prices for transit. By most accounts, a competitive equilibrium prevails today in this market, where the larger backbones “compete for the transit business of smaller backbones in order to increase their revenues,” and that competition keeps transit prices down.²⁷

To be sure, if a given backbone provider were to surpass a given thresh-old of market share, it might obtain both the inclination and the ability to dominate the backbone market and force rivals to pay supracompetitive rates for transit—thereby driving up retail prices, depressing Internet usage, and undermining the efficiencies of the Internet as a whole.²⁸Such an anticompetitive dynamic could arise because smaller backbone providers, with their lower numbers of websites and other users, value interconnection with the dominant provider more than that larger provider values interconnection with them. In theory, a dominant provider, simply by leaving current interconnection agreements in place and not upgrading them to meet increased demand, could ensure that its connections with rivals become increasingly congested, leading to latency and packet loss problems between the two networks. For the dominant provider’s cus-tomers, such problems, which would lead to delays in interacting with users or websites on the smaller firm’s backbone, would be a minor annoy-ance; for the smaller provider’s customers, however, this degraded access could cause enormous frustration and thus lead customers to defect en masse to the dominant provider.²⁹

The antitrust authorities have taken such concerns seriously and have acted to ensure that no provider grows large enough to occupy a dominant share of the backbone market. For example, when WorldCom acquired MCI in 1998, the Justice Department and the European Union compelled them, as a condition of their merger, to divest MCI’s backbone affiliate (InternetMCI)—which, at the time, was second only to WorldCom’s UUNet in market share. But for this divestiture, the combined company would have controlled 50% of the total Internet backbone market, there-by presenting a risk “that it would attempt to tip the market there-by charging existing peers for interconnection or by degrading the quality of intercon-nections.”³⁰ For similar reasons, together with concerns about excessive concentration in the voice long distance market, the Justice Department and the European Union effectively blocked the proposed merger of MCI-WorldCom and Sprint in 2000.³¹To date, these antitrust measures consti-tute the most significant governmental response to fears of anticompetitive conduct in the Internet backbone market. For its part, the FCC has decid-ed not even to monitor the competitive aspects of Internet backbone inter-connection relationships—for example, through disclosure of peering agreements or reporting obligations for market share—so long as the mar-ket continues to function well without regulation.³²It remains to be seen whether some form of self-regulation or FCC oversight will ultimately be necessary to ensure reliable interconnection in this increasingly critical market.³³