Topics in Internet Interconnection Background for NRIC V Focus Group 4 (Interoperability) J. Scott Marcus, Chief Technology Officer

Topics in Internet Interconnection Review of domestic Internet interconnection Review of international Internet interconnection The ICAIS issue Interconnection guidelines, codes of conduct Where to from here?

Privatization of the Internet (NSF 93-52) Copyright (c) 1999 by Addison Wesley Longman, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior consent of the publisher.

Internet Backbone Traffic Exchange Peering is usually a bilateral arrangement, where two providers agree to accept traffic from one another, and from one another’s customers (and thus from their customers’ customers) Peering does not include the obligation to carry traffic to third parties (transit). Historically, peering has often been done on a bill- and-keep basis, without cash payments, where both parties perceive roughly equal exchange of value; however, there is often an element of barter. Peering provides access to one provider’s customers; transit, in contrast, usually provides access at a predictable price to the entire Internet.

Shared and Direct Traffic Exchange A few shared global traffic exchange points. Smaller shared traffic exchange points for regional concentration and exchange of traffic. Expansion outside the US, especially Europe. Direct traffic exchange carries most Internet backbone traffic. Even though shared traffic exchange points are losing market share, their traffic is likely to continue to grow in absolute terms. Whether shared or direct, the prevailing pattern is shortest exit routing - the sending provider hands off traffic at the point most convenient to the sender.

Backbone ISP Shared and Direct Traffic Exchange Shared T raffic Exchange Point Router Direct Interconnection Direct Interconnection

Shortest Exit (“Hot Potato”) Routing Copyright (c) 1999 by Addison Wesley Longman, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior consent of the publisher. Backbone ISP New York Chicago Atlanta Dallas Los Angeles San Francisco Washington DC Web Site Shared Traffic Exchange Point Shared Traffic Exchange Point

Negotiations for North American Backbone Internet Interconnection Typical US backbone interconnection guidelines –Bi-coastal US presence, with multiple potential points of interconnection –Significant transcontinental bandwidth –Consistent routes at all locations –Competent staff, professional 7 x 24 operation –Rough balance of ingress/egress traffic –Sufficient scale to justify transaction costs Where criteria are not met, a backbone may: –decline to exchange traffic, OR –expect cash or non-cash compensation in return Backbone providers negotiate traffic exchange terms and conditions on a case by case basis.

Emerging Global Trends The traditional “hub and spokes” system Traffic exchange trends in Europe Global deployment International diffusion of users and content

Traditional “Hub and Spokes” System European ISPs Asian ISP Non-U.S. ISP pays Copyright (c) 1999 by Addison Wesley Longman, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior consent of the publisher. Non-U.S. ISP pays

Former “Hub and Spokes” in Europe U.S. Backbone French ISP German ISP

Internet Traffic Exchange in Europe Today U.S. Backbone French ISP German ISP Interconnection Point

Factors Driving European Evolution Decline in “street price” of circuits within Europe due to deregulation. Increased number and density of customers and content (and caching). Improved number and distribution of interconnection points. Deregulation of European telecoms, and recognition of the need to minimize regulatory barriers to Internet growth. Declining costs of transoceanic cable. New transit services terminated in Europe.

Global Internet Backbone Deployment Asian ISP European ISP pays Backbone pays Copyright (c) 1999 by Addison Wesley Longman, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior consent of the publisher. Backbone pays Overseas Point of Presence (POP)

Number of Users Online Worldwide Source: IDC, Merrill-Lynch (Kende, FCC)

Original ITU SG 3 resolution D.iii “Noting the rapid growth of Internet and internet protocol based international services: It is recommended that administrations* involved in the provision of international Internet connection negotiate and agree bilateral commercial arrangements applying to direct international Internet connections whereby each administration* will be compensated for the cost that it incurs in carrying traffic that is generated by the other administration.”* (In ITU, “administration*” means administration and also ROA [Recognized Operating Agency].)

Motivations for International Pressure for Cost Sharing (ICAIS) Perception that U.S.-based backbones operate as an “old boys’ club” cloaked in secrecy. Perception that U.S.-based backbones discriminate against overseas providers in our interconnection policies. Dissatisfaction with allocation of transoceanic circuit costs, which often are fully born by the non-U.S.-based provider.

Internet Interconnection Conditions Genuity now publicly posts our guidelines for Internet interconnection on the web. Genuity does not discriminate against overseas providers; in fact, Genuity's policies work slightly in favor of overseas providers, recognizing that they bear higher circuit costs. Our U.S.-based network, AS 1, currently peers with half a dozen foreign-owned providers operating primarily overseas, with additional applications in process.

U.S. Industry Opposes Regulatory Imposition of Cost Sharing Broad consensus exists among U.S. industry participants, and is shared by many free market western European nations. Cumbersome regulatory intervention with market mechanisms. Overly literal application of telephony interconnection model. Obligations to incur incremental costs on behalf of economies that may not be fully open to competition from U.S. providers, or on behalf of providers that may discriminate against or refuse to interconnect locally with U.S. providers. Sharing (possibly inflated) costs with inefficient providers. Possible eventual explicit obligations to interconnect, especially to economies where the investment may not be justified by market factors.

The ITU World Telecommunication Standardization Assembly (WTSA) Topic raised at the quadrennial WTSA assembly held in Montreal from September 27 - October 6, Serious concerns with cost sharing recommendation D.iii raised by the U.S., Canada, the U.K., Finland, Sweden, the Netherlands, Italy, Greece and New Zealand. WTSA plenary adopted compromise language that eliminates explicit references to cost sharing, and attempts to clarify that governments need not interfere with commercial negotiations. The U.S. took a Reservation. The U.S. is thus not obliged to implement the recommendation.

FINAL TEXT OF RECOMMENDATION International Internet Connection Recognizing the sovereign rights of each State to regulate its telecommunication, as reflected in the Preamble to the Constitution; Noting: a) the rapid growth of Internet and Internet Protocol-based international services; and b ) that international Internet connections should remain subject to commercial agreements between the parties concerned; and c ) that continuing technical and economic developments require ongoing studies in this area; It is recommended that administrations* involved in the provision of international Internet connections negotiate and agree to bilateral commercial arrangements enabling direct international Internet connections that take into account the possible need for compensation between them for the value of elements such as traffic flow, number of routes, geographical coverage and cost of international transmission amongst others.

Analysis of the Recommendation The recommendation itself has little operative effect; however, it may encourage enactment of laws. Unclear what those laws will say. Continuing ambiguity as to which providers it pertains to - Australia argues that it is relevant to ISPs the carry traffic between nations, or that operate international gateways The U.S. will not enforce the recommendation on U.S. providers operating in the U.S.; however, D.iii may affect U.S. providers carrying Internet traffic between third party nations.

Why Genuity Continues to View D.iii as Unripe It either results in interference with commercial negotiations, or it does not. Either unwise or superfluous. Interference with market mechanisms will lead to distortions, and to outcomes worse than current market- based outcomes. This market has not failed. In fact, current trends are all moving the marketplace in the right direction. The theoretical basis for predicting the impact of a change of this magnitude is inadequate. There is thus substantial risk of impacting global investment in the Internet. Significant risk that this will be the first of a series of progressively more intrusive attempts to regulate.

Potential Future ICAIS Developments Ongoing controversy to be expected: –ITU Study Group 3 (tariffs) –APEC –CITEL Possible opportunities to educate the international community, such as the ITU World Telecommunications Policy Forum (WTPF) on IP Telephony

An Excerpt from Genuity’s Guidelines 1. Presence at three or more Shared Interconnection Points listed above (two of which must be MAE-East ATM and MAE-West ATM), for Domestic ISPs; presence at two or more Shared Interconnection Points listed above for International ISPs. 2. For domestic ISPs, United States coast-to-coast nationwide backbone of at least 155Mbps. 3. Consistent route announcements at all exchange locations. 4. Experienced, professional Network Operations Center staffed 24x7. 5. Loose Source Record Route (LSRR) capability at core border routers on network. 6. For domestic ISPs, roughly balanced traffic. 7. A minimum Internet traffic exchange of 1 Mbps with Autonomous System Willingness to enter into a formal Internet Interconnection Agreement.

Level 3 Proposed Code of Conduct Backbone providers will not refuse to discuss settlement-free direct Internet interconnection with any party that states it meets a backbone provider’s published peering policy (and, at their discretion, may discuss peering with a party that does not meet their published peering policy). Backbone providers will appoint a representative with authority to agree upon interconnection conditions. Backbone providers will agree to meet at reasonable times and locations, and will not unduly delay Internet interconnection discussions. Backbone providers will, in responding to a request for Internet interconnection, provide considered reasons for rejecting any part of the proposal (including rejecting settlement-free direct Internet interconnection) and provide reasonable clarifications of such explanations upon request. Backbone providers will not enter into Internet interconnection agreements with any party conditioned upon denying peering or transit to a third party. If agreement is reached to interconnect Internet capacity directly, backbone providers will agree to execute a written agreement that sets forth the full negotiated Internet interconnection conditions.

Genuity and Codes of Conduct Genuity is generally supportive of the substance and spirit of the Level 3 proposed industry code of conduct. We have, however, some specific problems and issues with the proposed language. We are not yet convinced that a voluntary code of conduct is a good way to proceed.

Where to from Here? Where does the Focus Group want to go from here? How do we view our charter? Where do we want to spend our energy? What would be most useful to the FCC? What would be most useful to industry? What do we want to be when we grow up?

References Cremer, Rey and Tirole, “Connectivity in the Commercial Internet”, presented at “Competition and Innovation in the Personal Computer Industry”, San Diego, April, Marcus, Designing Wide Area Networks and Internetworks: A Practical Guide, Addison Wesley Longman, Chapter 14, which describes peering and transit, is available at Huston, “Interconnection, Peering and Settlements”, Laffont and Tirole, Competition in Telecommunications, MIT Press, General analysis of the economics of telecommunications pricing. Kende, “The Digital Handshake: Connecting Internet Backbones,” FCC, Gao, “On Inferring Autonomous System Relationships in the Internet, IEEE GlobeCom 2000, San Francisco, November, Milgrom, Mitchell, and Srinagesh, “Competitive Effects of Internet Peering Policies”, to be presented at the American Economics Association, January, Laffont, Marcus, Rey and Tirole, “Internet Interconnection and the Off-Net Pricing Principle”, American Economics Association, January, 2001.