Mapping the Broadband Ecosystem A Presentation at: Faceoff: A Fact-Based Debate on U.S. Internet Policy and Access Networks Organized by The Internet Ecosystem Economics Task Force Congressional Internet Caucus Advisory Committee June 7, 2013 Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law Penn State University Web site : (contains this presentation) Blog site:

2 Objectives of this Unsponsored Presentation Decode the various analogies used to explain the how the Internet works. Decode the various analogies used to explain the how the Internet works. Identify the components in the Internet ecosystem that link content and applications with consumers. Identify the components in the Internet ecosystem that link content and applications with consumers. Explain the interconnection process from both a technological and financial (compensation) perspective. Explain the interconnection process from both a technological and financial (compensation) perspective. Use case studies to identify recent and likely future disputes. Use case studies to identify recent and likely future disputes. Assess whether and how commercial negotiations can resolve interconnection disputes. Assess whether and how commercial negotiations can resolve interconnection disputes.

3 Analogies Used to Explain How the Internet Works Several analogies and models provide a frame of reference for understanding how the Internet works. Several analogies and models provide a frame of reference for understanding how the Internet works. It’s a cloud: It’s a network of networks:

4 Analogies Used to Explain How the Internet Works It’s a series of tubes: It’s a series of tubes: It’s part of a broadband communications supply chain:

5 Analogies Used to Explain How the Internet Works It’s a hierarchy of protocols: It’s a hierarchy of protocols:

6 A Working Definition Consider the Internet as the product of seamless interconnection between servers, routers and broadband subscribers using the telecommunications transmission networks of many, often-unaffiliated operators. Consider the Internet as the product of seamless interconnection between servers, routers and broadband subscribers using the telecommunications transmission networks of many, often-unaffiliated operators. We should concentrate on the network links of these operators that go by several different names: Internet Service Provider (Tier-1, Tier-2, retail) Content Distribution Network, Peer, Transit Lessee, etc. We should concentrate on the network links of these operators that go by several different names: Internet Service Provider (Tier-1, Tier-2, retail) Content Distribution Network, Peer, Transit Lessee, etc. Source: George Ou,

7 Source: George Ou, Digital Society, between-broadband-and-cdn/

Four Phases in Internet Development 1)Incubation--government administration, first through the United States Defense Department and later through the United States National Science Foundation and research institutes throughout the world (1980s-1995); 2)Privatization--governments eliminate financial subsidies obligating contractors to assess whether and how to operate commercially ( ); 3)Commercialization—private networks proliferate as do ventures creating software applications and content that traverse the Internet. The “dotcom boom” triggers irrational, excessive investment and overcapacity ( ); and 4)Diversification—after the dotcom bust and market re-entrenchment, Internet survivors and market entrants expand the array of available services and ISPs offer diversified terms, conditions and rates, including price and quality of service discrimination needed by “mission critical” traffic having high bandwidth requirements, e.g., full motion video content. ISPs and even content providers can use deep packet inspection to identify traffic for “better than best efforts,” and other forms of prioritization at one extreme and blockage/throttling at the other. 8

Many Interconnection Models Work in the Current Phase Until its privatization and commercialization the Internet carriers typically used a zero charge, “peering” process that assumed a “rough justice” balance of traffic; even if traffic flows weren’t equal, governments rather than the carriers usually paid. Carriers operating in the now fully commercialized Internet pay close attention to traffic flows and now limit peering to equals in terms of bandwidth capacity, locations served, subscriber population, etc. Smaller ISPs now pay for “transit.” As the nature and type of ISPs proliferate so have interconnection models; for example a Content Distribution Network will have lots of traffic to deliver downstream, and possibly very little to handle upstream. Traffic imbalances can trigger interconnection compensation disputes. 9

Many Interconnection Models Work in the Current Phase ISPs consider price and QOS discrimination essential for generating new profit centers; the Internet largely shifts from “best efforts,” “one size fits all” into a largely differentiated medium. ISPs consider price and QOS discrimination essential for generating new profit centers; the Internet largely shifts from “best efforts,” “one size fits all” into a largely differentiated medium. Content providers increasingly trade off maximum market penetration for smaller shares of paying customers; without firewalls and effective authentication, premium content won’t be offered. Content providers increasingly trade off maximum market penetration for smaller shares of paying customers; without firewalls and effective authentication, premium content won’t be offered. Even end users want “better than best efforts” routing of “mission critical” bitstreams, e.g., movies, pay per view, full motion video. Even end users want “better than best efforts” routing of “mission critical” bitstreams, e.g., movies, pay per view, full motion video. But ISPs are tempted to act on their incentives and abilities to discriminate in anticompetitive ways. But ISPs are tempted to act on their incentives and abilities to discriminate in anticompetitive ways. 10

New Incentives Risk Network Balkanization and Challenges to the Goal of Ubiquitous Access Level 3-Comcast Dispute In late 2010 Comcast imposed a traffic delivery surcharge when Level 3 became the primary CDN for Netflix. Level 3 characterized the surcharge as a discriminatory toll while Comcast framed the matter as a commercial peering dispute. Comcast is correct if one narrowly focuses on downstream traffic termination. But more broadly the dispute raises questions about the scope of duties Comcast owes its broadband subscribers and whether Level 3 is entitled to a good faith effort by Comcast to abate the traffic imbalances with upstream traffic. It also raises questions about the flow of compensation due participating carriers downstream from gigantic sources of traffic. 11

Misconceptions (or Misrepresentations) in the Level 3-Comcast Dispute Retail ISPs providing the “last mile” delivery of traffic do not directly receive compensation from upstream sources of content such as Google, Netflix, YouTube and Hulu. The peering process traditionally involves directly interconnecting carriers. This means Netflix has the responsibility of securing the services of a CDN, such as Level 3, but Level 3 bears the direct interconnection burden with retail ISPs such as Comcast. It is untrue to assert that hyper giant sources of traffic, do not pay for delivery of their content. Comcast enjoys the ability to charge twice in what economists term a double-sided market: 1)monthly retail broadband subscriptions, now tiered by transmission speed and amount of content downloaded; and 2) peering/transit with upstream ISPs and CDNs such as Level 3. Note that Comcast successfully imposed a surcharge on its peering partner Level-3 when Netflix traffic upset the balance of traffic flows. 12

The Cablevision-Fox Dispute For added leverage in a content retransmission dispute Fox used deep packet inspection to identify Cablevision subscribers seeking access to Fox content available to anyone via the Hulu intermediary web site. Fox denied Cablevision subscribers access and instead sent this message: 13

Good News and Bad News in Dispute Resolution The Good News: Commercial negotiations can resolve most disputes with limited, if any harm to consumers and without regulator intervention. The Bad News: Broadband access has become a near essential. Any access dispute resulting in network balkanization or blockage can cause significant harm to consumers. Currently the FCC has no direct statutory authority and questionable ancillary jurisdiction even to remedy Internet interconnection complaints it receives. The FCC has invoked promotional obligations in the Telecommunications Act of 1996, e.g., Sec But the Comcast case (no statutory support for open Internet initiatives) casts doubt whether the FCC can intervene even if empirical evidence shows consumer harms. Unclear how far the Commission can go with “quasi-common carrier” duties affirmed in two recent courts cases: 1) Cellco (affirming the FCC’s decision to require wireless carriers to provide compulsory data roaming) and 2) Arlington (affirming FCC identification of reasonable deadlines for state and local authorities to act on wireless tower applications). 14

Developing Trends Heretofore private carrier negotiations (peering, transit, retransmission consent) have reached closure, albeit not always on a timely basis, even as subscribers continue to pay during negotiations. Heretofore private carrier negotiations (peering, transit, retransmission consent) have reached closure, albeit not always on a timely basis, even as subscribers continue to pay during negotiations. Expect consumers/voters to complain vigorously if interconnection disputes don’t get resolved quickly. Interconnection negotiations may bog down or harm consumers, particularly if compensation and conduit neutrality issues are triggered. Broadband and telephone subscribers expect their subscriptions to guarantee ubiquitous, high quality and reliable access not conditioned on multiple interconnection agreements with upstream carriers. ISPs and content providers regularly try new interconnection options, e.g., Netflix may install a large hard drive on subscriber premises; Google and other major content sources have secured their own Autonomous System identifiers and will pursue direct (and cheaper) interconnections; interconnection has become less hierarchical. Regulation arbitrage or avoidance can affect interconnection strategies, e.g., Comcast’s invoking the FCC’s “specialized network” exception to open access rules when it offered video on demand via X-Box without debiting an otherwise applicable download allocation. 15