Paid Peering: Issues and misunderstandings

Recently I was asked my opinion of Google paying France Telecom (FT) to deliver traffic to into FT's network, i.e. Google paying to peer with FT. I wasn't aware Google pays FT. I don't even know if it's true. But I do know this is a topic fraught with misunderstandings. Also, if there is a "problem" here, the problem is one of competition (or lack thereof) in portions of the French broadband access market. It is not a problem that can be or should be fixed by "network neutrality" regulations or legislation.

To understand what's happening, you need to understand the Internet's business model and you need to know something about peering as it works in the real world.

The most suscinct definition of the Internet I'm aware of is: 
Internet (n.) A voluntary agreement among network operators to exchange traffic for their mutual benefit.

This is very different from the telephone networks (fixed or mobile) where relations between operators are governed by laws and regulations, change at a regulatory pace, i.e. decades, and are continuously gamed by political processes.

Each Internet operator needs to be able to reach all possible Internet addresses, so interconnection is essential. If you are a small operator, like netBlazr, you purchase "Internet transit" services from a larger operator. Rates are volume dependent and arrangements are similar to those of any other business or individual purchasing an Internet access service.  If you are a large operator, a large content provider or a very large business, then interconnection costs and arrangements become negotiable. Two operators in Holland will likely agree to exchange that portion of their respective traffic that is destined for each other's networks at the AMS-IX which is local, rather than pay for Internet transit services that would likely carry that traffic to London or the US where a higher tier operator would handle the exchange.  Thus the two Dutch operators engage in peering for that portion of their traffic for which it makes sense.

This pattern is repeated throughout the Internet as each operator evaluates where, how, and with whom it makes sense to exchange portions of their traffic so as to minimize costs, increase performance or achieve other goals important to that operator. Thus there are vastly more interconnection contracts, formed under more diverse terms, for the Internet than ever was the case for the telephone network. Further, this network of agreements is in constant flux as individual operators find better deals.

It's instructive to follow the growth of YouTube from their founding through their acquisition by Google. When YouTube began, they had to pay standard rates for Internet access. As they grew to be a significant content source, their cost of Internet access fell as more and more operators asked to peer with them, as I discussed two years ago.

So between Google and France Telecom, who has negotiating leverage? and why?

France Telecom already has peering agreements with multiple other Internet backbones, so their customers have several paths to get to Google content.  Why would either party want to connect directly?

First, it might cut costs. Whatever pre-agreement path the traffic takes involves some cost. Perhaps that's money paid to other operators or it may just be the cost of maintaining the facilities needed for the pre-agreement traffic (e.g. to go via London).  I can't guess the specifics for Google or for France Telecom, but each has a possible interest here.

Second, it will likely improve performance. Even shaving 50 milliseconds off of round trip times (RTT) can improve user experience as accessing a single web page can require the exchange of dozens of messages, thus 50 ms less RTT can shave more than a second off the page load time. In a competitive market, France Telecom might want to advertise their network as the "fastest," but local access competition is not that great in France (or in many markets, like the US).  France Telecom has nearly 50% market share.  They are losing ground to Free, but apparently it's not enough to justify a marketing campaign based on the "fastest" network.  Google on the other hand, has a strong reason to want better user experiences. In Google experiments with search latency, longer latencies reduce the number of searches a user does per day. Given the number of Google search users on the France Telecom network, Google can directly compute their monetary return from cutting search latency by X ms. So Google's negotiators have hard numbers in their back pocket when they go to talk with France Telecom.

Is this good or bad? Well, if France Telecom doesn't have to compete on the performance of their service, that suggests a failure of competition policy. But then a solution should address competition in the French Internet access market, not government regulation of peering or the imposition of "network neutrality" regulations on operators that don't have a monopoly position.

For myself, I look forward to continued growth of new providers in France, like Free, as I discussed in the January issue of NGN Magazine.

 

Comments

[Infostack]

Brough,

A balanced payment system (vs either bill and keep or called party pays) can promote service creation. The internet peering model you speak about (bill and keep) does not promote the other side to invest in new technologies. Why is IPv4 still so prevalent? Maybe this is a bad example. But the bill and keep model worked when competitive WAN/transport prices and the cost of routers got so cheap that the marginal cost was negligible. That and the fact that local access was "flat-rate" after 1986 is what created layers 1-3 of Web 1.0 and made people think about it as "free". I've often thought that monetary exchanges that clear the traffic efficiently are the best route for service creation. BTW, I lump the current ad-based model into called party pays.

Best,
Michael Elling

[brough]

Michael, I can't agree that the Internet peering model "does not promote the other side to invest in new technologies." First, it's not clear who is "the other side" as the Internet backbone has undergone at least three major shifts in the past 15 years. Second, the Internet more than any other network in history has seen enormous investment in new technologies.

The one thing that's proven to stiffle innovation is government involvement in setting traffic interchange policies and/or pricing. The telephone network over the past 50-100 years is the perfect example of that. Indeed, to the extent you limit government involvement, things work better. See for example S C Littlechild on Mobile termination charges:
http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0426.pdf

What was important about Internet access over dialup modems was that the underlying access technology (voice phone calls) was open access for everything above. Whether that open access was low cost (as in the US with flat rate calling) or higher cost (as in the EU) affected adoption rates but it still allowed innovation. In the US, we went from a few dozen to over 10K independent ISPs in less than ten years. Because the transport cost more in the EU, things were slower and less pronounced, but similar ISP competition emerged. With the advent of broadband access the transport layer is no longer open access so we're left with two vertically integrated monopolies in the US. ...sad...

[Mudding Trucks]

if you and the person yopur talking to has Skype, they allow customers to talk for free.

[web design London]

The internet peering model you speak about (bill and keep) does not promote the other side to invest in new technologies. Why is IPv4 still so prevalent? Maybe this is a bad example. But the bill and keep model worked when competitive WAN/transport prices and the cost of routers got so cheap that the marginal cost was negligible..The telephone network over the past 50-100 years is the perfect example of that. Indeed, to the extent you limit government involvement, things work better.

[מדביר]

I think paying for an Internet transit services that are likely to make the traffic in London or the United States with a higher level of player to deal with change.

[בניית בריכות שחייה]

This is a much larger interconnection agreements formed in different conditions, the Internet has never been the case with the telephone network.