ISPs Wary of Peering Crossfire

Pay to play
It may be a sign of the times or the result of old fashioned greed, but times have changed and today if you wanna play, you gotta pay.

Generally, peering agreements (sometimes called bilateral agreements) are hammered out between company reps. The talks are usually secret. MCI, Level 3, and AT&T all declined to talk to me about peering. Although there seemed to an initial interest in arranging an interview, once I made it clear that I would like to explore costs and other details peering agreements, the interest suddenly turned to rejection.

A spokesperson for MCI gave their acquisition by Verizon as the reason they 'preferred not to talk" at this time. The AT&T representative noted that their "position and approach to peering is undergoing review," so this was not a good time to discuss the subject.

Although they are at the eye of the peering storm along with Cogent, Level 3 refused to offer any explanation. Despite numerous phone calls to their public relations personnel and several e-mail requests, Level 3 offered no response. There was no explanation, or even a 'no comment.' They simply neglected to respond in any fashion.

What we do know is that in most cases, peering is the exchange of traffic that is roughly equal in both directions, so no money is involved. The idea is that neither party should gain a competitive advantage over the other, the costs associated with routing the data should be about equal, and both networks should realize some economic advantage through the synergy of the combined networks. Under the usual peering arrangement, data flows between customers who are directly attached to the peering networks and neither network can see through the other's network to the wider internet.

An Internet Transit Agreement (ITA) is negotiated when one provider carries packets for another provider to or from the wider Internet. In the early days of the Internet, it was assumed that all networks would provide transit for one another. In the commercial Internet, this is no longer the case. According to Stacy Meadows, project and product development manager at Sprint, it is important to understand that the networks involved "are in the business to make money" and they have an "obligation to their share holders to show a profit."

How much?
So, what kind of costs are involved? I put that question to John Savageau, SVP Telecom Operations at CRG West. Savageau heads operations at One Wilshire in Los Angeles, so he knows what he is talking about.

"It used to be a flat rate—you would go to someone like MCI and buy a 1 gigabit port and pay a flat amount for use of that port," said Savageau. "In the past 10 years, a usage sensitive billing model has come into play. The actual rate varies with every carrier." In other words, the charge is somewhere between what the traffic will bear and what they think they can get.

When I talked to Savageau, he had just returned from a long stint working in Mongolia and he was not up to speed on current rates in the U.S. But the numbers he did have give a good indication of how agreements are made.

"I can tell you that in Mongolia, I was paying $15,000 a month for a 6-megabit satellite connection to Hong Kong and that was all I could eat—there was no usage based billing." He added, "if I had gone on fiber to the Russian carrier, TransTelecom, they would have charged me $100 per gigabit of data transfer which gets to be really expensive."

Meadows noted that agreements and the resulting costs vary and she would not offer any hard numbers. "It really depends on many factors. When we are talking about commercial peering arrangements, then we are talking about commercial bandwidth, so the charges are on the lower end. That again is dependent on the size of the pipe that we are talking about. It really just depends. If we are exchanging huge amounts of bandwidth and we are truly equal peers, then we may set up a settlement free peering agreement because it behooves both of us to do it."

One thing that does seem clear is that the ever-increasing demand for higher speeds and greater bandwidth, is driving costs down, rather than up.

"When we first started [in 2000] the market was at $300 a megabit," said Jeff Henriksen, director of marketing communications for Cogent Communications. "Cogent started at that time at $10 a megabit and we are still at that price point. Overall, the market has dropped down to about $60 a megabit which is a pretty competitive price right now. We feel that we have been principally responsible for accelerating that price drop."

Henricksen added that the prices are definitely trending downward. "Our business model takes into account a year-to-year drop of as much as upwards of 50 percent price erosion every year."

But even at $10 a megabit, bandwidth can cost real money. The stakes are high for backbone providers.

 

1. ISPs Wary of Peering Crossfire

2. The problem: pay to play

>3. The ISPs Respond