Why Depeering Matters
According to a couple of people who wrote to me, depeering is a big problem that will get bigger as the two mergers (MCI-Verizon and AT&T-SBC) roll on.
The key issue is cost, not (necessarily) content control, although content/application control may be a byproduct. Depeering will allow the two mega peers to make it very expensive for independent actors to reach the mega peers' subscribers. Both Verizon and SBC have voice and video services they want to protect, so it's in their interest to make it expensive for new large voice or video providers to reach their huge numbers of users.
Briefly, backbones connect either through either peering or transit arrangements. If they're peering, backbones agree to exchange traffic with each other (only each other's traffic) at no cost. If they have a transit arrangement, one network pays another for the right to connect. The transit provider then makes sure that the paying network's packets get to their destinations.
If the two mega-peers depeer, then other carriers will have to pay about twice as much to have other backbone providers carry their traffic. This will give all the carriers involved lots of incentives not to allow unauthorized bandwidth hogs (like competing video services) to ride across their networks.
Peering was always a matter of private contractual arrangements, so it's not clear what hook a regulatory agency would have to second-guess a mega peer. (There are no domestic or international regulations that govern how backbone providers interconnect.) You'd have to argue that the mega peer was acting anticompetitively, using its market dominance to extract high prices and drive its competitors out of business. But both MCI-Verizon and SBC-AT&T will argue they don't dominate the market for backbone access (although they may have the lion's share of internet subscribers).
And the mega peers can assert that they're changing the world by making the internet a “quality of service” network. This is the new raging meme. The internet never promised that your packets would get where they were going. Now backbone providers can promise new services (video, voice, data) only to their subscribers, and say they're going to work blindingly fast. Competing backbones won't necessarily provide the same services. This will fracture the internet, if the backbone provider can find ways to survive without interconnection (or by only connecting to networks that agree to the backbone provider's policies).
In the absence of dominant backbones, none of this is a problem. Markets will find ways to satisfy consumers, and users can believe that they're able to “see” the entire internet. It used to be in the interest of backbones to have many many peering relationships to keep their customers happy. But if one or two dominant backbones emerge, they won't feel the same pressure of externalities.
There are now only five Tier 1 (highest level) backbone providers (this is from a 2003 article by Michael Kende): Cable & Wireless, WorldCom, Sprint, AT&T, and Genuity. If the large ones get so large and powerful that they no longer feel the need to interconnect (and can charge high prices for their new services), they can depeer with all smaller backbones, exact high prices for transit, degrade the quality of their interconnection with the smaller backbones, or take any number of other anticompetitive steps to protect their private prerogatives.
So that's why depeering matters.
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