Verizon Peering Dispute Could Lead to Netflix Disclaimer on Slow Traffic, Cogent CEO Says

Verizon and Cogent are at odds over a settlement-free network peering agreement, which traditionally allows two service providers to exchange traffic without money changing hands. Schaeffer said the ports that connect Verizon and Cogent have reached capacity and are congested, and it’s Verizon’s responsibility to give its customers the Internet access they expect. Cogent and Public Knowledge are urging the FCC to claim oversight over such matters and step in when agreements reach a breaking point. Parties have a “very different interpretation of what the Communications Act means,” said PK staff attorney John Bergmayer. Although peering arrangements don’t fall within the purview of the net neutrality order, he said, they definitely implicate related concerns.

Cogent bears the blame for this dispute, said David Young, Verizon vice president-federal regulatory affairs, in a blog post Wednesday (http://vz.to/19VpvsU). Such network peering agreements can only be free when the traffic exchanged between service providers is equal and balanced, he said. By asking Verizon to carry traffic far out of proportion to what Verizon asks Cogent to carry, the company is violating “one of the basic and long-standing requirements for most settlement-free peering arrangements,” he said: It’s only fair that Cogent pays its fair share.

Cogent is a “repeat offender,” Young said, accusing the ISP of grandstanding to create “a perceived crisis that could affect Internet users in order to attract the attention of policymakers and gain leverage in negotiations.” Nonprofit Internet policy project Cybertelecom said Cogent has been involved in 10 peering disputes with other ISPs since 2000 (http://bit.ly/1c0PrA3).

The only reason Cogent is involved in so many disputes is because it’s providing service to key over-the-top players like Netflix, Apple, Yahoo and Google, for cheaper rates than other service providers could afford to offer them, due to the high fixed costs the larger ISPs have, Schaeffer said. Verizon is trying to level the financial playing field so it can compete with Cogent to attract customers like Netflix to use its network services, he said. “If they're more efficient than we are at delivering this service for Netflix, they should win the business,” he said. “Instead, what they're trying to do is build a toll road to their customers by forcing Netflix to pay a higher price.” Some content providers, including Microsoft, Facebook and Google, already pay ISPs for faster services, reported Thursday’s Wall Street Journal (http://on.wsj.com/1c0MAHb).

Schaeffer believes the FCC should step in to regulate peering agreement disputes, he said. The agency and the FTC have an obligation to protect consumers in this case, since the networks are restricting the services available or at least misleading them about what they can access, he said. “It comes down to a truth in advertising,” he said. “It’s perfectly legal for Verizon to do what they're doing as long as they inform the customer, before they buy the service, that they're doing it.”

To Schaeffer, Verizon is violating net neutrality rules that aim to ensure service providers don’t specifically disadvantage end-users’ access to particular Internet content. Schaeffer is wary of Verizon’s motives. ISPs that provide network access to end users all sell some kind of video product, he said, which in Verizon’s case is a combination of their FiOS products and the relatively new Redbox Instant. “What they're hoping,” he told us, “is that the user experience with their products is better than that of competitors’ products.” Verizon declined to comment on this point beyond what Young said in his blog entry.

The issue is more important for Cogent than for Verizon, because settlement-free peering is an essential part of Cogent’s business model, said Wells Fargo analyst Jennifer Fritzsche in a Thursday email to investors. She disagreed with Schaeffer and said Verizon “actually could benefit if OTT trends continue to be embraced,” since they enable their customers to use over-the-top content.

Level 3, which is not involved in this dispute but has had its own disagreements with Cogent in the past, told us it opposes last-mile ISPs imposing “arbitrary access fees” to reach their subscribers. “Interconnection arrangements between Internet suppliers should be fair and reasonable, scalable, reliable and secure,” a spokeswoman said. “One way to achieve this is to equitably share backbone cost burdens to ensure that the Internet remains unconstrained, open and innovative."

Verizon criticized Cogent for upending the “basic” tenet that “traffic between the providers be roughly in balance.” When it’s not, Young said, the provider with the heavier load typically pays the other for transit. He called the dispute “a fairly boring story about a bandwidth provider that is unhappy that they are out of balance and will have to make alternative arrangements for capacity enhancements."

To Level 3, send-receive ratios aren’t an “appropriate” measure of an agreement’s fairness, the company’s spokeswoman said. “Regardless of traffic direction, the true cost a network bears is a function of the amount of traffic carried and the distance it is carried.” A better measure, Level 3 said, is the “backbone bit mile,” which takes into account the volume of traffic exchanged and the distance it’s carried by each network. “As long as both networks share the effort in approximately equal measure, settlement-free interconnection is appropriate and should be allowed to grow without restrictions,” the company said. If there are substantial imbalances in total bit miles, the imbalance must be corrected, or “fair compensation paid for the imbalance,” it said.

Level 3 is not alone in questioning the balance of traffic loads as a measure of whether an agreement is fair. It’s a “distraction,” said Bergmayer. When ISPs decide to do settlement-free peering, it’s because they get equal benefit from interconnecting with each other, he said. But to Bergmayer, it’s “misleading” to say the benefit is always related to the amount of traffic. With middle-mile networks, traffic balance might be a good proxy, but with end-user ISPs, “there’s almost always going to be more incoming traffic than outgoing traffic,” he said. For the end-user, traffic will be inherently unbalanced; what matters, Bergmayer said, isn’t whether it’s balanced, but whether the customer ends up having a good user experience.

Public Knowledge believes the FCC should have oversight over peering and interconnection issues on the Internet, Bergmayer said. The Communications Act “clearly” gives the FCC broader authority to “at least oversee and gather information about these sort of arrangements,” he said. In a “vast majority” of cases, the interconnection agreements between ISPs and their partners work fine, Bergmayer said. When there’s an impasse, the agency should have the ability to step in, especially as the Internet Protocol transition makes interconnection agreements more crucial to the carriage of telecommunications, he said. “We do need to have some oversight and transparency, even just as a backstop, to make sure that things keep working."

It’s not a net neutrality issue, Bergmayer said: Net neutrality is more about favoring certain Internet traffic than about physical interconnection. In Cogent’s case, “there is literally a site where Cogent has equipment and Verizon has equipment and they connect it to each other,” he said. “And that’s very different than the typical net neutrality problem.” Yet both cases harken back to a “common concern” -- whether an ISP will leverage its “privileged position” and behave anti-competitively, he said. Last-mile ISPs shouldn’t “just have to eat whatever costs are necessary,” but interconnection charges should be based on reasonable costs, Bergmayer said. “It shouldn’t be a profit center for the ISPs."

Extracting profit is what this is all about, said public interest communications attorney Andrew Schwartzman. “This is a new version of an old problem,” he said. “Retail customers should not be victimized by such disputes. They are paying the ISPs a lot of money to get content, and the ISPs should not be holding the content hostage by seeking to exploit peering arrangements.”