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Internet Backbones :: Policy:

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The Federal Communications Commission has left the Internet backbone market unregulated, as explained in an excellent paper by Michael Kende.

In summary, telecommunications providers are subject to common carrier regulations that ensure nondiscriminatory access to end users; together with antitrust enforcement, these regulations serve to protect against anti-competitive behavior by telecommunications providers with market power. In markets where competition can act in place of regulation as the means to protect consumers from the exercise of market power, the Commission has long chosen to abstain from imposing regulation. For this reason, providers of services that combine telecommunications with computer services are not regulated as common carriers. [Kende p 12]

The US Government built the first Internet backbones

The USG continues to operate several of its own backbones.

Internet Backbones have been at issue in multiple proceedings before the FCC:

Computer Inquiries / Steven's Report

The Computer Inquiries created the dichotomy between regulated basic telecommunications service and unregulated enhanced services (aka information services). Basic services were regulated for the benefit of enhanced services. The goal of the Computer Inquiries was to create an open communications network upon which the promise of the computer era could be fulfilled. This begged the question of whether Internet backbones were basic or enhanced services. In the 1998 Steven's Report, the FCC stated:

52  We find, however, little to no discussion of this issue in the record.  Accordingly, we do not believe that we have an adequate basis for resolving this matter in this Report.  Moreover, we believe that we need not resolve the issue in order to address the important issues raised by the Appropriations Act.  The regulatory classification of protocol processing is significant to the provision of universal service only to the extent that it affects the appropriate classification of Internet access service and IP telephony.  We find, however, for the reasons explained below, that Internet access services are appropriately classed as information services without regard to our treatment of protocol processing.   Similarly, our discussion of the regulatory status of phone-to-phone IP telephony is not affected by our resolution of the protocol processing issue.   The protocol processing that takes place incident to phone-to-phone IP telephony does not affect the service's classification, under the Commission's current approach, because it results in no net protocol conversion to the end user.   Finally, when a facilities owner provides leased lines to an Internet access or backbone provider, it does not provide protocol processing.

55. "We conclude that entities providing pure transmission capacity to Internet access or backbone providers provide interstate "telecommunications."  Internet service providers themselves generally do not provide telecommunications.  In those cases where an Internet service provider owns transmission facilities, and engages in data transport over those facilities in order to provide an information service, we do not currently require it to contribute to universal service mechanisms.  We believe it may be appropriate to reconsider that result, as it would appear in such a case that the Internet service provider is furnishing raw transmission capacity to itself. Finally, we consider the regulatory status of various forms of "phone-to-phone IP telephony" service mentioned generally in the record.  The record currently before us suggests that certain of these services lack the characteristics that would render them "information services" within the meaning of the statute, and instead bear the characteristics of "telecommunications services."  We do not believe, however, that it is appropriate to make any definitive pronouncements in the absence of a more complete record focused on individual service offerings." 

72   Our thinking relating to the Internet backbone points up some of the limitations of our current approaches to implementing the universal service provisions of the 1996 Act.  The technology and market conditions relating to the Internet backbone are unusually fluid and fast-moving, and we are reluctant to impose any regulatory mandate that relies on the persistence of a particular market model or market structure in this area.  It may be that the most successful approach in this context, maintaining universal service revenues while avoiding the imposition of inefficient or innovation-discouraging obligations, would look to the actual facilities owners, requiring them to contribute to universal service mechanisms on the revenues they receive.  It is facilities owners that, in a real sense, provide the crucial telecommunications inputs underlying Internet service.  If universal service contribution obligations, in the context of the Internet backbone, were based on facilities ownership rather than end-user revenues, then firms purchasing capacity from the facilities owners would still contribute indirectly, through prices that recover the facilities owners' contributions.  This matter deserves further consideration.

101 We realize that, as technology evolves, new means of providing telecommunications service may emerge.  Although we conclude that Internet access is not a "telecommunications service," we acknowledge that there may be telecommunications services that can be provisioned through the Internet.  . . . . With respect to the provision of pure transmission capacity to Internet service providers or Internet backbone providers, we have concluded that such provision is telecommunications. 

-- In re Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress (April 10, 1998) http://www.fcc.gov/Bureaus/Common_Carrier/Reports/fcc98067.html

 

Section 706

Incumbent Local Telephone Companies (Incumbent Local Exchange Service or ILECs) have also tried to raise the issue of the Internet Backbone in their arguments before the FCC.  The Telecommunications Act of 1996 sets for the policy goal of introducing competition into the local telephone market.  The problem was how to persuade the local telephone monopoly to give up its grip on the market.  The solution created by the 1996 Act was a carrot - the ILECs were be permitted to enter the lucrative long distance telephone market only when their local markets were opened up to competition.  The ILECs have argued vehemently against this restraint. 

This is where the Internet backbone comes in.  ILECs have argued that investment in Internet backbone bandwidth is anemic and that we are on the verge of a bandwidth crisis.  They have also argued that there are vast portions of this country that have no direct access to the Internet backbone (even though the entire country now has direct two-way satellite access to the Internet and, in the rural communities, the only ones complaining about this are the ILECs, not the thousands of other ISPs out there).  The ILECs argue that the restraint on entering long distance service should apply to voice service only, and not long distance data, and if they were allowed to enter long distance data, they would solve the Internet backbone problem.

In the first Sec. 706 Notice of Inquiry, the FCC asked whether there was a need for the FCC to get involved in peering issues. 

What can and should the Commission do to preserve efficient peering arrangements among Internet companies, especially in the face of consolidations of large proprietary gateways? We ask for comment whether the Commission should monitor or have authority over peering arrangements to assure that the public interest is served.  

[First Sec. 706 NOI, para 79] The comments filed reflected rough consensus that the FCC should let the free market work; the one dissenting voice recommending FCC action was Bell Atlantic  - now Verizon.

105. In the Notice, we asked whether the Commission should monitor or exercise authority over peering -- an arrangement in which two Internet backbone providers exchange traffic that originates from an end user connected to one of the providers and terminates with an end user connected to the other provider. Commenters almost unanimously oppose Commission involvement at this time in peering and similar relations among Internet firms. Only one commenter, Bell Atlantic, suggests possible action, and that is only that we "lower barriers for new entrants, in particular currently precluded entrants." We agree with SBC that premature regulation "might impose structural impediments to the natural evolution and growth process which has made the Internet so successful." Accordingly, we will continue to refrain from action involving peering. We bear in mind that "[t]he Internet and other interactive computer services have flourished, to the benefit of all Americans, with a minimum of government regulation" and that it is the policy of the United States "to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation; . . . ." 

[First Sec. 706 Report, Para. 105] The FCC found that investment in Internet backbone was vigorous.  More facilities are being built and those facilities have greater capacity every day.  Furthermore, the FCC found that bits-is-bits.  Whether its voice or whether its data, its all bits and the ILECs don't get the carrot, access to the long distance market, until they fulfill the obligations of Section 271 and open their markets to competition.

The FCC released its second 706 Notice of Inquiry in April 2000.  Even though the FCC did not place the issue of Internet backbone bandwidth on the table, the ILECs nevertheless came back with arguments about an impending bandwidth shortage in the backbone.  In the summer of 2001 it has been widely discussed that there is glut of bandwidth in the backbone market with tremendous amounts of unused capacity. The FCC stated: "We conclude that there has been ample national deployment of backbone and other fiber facilities that provide backbone functionality. There is no indication that specific types of areas have inadequate access to backbone or functionally equivalent facilities."See ¶¶ 20-22, 208-09

Subsequent Sec. 706 Reports (Third and Fourth Reports) have made only brief mentions of Internet backbones.

Disclosure

The FCC's Network Reliability and Interoperability Council (NRIC) expanded the scope of its work with NRIC V to include packet based telecommunications.  Study Group IV of NRIC V addresses interconnection and peering.  In June of 2001, this study group recommended to NRIC that Internet backbones publish their peering policies.  While this is merely a recommendation letter of the advisory group, it is noteworthy that the subject matter is considered properly within the scope of an FCC advisory council.

See also Characteristics and Competitiveness of the Internet Backbone Market, GAO-02-16 (Oct 2001) ("We were also told that peering policies should be made public.")

See also Industry :: Backbones (noting those networks that were found to post their peering policies); Open Internet Transparency.

GAO

In 2001, the Government Accounting Office released Telecommunications: Characteristics and Competitiveness of the Internet Backbone Market GAO-02-16, November 14., GAO 11/14/01 in which the GAO concluded

Merger Proceedings:

The most significant FCC proceedings to date to address backbones have been merger proceedings (See also Industry :: Backbones listing major backbones and who has been acquired by whom).  After a sufficient number of proceedings, the orders began to have stock background language that read as follows:

109. The Internet is an interconnected network of packet-switched networks. End users (individuals, enterprise customers, and content providers) typically, though not always, obtain access to the Internet through Internet service providers (ISPs) using a “dial-up” modem, cable modem, DSL, wireless network, or a dedicated high-speed facility (which the companies often call “Dedicated Internet Access” (DIA)). ISPs provide access to the Internet on a local, regional, or national basis, and most have limited network facilities. In order to provide Internet service to end users, ISPs and owners of other smaller networks interconnect with Internet backbone providers (IBPs)—larger Internet backbone networks. The backbone networks operate high-capacity long-haul transmission facilities and are interconnected with each other. Typically, a representative Internet communication consists of an ISP sending data from one of its customers to the IBP that the ISP uses for backbone services. The IBP, in turn, routes the data to another backbone network, which delivers the data to the ISP serving the end user to whom the data is addressed.

110. IBPs may exchange traffic either through “peering” or “transit” arrangements. Under a peering arrangement each IBP “peer” will accept and deliver, without charge, traffic destined either for its own network or for one of its own backbone customers. Transit arrangements, by contrast, permit an ISP, small or regional IBP, or other corporate business, to reach the entire Internet using dedicated access lines linking it directly to the transit provider’s Internet backbone network. An IBP providing transit service enables the customer to send and receive traffic through the purchaser’s IBP to any other network or destination on the Internet. Frequently, IBP customers obtain transit packaged with a dedicated highspeed facility as part of a DIA service, with the transit customers paying fees for both the connection and the transit service.

111. IBPs generally can be categorized into tiers based on their size, geographic scope, and interconnections. “Tier 1” IBPs are a small group of the largest IBPs that sell transit and/or dedicated Internet access to substantial numbers of ISPs and corporate customers or other enterprise customers. These Tier 1 IBPs peer with all other Tier 1 IBPs on a settlement-free basis. Lower tier IBPs may peer with each other, but generally must purchase transit from a higher tier IBP to reach end users that are not customers of the networks of their peers.

[SBC / AT&T Merger Order 2005] [Verizon / MCI Merger para. 110-15 2005]

The FCC made the following conclusions in the individual merger proceedings:

 

Network Neutrality

New policy deliberations have involved network neutrality, and whether backbone networks can discriminate against particular content, applications, or companies.

The FCC's Open Internet rules applied to Broadband Internet Access Services. The FCC excluded Internet Backbone Services from the definition of Broadband Internet Access Services.

47. ...Nor does broadband Internet access service include virtual private network services, content delivery network services, multichannel video programming services, hosting or data storage services, or Internet backbone services (if those services are separate from broadband Internet access service).  These services typically are not mass market services and/or do not provide the capability to transmit data to and receive data from all or substantially all Internet endpoints.

67 n. 209: "We do not intend our rules to affect existing arrangements for network interconnection, including existing paid peering arrangements."

Ch. Genachowski testified before Congress that the Open Internet rules did not apply to the Comcast / Level 3 Internet interconnection dispute.

Addressing

Internet backbone networks acquire Internet addresses from Regional Internet Registries, and then distribute smaller blocks of addresses downstream to their customers. There are several significant issues related to backbones and addressing:

National Broadband Plan 2010

The issue of Internet backbones has been raised in the FCC National Broadband Plan NOI. It is not directly raised in the Broadband Report.

VoIP Interconnection

Proceedings which raised on addressed telephony interconnection, begging questions about Internet interconnection.

PSTN -> IP Transition

Universal Service Reform / Intercarrier Compensation

In order to reform universal service and intercarrier compensation (reciprocal compensation, access charges, settlement fees), and bring universal service into the broadband era, the FCC is striving to reform the entire system of settlements and payments between carriers. The old system was built in the era of a monopoly telephone network, and included the promise of universal service through, at that time, implicit subsidies, and involved the division between state and federal jurisdiction. As the network moves from the analog telephone network to an all IP network with VoIP applications, the FCC must reform the old PSTN interconnection rules as they will now apply in an IP environment. The problem, in the IP network environment, is how to distinguish and make rules for telephony interconnection as opposed to Internet interconnection (peering and transit).

1347. Alternatively, other comments seem to anticipate that IP interconnection policies could encompass IP traffic other than voice.2451 Would it be appropriate to encompass any non-voice IP traffic or services in such a framework, and how would they be defined? We note, for example, that the Commission historically has not regulated interconnection among Internet backbone providers. If a different interconnection policy framework were adopted in this context, how would it be distinguishable? To what extent would an IP-to-IP interconnection policy framework address interconnection rights for both voice and non-voice traffic, or to what extent would providers simply have the freedom to use otherwise-available interconnection arrangements to exchange particular IP traffic or services? [Universal Service Reform FCC No. 11-161 2011]

TW Telecom Petition on IP-to-IP Interconnection (2011)

Time Warner Cable Request for Declaratory Ruling that Competitive Local Exchange Carriers May Obtain Interconnection Under Section 251 of the Communications Act of 1934, as Amended, to Provide Wholesale Telecommunications Services to VoIP Providers. (2007)

FCC Chairman Wheeler 2014

At the 2014 State of the Internet conference, FCC Chairman Wheeler reportedly indicated that the FCC would be paying attention to Internet interconnection.

"A lot of people seem to think that peering and network neutrality are the same issue. It is not... I think it is an issue that the Commission needs to stay on top of. It is an issue that the Commission invites comments and stories. Our job is to ensure that whatever happens is not anti competitive. Is not favoring one party.... And that's the challenge that we have to apply, to ensure that it is a competitive, vibrant, non preferential market."

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