Network Discrimination in the Real World

by on November 10, 2006 · 12 comments

I’m trying to wrap my head around the scenario I criticized earlier today, where a broadband ISP charges individual sites for faster speeds.

Let’s suppose, for the sake of argument, that Comcast imposes a half-second delay into the loading of any website that doesn’t pay a special high-speed access fee. The fee might be $1 for every 100,000 page views. This website gets roughly 100,000 page views per month, so we’d owe about $1/month to Comcast if we wanted to avoid having our site load slowly for Comcast customers. A site like Techdirt, which gets roughly 100 times as much traffic as we do, would owe Comcast about $100/month if it didn’t want its traffic slowed. Google, which gets 100,000 times as much traffic as us, would have to pay about $100,000 per month. Clearly, such a scheme could bring in tens of millions of dollars in additional revenue each year.

Of course, it would be ridiculous for us to send Comcast a $1 check each month. Especially since we would presumably be expected to do the same thing with Verizon, AT&T, Charter, Sprint, Qwest, and dozens of smaller ISPs. Running a “high speed” web site would require writing dozens of checks to dozens of different network owners.

Of course, in practice, the process would be streamlined, probably by your ISP. So instead of having to send dozens of checks out yourself, you’d sign up with an ISP that has already negotiated blanket “high speed agreements” with the various ISPs on the Internet on behalf of all of its customers. The same would be true of turnkey hosting products like TypePad.

Now, it’s likely that the largest ISP would be able to negotiate bulk discounts. After all, if I’m representing 50,000 website owners, I’ve got a lot of leverage. If Comcast doesn’t agree with my price, it will be forced to degrade the quality of all 50,000 of my customers’ web sites. That will not only deprive Comcast of a lot of revenue, but it will also get Comcast’s own customers pissed off, because their Internet experience will suffer. Smaller ISPs, recognizing this, would probably ask their larger, upstream ISPs to negotiate on their behalf in order to give them greater leverage.

So the most likely outcome would be a small number of large business ISPs, each representing tens of of thousands of websites, negotiating with a small number of large residential ISPs, each representing tens of millions of consumers. Notice that the situation is largely symmetrical: if a residential ISP walks away from the table with a particular business ISP, it’s not obvious who is hurt more. The residential ISP will take just as much heat from its customers as the business ISP will take from theirs.

Here’s the thing: this isn’t a hypothetical situation at all. In fact, it precisely describes the negotiation of peering agreements among major Internet backbone providers. In those negotiations, each party would like to force the other to pay it for the right to interconnect. If there’s a big difference in size or degree of connectedness, the smaller and less-connected company pays the larger, better-connected one for a connection. If they’re the same size, they engage in a “settlement-free” peering agreement, in which each agrees to carry the other’s traffic free of charge.

In practice, the nine largest networks peer on a settlement-free basis, while the others pay them for access. I believe that five of those Tier 1 carriers (AT&T, Verizon, Qwest, AOL, NTT) serve mostly residential customers, while three others (Global Crossing, Level 3, and Savvis) serve mostly business customers. (I think Sprint serves a substantial number of each)

The rest of the Internet, directly or indirectly, pays one or more of those nine companies for connectivity. The prices for connectivity are set in an extremely competitive marketplace. Those backbone providers are already charging as much as they can get away with. It’s not obvious why those companies would suddenly be able to charge more when they label part of the bill a “high speed web access fee.”

Moreover, if the vast majority of web sites ended up having high speed agreements negotiated on their behalf by their upstream ISPs, it’s not obvious what point would be served by each residential ISP keeping a massive database of which web sites have paid for preferential treatment. Compiling, updating, and distributing such a database would be a massive administrative task. The database would have millions of entries, and it would have to be distributed to thousands of routers around the world.

The far more efficient structure is the structure that’s already evolved in the competitive conditions of the modern-day Internet. Individual ISPs don’t negotiate with individual websites because doing so would be an expensive and pointless duplication of effort. Large ISPs are already charging smaller ISPs for access to their “pipes” at market-determined rates. The system works great, and there just isn’t any reason to change it.

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