Who Owns the Eyeballs? Backbone interconnection as a network neutrality issue Jonas From Soelberg Name: Jonas From Soelberg CPR: - Date: August 1, 2011 Course: Master’s thesis Advisor: James Perry Pages: 80,0 Taps: 181.999 Table of Contents 1 Introduction ..................................................................................................................... 4 1.1 Methodology ....................................................................................................................................... 6 2 Understanding the Internet ........................................................................................ 9 2.1 The History of the Internet ............................................................................................................ 9 2.1.1 The Internet protocol ................................................................................................................................. 9 2.1.2 The privatization of the Internet ......................................................................................................... 11 2.2 The Architecture of the Internet ................................................................................................ 12 2.2.1 A simple Internet model .......................................................................................................................... 12 2.2.2 The e2e principle and deep-packet inspection ............................................................................. 14 2.2.3 Modern challenges to e2e ....................................................................................................................... 15 3 Understanding Network Neutrality ....................................................................... 18 3.1 Understanding the Concept ......................................................................................................... 18 3.1.1 The history of Internet’s neutrality .................................................................................................... 18 3.1.2 Users, content providers and ISPs ...................................................................................................... 21 3.2 Network Neutrality and the ISPs ................................................................................................ 22 3.2.1 Telecommunication revenues are under pressure ...................................................................... 22 3.2.2 Telecoms want to use DPI to increase Internet profits ............................................................. 26 3.3 Regulatory Regimes ....................................................................................................................... 29 3.3.1 EU regulation ................................................................................................................................................ 29 3.3.2 US regulation ................................................................................................................................................ 30 3.3.3 Level 3, Comcast and network neutrality regimes ...................................................................... 32 4 Understanding the Backbone .................................................................................. 33 4.1 The History of the Backbone ....................................................................................................... 33 4.1.1 The government operated backbone ................................................................................................. 33 4.1.2 The privatization of the backbone ...................................................................................................... 34 4.1.3 The commercial backbone ..................................................................................................................... 35 4.2 Traditional Network Interconnection ..................................................................................... 37 4.2.1 Transit ............................................................................................................................................................. 37 4.2.2 Settlement free peering ........................................................................................................................... 38 4.2.3 Routing regimes – hot potato or cold potato .................................................................................. 42 4.3 Complications to the Traditional System ................................................................................ 43 4.3.1 Recent developments ............................................................................................................................... 43 4.3.2 Paid peering .................................................................................................................................................. 44 4.3.3 Value flow or access control? ................................................................................................................ 46 5 Neutrality Among Content or Between Networks ............................................ 49 5.1.1 Comparing the actors ............................................................................................................................... 49 5.1.2 The fundamentals ...................................................................................................................................... 50 5.1.3 The regulation .............................................................................................................................................. 52 6 Level 3 vs. Comcast ...................................................................................................... 54 6.1.1 The background .......................................................................................................................................... 54 6.1.2 How the dispute developed ................................................................................................................... 55 6.1.3 The financial consequences of the proposals ................................................................................. 58 1 7 Network Neutrality and Peering dispute ............................................................. 62 7.1.1 Network neutrality in Level 3 vs. Comcast ...................................................................................... 62 7.1.2 Level 3 vs. Comcast as a peering dispute ......................................................................................... 63 8 Owning the Eyeballs .................................................................................................... 65 8.1.1 Prices and scarcity rents ......................................................................................................................... 65 8.1.2 Market positions ......................................................................................................................................... 66 8.1.3 Comcast wants to charge scarcity rents ........................................................................................... 68 9 Conclusion ...................................................................................................................... 70 10 Bibliography .................................................................................................................. 72 Abstrakt ................................................................................................................................. 79 2 List of Figures Figure 2-1 – Packet switching ..................................................................................................................... 10 Figure 2-2 – Circuit switching ..................................................................................................................... 11 Figure 2-3 – A simple understanding of the Internet ......................................................................... 13 Figure 3-1 – Different network levels ...................................................................................................... 19 Figure 3-2 – Growth in international calling ......................................................................................... 24 Figure 3-3 – Forecast of US telecoms services ...................................................................................... 25 Figure 4-1 – The government owned Internet backbone ................................................................. 34 Figure 4-2 – The NSF’s proposal for alterations to the NSFNET ...................................................... 35 Figure 4-3 – The architecture of the private backbone ..................................................................... 36 Figure 4-4 – Advertising cones of prefiXes in peering relations ..................................................... 39 Figure 4-5 – Peering and transit interconnection in the backbone ............................................... 41 Figure 5-1 – Involved actors ........................................................................................................................ 50 Figure 5-2 – Forecast of Global Consumer Internet Traffic .............................................................. 51 Figure 6-1 – The delivery of NetfliX content to Comcast eyeballs .................................................. 54 List of Tables Table 3-1 – ApproXimate price per megabyte of various services