,3LQWHUFRQQHFWLRQLQWKH 1HWKHUODQGV1HWKHUODQGVDUHJXODWRU\DUHJXODWRU\ DVVHVVPHQWDVVHVVPHQW L`]F]l`]jdYf\k9ml`gjalq^gj;gfkme]jkYf\EYjc]lk G[lgZ]j*()- Table of contents Summary ............................................................................................................................................... 5 i Introduction and background .................................................................................................... 5 ii Competitive analysis ................................................................................................................. 5 iii Regulatory analysis .................................................................................................................. 6 iv Recommendation ..................................................................................................................... 7 1 Introduction .................................................................................................................................... 8 1.1 Introduction and context ....................................................................................................... 8 1.2 Ongoing research ................................................................................................................. 9 1.3 Research questions and approach ....................................................................................... 9 2/86 1.4 Outline ................................................................................................................................ 10 2 IP interconnection and its developments ..................................................................................... 11 2.1 Introduction ......................................................................................................................... 11 2.2 The economics of transit and peering: making or buying connectivity ............................... 13 2.2.1 Peering: transaction costs and bargaining ..................................................................... 14 2.2.2 Changes in IP interconnection models and the role of traffic ratios ............................... 17 2.3 Actors and stakeholders in IP interconnection ................................................................... 19 2.3.1 Internet service providers ............................................................................................... 19 2.3.2 Content and application providers .................................................................................. 20 2.3.3 Content delivery networks .............................................................................................. 20 2.3.4 Transit providers ............................................................................................................ 21 2.3.5 Internet exchange points ................................................................................................ 22 2.3.6 The end-user .................................................................................................................. 22 2.4 Trends and developments .................................................................................................. 23 2.4.1 Changes in the Internet ecosystem ................................................................................ 23 2.4.2 Consolidation and expansion ......................................................................................... 25 2.4.3 Decline of interconnection prices ................................................................................... 26 2.5 The Dutch IP interconnection market and Internet access market ..................................... 27 2.5.1 Competition in the retail Internet access market ............................................................ 27 2.5.2 The degree of vertical integration of ISPs and the position of adjacent markets ........... 29 2.5.3 Content providers in the Dutch market ........................................................................... 30 2.5.4 IXPs in the Dutch interconnection market ...................................................................... 30 2.6 Conclusion .......................................................................................................................... 31 3 Potential competition problems regarding IP interconnection in the Netherlands ....................... 32 3.1 Introduction ......................................................................................................................... 32 3.2 Description and synthesis of relevant cases ...................................................................... 32 3.2.1 Case summaries ............................................................................................................ 33 3.2.2 Synthesis of relevant cases ........................................................................................... 38 3.2.3 Concluding observations from the case studies ............................................................. 42 3.3 Theories of harm ................................................................................................................ 42 3.3.1 Exploitation of a competitive bottleneck ......................................................................... 43 3/86 3.3.2 ISPs may use the competitive bottleneck to foreclose the market for content ............... 45 3.4 Possible efficiencies and objective justifications ................................................................ 48 3.5 Likelihood of actual competition problems in the Netherlands ........................................... 49 3.5.1 Evidence from interviews with market players and experts ........................................... 49 3.5.2 Assessment of relevant factors identified in the theories of harm .................................. 50 3.5.3 Some words on Ziggo after the merger and the implementation of the remedies ......... 55 3.6 Conclusion .......................................................................................................................... 56 4 The regulatory context for IP interconnection in the Netherlands ................................................ 58 4.1 Introduction ......................................................................................................................... 58 4.2 Legal classification of actors active in the IP interconnection market ................................ 58 4.2.1 Definition of public electronic communication networks and services ............................ 58 4.2.2 Legal status of parties involved in the IP interconnection market .................................. 59 4.3 General legal instruments to address IP interconnection issues ........................................ 61 4.3.1 Prohibiting the abuse of a dominant position ................................................................. 61 4.3.2 Finding Significant Market Power ................................................................................... 62 4.4 Specific legal instruments to address IP interconnection issues ........................................ 64 4.4.1 Obligation to interconnect .............................................................................................. 64 4.4.2 Net neutrality .................................................................................................................. 65 4.4.3 Dispute settlement by ACM ............................................................................................ 65 4.5 Conclusion .......................................................................................................................... 66 5 Conclusions ................................................................................................................................. 68 6 Glossary ....................................................................................................................................... 70 7 Bibliography ................................................................................................................................. 71 Annex A: Response to the consultation ......................................................................................... 76 1 Introduction .................................................................................................................................. 77 2 ACM’s analysis of the market for IP interconnection in the Netherlands ..................................... 78 2.1 The availability of transit as a substitute for peering .......................................................... 78 2.2 The assumption of efficient prices for transit services ........................................................ 79 2.3 Competition between ISPs and bargaining power ............................................................. 80 2.4 Possible justifications for restrictions on peering and the usefulness of traffic ratio’s ........ 81 2.5 The likelihood of competition problems .............................................................................. 82 3 Government intervention in the market for IP interconnection in the Netherlands ...................... 84 4/86 3.1 Prohibition of settlement-fees ............................................................................................. 84 3.2 Obligation to maintain sufficient transit capacity ...............................................................