Is Internet Interconnection the New Network Neutrality? Panel Suggests a New Regulatory Creep

WASHINGTON, May 28, 2014 – The Federal Communications Commission is likely to experience increasing pressure to intervene in and resolve disputes involving internet interconnection, experts said on Tuesday at a panel hosted by the Progressive Policy Institute.

Central to the discussion was the question of whether the FCC should go as far as to mandate interconnection, should the agency intervene.

Responses from the panelists were mixed, albeit leaning toward the standpoint that outright mandatory interconnection may be unnecessary, and even counter-productive – although there was dissent from that position.

Early in the discussion, Carnegie Mellon University computer engineering professor Jon Peha explained the basics of concept of interconnection:

“The Internet feels like one big network when we use it, but if that were the case, there would be no such thing as interconnection,” Peha said “The internet is a network of networks that are packed over 66,000 independent, autonomous networks that somehow work as one, and each network in there is connected to one or more neighboring networks. That means information I send may travel from network to network before it finally gets to its intended recipient.”

“For example, I have a student right now in Uganda and I sent her a message, and amazingly, from whatever network I’m at, it somehow figures out how to get my message to her in Uganda,” he said.

The technical challenge is not only in getting the message to Uganda, but getting every network along the way to carry the information. There are tangible costs to this, he said.

“The solution to both of these challenges is buried in the magic of interconnection agreements,” Peha continued. “An interconnection agreement is where two networks come together and agree on both the technical and business issues of changing internet traffic, including ‘will I carry any of your traffic, and if so, how much will I carry?'”

Up until now, interconnections have been created generally been created through by private, unregulated negotiations, but that is changing. The role of content distributor delivery networks and peering relationships are multiplying. The question, Peha said, is what to do about it.

Ruth Milkman, chief of staff for FCC Chairman Tom Wheeler, argued there were historical precedents for mandatory interconnection. She pointed to railroad systems and electrical networks of early in the United States as having evolved partly due to through regulatory oversight.

“There have been diverse regulatory approaches to ensuring effective interconnection,” Milkman said. “Some have involved a relatively lighter touch; others a heavier hand. Often, price regulation has been part of the package. At the bottom, however, is that a network without connections and interconnections is one that simply doesn’t work. Disconnected networks simply do not serve the public interest.”

Kevin Werbach, professor of legal studies and business ethics at the University of Pennsylvania, opined said that interconnection is was essential, especially particularly when the all communications networks is are converging into onto an internet protocol network. While the FCC should not micro-manage private agreements, a public policy backstop was needed for private enterprise interconnection agreements.

“It’s [naive] to believe that somehow, magically, this will work itself out given the way the network’s changing,” he said. “Some FCC involvement would have a lot of benefits,” he said. “I think it’s not right to say ‘do we have private agreements or do we have the FCC?’ We can absolutely have lots of room for private agreements but still have a sense that there are certain practices which are anti-competitive. ”

Werbach distinguished net neutrality and interconnection as separate issues. Interconnection  concerns the “edge of provider networks, not the network,” Werbach said. Yet the two have similar implications. Both situations leave open the possibility of an ISP internet service provider degrading and differentiating between traffic, he said.

Economists Incorporated Senior Fellow Hal Singer and Gerry Faulhaber, professor emeritus of business economics and public policy from at the University of Pennsylvania, did not favor regulatory oversight of private agreements. Faulhaber scoffed at the idea: “light touch regulation…is sort of like jumbo shrimp – it’s kind of an oxymoron.”

“Interconnection is not just a communications issue,” Faulhaber said. “It occurs in virtually every business in which the producer of something – it could be canned peas – has to distribute something to customers through distributors like supermarkets. Distributing through supermarkets works so nobody’s going for regulation of supermarkets…. We have an [internet] system that works.”

Calling for regulation of internet access because networks have changed is a fallacy, he said. The Internet has maintained itself for 30 years. The FCC, by contrast, has a “terrible reputation as an adjudicator.”

History has consistently shown that limited regulation causes two things to occur: rent- seeking and a slippery slope of more regulation.

“Once a commission interests itself in a particular area, puts a sign out that says ‘open business,’ which is what we did [with] the open internet order. What happens? Firms realize, ‘oh I don’t get to make money looking at customers and making investments. I make money by going to the regulators and getting them to favor me and disfavor others. For thirty 30 years, we never had complaints about interconnections. Since 2010, we’ve had a number…why? ‘Open for business.’

“The second thing that happens is even though commissioners may say ‘we want to limit how much we regulate,’ that won’t happen. They will be under constant pressure to expand the regulatory writ. Level 3 in 2010 said ‘let’s try to leverage network neutrality into regulating interconnection.’ It looks like we’re now leveraging the interest of the FCC in net neutrality into interest in interconnection.”

Singer added that the costs of mandatory interconnection outweighed the benefits, precisely because there have been relatively few network disputes.

“If the probability of these disruptions happening is close to zero, then the expected benefit of imposing mandatory interconnection is small as well,” Singer said.

On the cost side, Singer argued that if networks are forced to connect, it could upset providers’ “make or buy decision” and undermine some of the goals of Section 706 of the Communications Act of 1996 – namely, to encourage deployment.

“Some people point to Sprint and T-Mobile’s reluctance to deploy their spectrum into rural areas,” he said. “Mandatory interconnection and data roaming agreements cause them to want to take the ‘buy’ decision over the ‘make’ decision – so I’m worried about what it would do to incentives, not just of ISPs, but also of these middle-mile folks and content providers who are now getting a little taste of what it’s like to be in last-mile access.”

Taking a more neutral stance, Peha said he could see both sides of the argument on intervention by the FCC’s intervention. Ultimately, the agency has to provide more concrete evidence that there is a significant problem in the first place. The FCC also has to prove it can make things better.

“I would like to see more information gathered,” Peha said. “I think that’s where the FCC can do something constructive is to try to shed a little light on all those private agreements and just see if we have to be concerned about them.”

Anna-Maria Kovacs, a visiting scholar at Georgetown University’s Center for Business and Public Policy, expressed more condescension, arguing that even though it is essential for everyone to interconnect, several decades’ worth of history have proven that private commercial agreements can get the internet to that point.

Regulation, said, would eliminate flexibility and consequently lead to investments drying up.

“Barring a breakdown, we really should not be intervening because the rigidities that regulation would bring to the system would probably create far more chaos than the occasional disputes that you have between parties,” said Kovacs.

Kevin Werbach concluded by seeking to rebut arguments in opposition to regulation.

“I would hate to see the internet turn into a supermarket that’s just selling us peas,” Werbach said. “That’s not what the internet is today… not [the] open platform that generated so much extraordinary innovation. It’s a linear market – nothing comes back from the consumer the other way…. That’s not the internet we should have in the future.”