14 January 2004
As the demand for bandwidth grows, Australia's ISP peering networks are facing increasing competitive pressures. David Braue takes a closer look at impending regulation and what changes may be in store for Australia's Internet peering environment.
When Internet service provider Internode announced earlier this year that it would sever its connection to Telstra's backbone network, the world seemed full of possibilities. In a market where the 'Gang of Four' ISPs - Telstra, Optus, AAPT and OzEmail - maintain a cartel that's perpetuated pricing inequity with smaller ISPs, Internode's bold decision was an unrivalled show of defiance.
A few months later, Adelaide-based Internode slunk back to Telstra to reconnect its connection. The ISP's tens of thousands of customers nationwide were complaining of slower performance in games and other latency-critical applications - the result of the detour that Internode had set up to circumvent its one-time reliance on Telstra. However, customers are kings in the ISP world.
"After disconnecting from Telstra, we discovered exactly what we feared," says Internode managing director Simon Hackett. "Performance got worse, in some cases bad enough to affect the quality of game play. That's the litmus test for customers: if you can do gaming right, you can do everything else right. But when customers started complaining about performance, much to our annoyance we had to go back and start buying from Telstra. We negotiated a price that's better than it used to be, but it should be zero and it's still a hell of a long way from zero."
Internode's experiences reflect the ongoing struggles between the national ISP community and the Gang of Four, which was empowered several years ago by an ACCC decision that let the companies - then the dominant players in the ISP market - exchange Internet traffic at no cost to each other.
Other ISPs, however, have been precluded from similar peering arrangements, forced to pay one of the four companies for a high-capacity trunk line that carries all of the smaller ISP's traffic. ISPs pay for both uploads and downloads, meaning that smaller ISPs pay for traffic even when customers of the larger ISP access a site on the smaller ISP's network.
Since those companies dominate the transoceanic links that connect Australia's Internet to the rest of the world, the net effect is that Telstra, Optus, AAPT and OzEmail are making money from their competitors' business activities as well as their own. With no legislative pressure to change the situation, they've all but flatly denied smaller ISPs the right to exchange internal traffic at more commercially reasonable prices.
"It's a deliberate commercial decision, a form of legal but mean economic pressure the Gang of Four are applying on competitors," says Hackett. "They force the rest of the industry to pay 100 per cent of the transaction costs for all interactions with them, and to hand their transactions to the Gang of Four at zero cost."
Tier-two ISPs haven't been sitting still, however. By joining forces in a show of defiance, smaller ISPs have long established alternative peering exchanges - such as WAIX in Western Australia, SAIX in South Australia and the nationwide Pipe Networks - that charge ISPs a small fee to share data with each other at no cost.
These networks do not involve the Gang of Four, but have gained enough market heft that they're now estimated to carry more than half of all Internet traffic in Australia. During October alone, WAIX carried more than 55 terabytes of information between its 51 peering ISPs, which include smaller ISPs, wholesalers like Comindico, national retailers like iiNet and Primus, and Western Australian universities. WAIX has even worked out peering arrangements with Connect, an arrangement that makes that company one of the more flexible in the traditional top-tier cartel.
Such arrangements mean big savings for customers of small ISPs who no longer have to rely on the Gang of Four to reach other ISPs. The WA state government's involvement in WAIX, for example, has allowed it to download more than 260 GB per month of data at no cost through the exchange. This information would otherwise have had to be paid for through a link with the Gang of Four.
Shifting the balance of power
In the world of voice communications, early monopolies over interconnect arrangements have been whittled away, and long-haul carriers regularly compensate each other for call minutes terminated on each others' networks. But after years of light-handed regulation in which it was hoped Australia's ISPs would work out such issues on their own, the continuing lack of progress has forced regulators to step in.
After years of complaining, smaller ISPs may finally see things going their way this year, as the Australian Competition and Consumer Commission (ACCC) hands down the long-awaited results of its inquiry into ISP peering arrangements.
The ACCC's current inquiry was occasioned by a recognition that the organisation's earlier decision effectively handed a monopoly to the largest players. That monopoly has been progressively transferred like a hot potato as OzEmail was bought by MCI, which was bought by WorldCom; Connect was bought by AAPT; and Optus was picked up by SingTel. Adding insult to injury, these changes in ownership mean that most revenues from Australia's unbalanced peering arrangements are ending up in foreign coffers.
The fact that the ACCC is revisiting the current arrangements may have already encouraged the Gang of Four to give a bit more when it comes to negotiating interconnection.
"The reality is that we have an industry that is dominated by one player, and we are all required to interconnect in some way with that player," says Maha Krishnapillai, National Executive for Strategy with Macquarie Corporate Telecommunications, which has tried unsuccessfully for years to establish peering arrangements with Telstra.
MCT reports small improvements since the ACCC inquiry began. "We did the rounds before the inquiry began, and none of the ISPs wished to enter into peering discussions," he says. "Since the enquiry, the mood has changed a bit. We're in discussions with them now. It's an ongoing process - as volumes build, negotiations tend to be ongoing."
"The ACCC's recent intervention has made a huge difference in the 'peering abyss'," says another ISP operator, who asked to remain nameless. "I have been in charge of our re-negotiation of our data supplies, and my results have been remarkable. It's in Australia's interest for this to occur. It would substantially change our adoption of Internet content and development in this country, and I can't see the government not taking this stand."
Just what the new peering environment will look like remains to be seen, but if the ACCC mandates a higher level of equality it's likely that tier-one and tier-two peering exchanges could become entry points for individual ISPs. Once those ISPs lay down enough bandwidth to link to those entry points, everything they transfer through the exchange would be carried at no cost. International connections would remain the responsibility of each ISP.
Gavin Tweedie, Technical Manager at WAIX, believes achieving a workable result will be more complicated than simply bludgeoning the Gang of Four over their collective heads.
"It is totally unacceptable for people to expect Optus to deliver data that came from Brisbane to an Adelaide ISP for free," he says. "There are costs involved with the carriage from Brisbane to Adelaide. However, expecting Optus to peer its South Australian network with South Australian ISPs is fair. If the ISP in Adelaide decides to pay to carry this data to its other POPs around the country, the cost has been borne by the ISP charging the end user for the data. It's obviously nice when a national player peers its entire network at an exchange, but forcing a large carrier to do things will only put them into defensive mode."
The changing face of peering
It's not an exaggeration to say that every ISP in Australia is waiting for the results of the ACCC's inquiry. Yet whatever the regulatory outcome involved, there are other issues to consider.
Broadband, for one, changes the ISP bandwidth cost equation, making peering more desirable because data volumes increase so rapidly in a broadband world. Peer-to-peer applications have a similar impact, since increased data volumes pressure ISP lines and increase the cost of their Internet trunks. If even some of this data could be shuttled through a free peering environment, costs would drop significantly, improving profitability for smaller ISPs and potentially reducing or stabilising access prices for end users.
Another issue is the simple geographic reality of Internet transit. Peering arrangements affect the geographical flow of traffic from one point to another. An ISP's choice of bandwidth provider can mean that traffic going from one house to another across the street could easily travel through another city. More flexible peering arrangements would shorten this route, allowing traffic to jump between networks as necessary for delivery of the information.
Such an approach may be ideal, however broad variations in ISP size mean that it's hard to work out global tit-for-tat arrangements. In the short term, state-based peering could be a compromise that increases local performance and provides equity between smaller players.
Just how the peering environment is going to change will gradually become clear. But Bjarne Munch, Senior Research Analyst with META Group, says it could still be some time. "There seems to be a belief that Australia has a very mature Internet industry, so it will take some time before the environment can place any significant amount of pressure on the top ISPs," he says. "I don't think the peering that we're seeing now is sustainable for more than maybe two to three years. By then, I think the traffic flow will have changed so much that the arrangements will have to have changed.