Margit Vanberg, Developments in network interconnection in:

Margit Vanberg

Competition and Cooperation Among Internet Service Providers, page 39 - 42

A Network Economic Analysis

1. Edition 2009, ISBN print: 978-3-8329-4163-5, ISBN online: 978-3-8452-1290-6

Series: Freiburger Studien zur Netzökonomie, vol. 14

Bibliographic information
39 research in Magnetic Fusion Energy and the HEPNet for its High Energy Physicists (Leiner et al., 2003: 8). The National Aeronautics and Space Administration (NASA) established SPAN, and the NSF approved a five year grant to finance the CSNET, a network geared towards computer scientists of smaller universities without access to the ARPANET (Jennings et al., 1986: 946). A further network established in the early 1980s for interuniversity communication on the North American East Coast was the BITNET.22 The USENET was developed as a simple store-andforward network for computers using the UNIX operating system.23 In 1988 the NSF built the NSFNET, which connected its five supercomputer sites and offered longdistance data transportation between the attached local and regional networks. There were also advances in computer networking outside of the United States.24 International networks based on packet-switching included the NPL network in the U.K., where pioneering research on packet-switching had taken place. In France, a research network named Cyclades/Cigale was started to test the U.S. and British experiences using packet-switching for computer communication. A common European initiative was the European Informatics Network. ARPA collaborated with researchers abroad, as for instance with the University College of London or the Norwegian Defense Research Establishment, to establish direct links between the ARPANET and international sites via satellite and ground connections (Hauben, 2004: 3ff.). Through these international collaborations, the ongoing work of refining the TCP/IP protocols was always an international process. Many of the features of later protocol versions, for instance, resulted out of discourses taking place at international informatics conferences.25 3.2.2 Developments in network interconnection The early computer networks were at first designed and operated for closed user groups. The networks enabled file-transfer and remote job entry in addition to communication via E-mail for users belonging to, for instance, a university consortium or a government ministry. The use of these networks was tied to a common workenvironment and common projects. Some networks, especially those in the academic 22 Jennings et al. give a detailed overview of the other computer networks existing by the mid- 1980s (Jennings et al., 1986). 23 Naughton calls the USENET the “poor man’s ARPANET” (Naughton, 2000: 169). It was based on the UNIX operating system, which was considered the most powerful operating system for mini-computers at the time. UNIX was distributed with open-source code and at low cost and was therefore very attractive to academic users. On USENET each member-site covered its own costs for dial-up telephone line communication and agreed to forward packets of other users within its own system. 24 See Hauben (2004) for information on the international origins of the Internet. 25 The biennial International Computer Communications Conference, which was started in 1972 in Washington, D.C., is such an institution where collaborative research relevant to the Internet development is initiated and discussed. 40 arena, installed gateways to other networks in order to allow communication across user groups. This communication was, however, generally restricted to the exchange of E-mail. For instance, CSNET and BITNET users could send E-mail to ARPA- NET users by a common host acting as a mail relay server between the networks (Jennings et al., 1986: 946). There also existed “informal” electronic gateways for E-mail transfer between the USENET and ARPANET at sites connected to both of these networks (Jennings et al., 1986: 948). These gateways, however, did not support the exchange of data files. Other networks remained completely isolated, for instance the MILNET, a military network operated by the Department of Defense, which was purposefully split from the ARPANET in order to ensure access from only a limited set of legitimate users. This limited connectivity offered in the early computer networks changed substantially with the advent of the NSFNET in 1988. The NSFNET was built upon the already existing research networks of federal agencies and academic institutions such as ARPANET, MFENET, CSNET, and BITNET. It was explicitly designed to serve as the interconnecting link for communications between these regional networks and provided the first convenient method for extending the reachability of one’s network to several other networks via a common intermediary. Since the NSF had decided that the common standard on the NSFNET would be the TCP/IP protocol (Jennings et al, 1986: 945), the compatibility of all networks using the TCP/IP protocol, also for applications beyond E-mail exchange, was ensured. With the advent of the NSFNET, network interconnection therefore increased immensely. Since the NSFNET provided a convenient means of communicating across networks at low cost, direct interconnections to other networks remained relatively uncommon at the time. A stylized depiction of the interconnections at this time in Figure 3.2 shows that the emerging “network of networks” consisted of three hierarchy levels: (1) the national backbone capacity of the NSFNET, situated at the toplevel, with the widest geographic extension; (2) larger wide-area networks of university consortia or of state-university partnerships on the mid-level; and (3) local-area networks covering, for instance, only a single university campus on the lowest level. Communications between distant networks were generally realized by sending data upwards into the NSFNET backbone and from there downwards towards the receiving network. In the late 1980s regional networks began offering commercial Internet services to industrial users. The regional networks provided their customers with the hardware necessary to use the telecommunications infrastructure to access their network. The essential service to be offered was to provide the functions of the logical layer of Internet service provision (i.e. network interconnection, routing, and network management) to commercial users. The companies also offered simple applications, most notably electronic mail capability to their users. 41 Figure 3.2: Architecture of the NSFNET Source: Kesan and Shah, 2001: 105 As commercial traffic was officially not allowed on the NSFNET, the offers to commercial users initially included only a limited connectivity, encompassing only those users connected to the same commercial network. Traffic from commercial users to legitimate users of the NSFNET was also tolerated; for this the commercial networks established connections with the NSFNET. Using the NSFNET backbone to transport traffic between commercial users was however not allowed by the NSFNET Acceptable Use Policy (Kahn, 1995: 4). To circumvent this NSF policy, the providers of commercial services began establishing private Internet Exchange Points where they interconnected their networks and transmitted the traffic between their users.26 The interconnectivity offered to commercial users was therefore dependent on the extent of the interconnection agreements their service providers entered into with other service providers. With this development the direct interconnections between networks on lower hierarchy levels became more important and therefore more frequent. 26 Internet Exchange Points are explained in more detail in section 3.5.1. NSFNET Backbone Regional Network Regional Network Regional Network Regional Network Local Networks, e.g. Universities 42 The public Internet With the termination of the NSFNET in April 1995 the connectivity between industrial users and academic networks was no longer hampered by the restrictions for using the NSFNET. Commercial networks took the place of the NSFNET in providing long-distance data transportation and connectivity services. Without the government restrictions on the type of traffic allowed, the Internet became public in the sense that all users could access and correspond with any site available on the public Internet by establishing the relevant interconnections. Universal connectivity In the commercial era of the Internet (1995 to the present), Internet users have come to expect that all sites and all users connected to the public Internet are accessible to them, irrespective of the home network providing the Internet access. This ability to reach all users and sites on the public Internet is called universal connectivity. Economides (2005: 389) notes: “The demand for universal connectivity on the Internet is stronger than the demand of a voice telecommunications customer to reach all customers everywhere in the world.” He argues that a long-distance company that does not offer access to all countries can survive in the market for long-distance services, because users can generally anticipate whether they will need to contact another user in a certain country. “On the Internet, however, one does not know where content is located. […] customers would never be able to know or anticipate what content they would be missing” (ibid.). Therefore, they will not be willing to accept a limited interconnectivity service. 3.3 History of the Internet hierarchy In the NSFNET era, the NSFNET was the single wide-area backbone network of the emerging “network of networks.” Public funding of the NSFNET backbone crowded out investments into higher network levels, because regional and local networks had no incentive to establish direct interconnections with more distant networks, since using the NSFNET backbone ensured connectivity with all other networks attached to the NSFNET at lowest possible costs. Later on, when ISPs began investing into direct interconnections between their networks in order to offer data transportation services to commercial users, the privatization design of the NSF continued to endorse the network hierarchy that had existed previously. Financial support could be received from the government for realizing interconnection with a commercial ISP, if this ISP had a backbone network that connected to all NSF-specified priority Network Access Points (NAPs) (NSF, 1993: 12).27 In consequence, only ISPs with a nation-wide network, reaching from the East Coast to the West Coast of the United States, and with points of interconnection in the central states were competitive in 27 At the time of the solicitation, the NSF had specified the locations California, Chicago, and New York City as priority locations.

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Die Konvergenz der Netztechnologien, die dem Internet, der Telekommunikation und dem Kabelfernsehen zu Grunde liegen, wird die Regulierung dieser Märkte grundlegend verändern. In den sogenannten Next Generation Networks werden auch Sprache und Fernsehinhalte über die IP-Technologie des Internets transportiert. Mit den Methoden der angewandten Mikroökonomie untersucht die vorliegende Arbeit, ob eine ex-ante sektorspezifische Regulierung auf den Märkten für Internetdienste wettbewerbsökonomisch begründet ist. Im Mittelpunkt der Analyse stehen die Größen- und Verbundvorteile, die beim Aufbau von Netzinfrastrukturen entstehen, sowie die Netzexternalitäten, die im Internet eine bedeutende Rolle spielen. Die Autorin kommt zu dem Ergebnis, dass in den Kernmärkten der Internet Service Provider keine monopolistischen Engpassbereiche vorliegen, welche eine sektor-spezifische Regulierung notwendig machen würden. Der funktionsfähige Wettbewerb zwischen den ISP setzt jedoch regulierten, diskriminierungsfreien Zugang zu den verbleibenden monopolistischen Engpassbereichen im vorgelagerten Markt für lokale Netzinfrastruktur voraus. Die Untersuchung zeigt den notwendigen Regulierungsumfang in der Internet-Peripherie auf und vergleicht diesen mit der aktuellen Regulierungspraxis auf den Telekommunikationsmärkten in den Vereinigten Staaten und in Europa. Sie richtet sich sowohl an die Praxis (Netzbetreiber, Regulierer und Kartellämter) als auch an die Wissenschaft.