Juha Saarinen: Paying the price of peer pressure

COMMENT

How would you like an internet where your neighbour can watch webcasts of the latest Peter Jackson film premiere in Wellington, but you can't?

Let's imagine that you come up with a Kiwi version of online auction site Ebay. It is a big success but you have to pay your customers' internet provider for them to get to it.

This is already happening in New Zealand thanks to Telecom and TelstraClear using "peering" as a business weapon.

In simple terms, peering means network operators agree to exchange data instead of swapping cheques for bandwidth charges.

Peering usually takes place in well-connected exchanges (there are two in New Zealand: the Auckland Peering Exchange and the Wellington Internet Exchange) and is a cheap and effective way to boost the performance of the internet.

As Citylink's Neil de Wit says, it's the internet equivalent of creating a big local-call area for New Zealand instead of making everyone dial long-distance.

So effective is peering that the Indian Government is building four internet exchanges and plans to connect all providers in the country to them.

In New Zealand, peering is entirely voluntary, which has worked well - until now.

Take this example. Last December, Citylink set up a webcast of The Return of the King premiere. New Zealanders with broadband connections could see Jackson and the Rings gang on their computer screens, live from Wellington.

But Xtra customers could not see the webcast because Telecom didn't peer with Citylink for it.

Likewise, popular online auction site Trademe found out the hard way just last month how important peering is.

That's when Xtra, without warning, stopped peering at the Wellington Internet Exchange. Trademe's bandwidth charges tripled as data went via Auckland instead and its 200,000 subscribers with Xtra accounts were served either slowly or not at all during the site's peak hours.

TelstraClear officially put paid to peering last week, telling customers that it will no longer peer with them for domestic traffic from November 1. That's rich, because Clear was a driving force behind New Zealand peering before Telstra's acquisition.

So why do TelstraClear's bean-counters want to tear down the network connections to the peering exchanges? Because it can make more money by de-peering, even if it means degraded performance and increased costs for internet users.

If it had simply been a matter of paying for peering, most providers could have worn it. But TelstraClear is quitting the peering exchanges completely.

Instead, future peering arrangements will have to be set up elsewhere, with providers buying expensive circuits to TelstraClear's network, plus paying traffic charges. Providers who buy international bandwidth from TelstraClear have to pay for national as well if they want to send data to the telco's customers. That's the business case in a nutshell, and the reason TelstraClear doesn't want to peer.

Playing peering games is safe, because it's quite hard for customers at the end of networks to see what's going on with their traffic. Users are more likely to assume the problem is with the site they are trying to get to, and not the network connection. Guess whose help desk gets the complaints?

Some of the arguments against peering centre on "content generators" such as Trademe and the New Zealand Herald - websites that send a lot of traffic but don't receive anywhere near as much.

TelstraClear argues that this is equivalent to giving providers free access to its network and that it has to spend money on expanding capacity to accommodate the increasing incoming data.

Fair enough, it seems, except that it's TelstraClear customers who request the data in the first place.

And TelstraClear already charges them for traffic, make no mistake about that.

The content generators also pay their network operators, so there is no free ride for anyone here.

Will Telecom, never an enthusiastic peer, follow TelstraClear's example? Tim Lusk, general manager of wholesale services, declined to give a simple yes or no answer to that question, but spoke of "a series of ad-hoc arrangements for the exchange of IP traffic" in New Zealand.

He said they were "proving inadequate", without explaining why. Any changes would be implemented early next year, after discussions with customers and a look at international practice, Lusk said.

The Trademe incident and Lusk's comments point to Telecom following TelstraClear's example, and ditching peering at some point.

If that happens, the New Zealand-wide "local calling area" will be gone and it will be the norm for national data charges to be passed on to users. The fast and affordable national connectivity we're used to will be gone, so forget about stuff such as internet radio and free resources.

Trademe is already considering moving overseas to avoid paying the "telco tax" and other content providers will follow it, unless they can strike a deal to get access to TelstraClear and Telecom customers.

What can smaller providers do? Regulation is likely to be a failure. Across the Tasman, the Australian Competition and Consumer Commission had a go at regulating peering in 1998, but succeeded only in creating a monopoly after it allowed the gang of four - Telstra, Optus, AAPT and OzEmail - to exchange data with one another, but exclude everyone else.

The commission is revisiting the issue this year, and may take a more heavyhanded approach in regulating peering.

Not content with waiting for the commission, however, smaller internet providers in Australia have banded together and built independent peering exchanges. These now carry more than half of the country's internet traffic, without any involvement from the big four.

New Zealand providers may well want to take a leaf out of the Aussies' book and start similar work now to avoid being held to ransom by the twin-telcos. After November it will be too late.


* Email Juha Saarinen