A common carrier approach to Internet interconnection.

• Author: Speta, James B.

1. INTRODUCTION

   The Internet is rife with disputes over interconnection. These disputes take many forms, ranging from complaints over unfair peering policies by "backbones," to assertions that instant messaging is being monopolized, to arguments for mandatory Internet Service Provider ("ISP") access to cable television Internet systems, to compensation disputes among local telephone companies over the delivery of Internet-bound telephone calls. And yet, despite these controversies and many others, the only legal rules governing Internet interconnection are a limited number of company-specific conditions imposed in some merger reviews. Certainly, the Federal Communications Commission ("FCC") has developed no rules governing Internet carriers, frankly admitting that it "has struggled with how to treat Internet traffic for regulatory purposes." (1) Indeed, it is fair to say that no comprehensive regulatory scheme exists.

   Of course, the FCC's general approach is to declare that the Internet is competitive and that there is no need for comprehensive regulation; such regulation, it is said, might even be harmful by stifling innovation, increasing costs, or distorting competition. In fact, one chairman said that the agency would not regulate the Internet because, in that manner, it was sure to "do no harm." (2) This dominant rhetoric, however, is belied by the government's action in particular cases. For example, in each of the recent communications industry megamergers, opponents claimed that the combination would hurt competition in the Internet. These claims varied from the assertion that Internet backbone markets were concentrated and that the dominant Internet backbones would discriminate against their smaller competitors (MCI/Worldcom); to the assertion that cable companies would gain the ability and incentive to restrict their subscribers' access to the content and services of unaffiliated companies (AT&T/TCI, AT&T/MediaOne, AOL/Time Warner); to the assertion that those entities controlling Internet transmission facilities should be required to sell raw transmission capacity to permit unaffiliated companies to market competing services directly to consumers (including the cable mergers and Baby Bell mergers as well). In one fashion or another, opponents of the mergers argued that the essential nature of the Internet--open, democratic, and fiercely competitive--was threatened by the mergers.

   Although, on the surface, the government seemed unpersuaded and the dominant rhetoric of "no regulation for the Internet" continued, in each of these mergers, the antitrust authorities or the FCC permitted the merger only after the companies agreed to specific conditions designed to address the competitive structure of the Internet. In the MCI/Worldcom merger, the government required the divestiture of MCI's Internet backbone. In the various Bell Company mergers, the government required specific steps to open the local loop for greater competition among DSL providers. In the AOL/Time Warner merger, the government required the merged company to develop new wholesale transport arrangements favoring unaffiliated Internet service providers. What seems to be missing is a generalized approach to Internet interconnection problems. Some of the specific merger conditions seem right, and some seem wrong or irrelevant to the competitive issues raised by the mergers. But all of them were imposed only on specific players in a market and were based on reasoning specific to a single (albeit important) transaction in that market. Moreover, many interconnection disputes arise in contexts other than mergers.

   This Article argues that some generalized interconnection rules are broadly appropriate. Specifically, this Article suggests that some lessons learned from the ancient regime of common carrier regulation provide the appropriate regulatory foundation for the modern Internet. Since at least the middle ages, most significant carriers of communications and commerce have been regulated as common carriers. Common carrier rules have resolved the disputed issues of duty to serve, nondiscrimination, and interconnection. These were the problems of seventeenth-century ferry owners and innkeepers, eighteenth-century steamships, nineteenth-century railroads, and twentieth-century telephone networks. They are similar to the problems of the twenty-first-century Internet, and similar rules can govern its evolution as well.

   This is not to say, of course, that the rules of innkeepers, railroads, or telephones should be imported wholesale to govern the Internet. Rather, the history of common carrier regulation demonstrates the fundamental importance of interconnection rules for transportation and communications networks. Interconnection had a common law analog in the duty of common carriers to serve the public generally, and explicit interconnection requirements, when later imposed by statute, helped create extensive transportation and communications networks. These networks were extraordinarily useful in their own right, but they also permitted the development of new markets that used their services as inputs.

   Thus, this Article argues for a general interconnection obligation for Internet carriers. The legal history lessons sketched out above do not stand alone, however. The Article also reviews the technical scheme of the Internet, and the economics of networks generally. Both the technical side of the Internet and the economics of it as a network similarly demonstrate the value of a general interconnection obligation for a bearer network such as the Internet. The technical and economics reviews also help identify precisely how the interconnection obligation should be defined.

   The plan of the Article is as follows: Part II describes several current Internet interconnection disputes as case studies for the general Internet interconnection problem. These case studies--peering, cable open access, instant messaging, and reciprocal compensation for Internet-bound telephone calls--are interesting interconnection disputes in their own right. But they also demonstrate the various layers, from the core to the periphery of the Internet, at which Internet interconnection disputes occur. Part III describes the current technical, legal, and economic dimensions of Internet interconnection. At a technical level, the Internet is designed for the very purpose of interconnecting networks, but no legal rules require pure Internet carriers to interconnect with one another. Interconnection results, or is resisted, based upon the economic costs and benefits of interconnecting.

   Part IV provides a relevant history of common carrier regulation, from the common law to twentieth-century regulation of many parts of the economy. The duties now associated with common carrier regulation originally applied both to carders (such as ferrymen, coaches, and railroads) and to noncarriers (such as innkeepers, farriers, and other skilled tradesmen). Later statutory enactments focused common carrier duties on carriers alone. An examination of the common law and leading common carrier statutes demonstrates that common carrier duties were imposed to combat monopolies or to address other public interests. Moreover, the inquiry demonstrates that specific interconnection obligations, and duties to establish joint services, evolved from the original duty to serve (and the duty of nondiscrimination).

   Part V addresses the Internet interconnection disputes in the language of the law of common callings. Internet carriers generally undertake to serve all, and the Internet's construction and operation were advanced through direct and indirect government benefit. Moreover, Internet markets may exhibit at least localized monopoly, and they certainly exhibit strong network effects. For these reasons, Internet carriers fit well within the tradition of common carriers. Part V therefore proposes a tempered interconnection duty, which addresses competitive concerns without requiring mandatory unbundling and its inevitable complementary pricing regulation. This proposed approach would require interconnection between backbones and other Internet carriers and between both Internet and telephone carriers. It would also require interoperability at the core of instant messaging technology. It would not, however, require the fundamental unbundling associated with cable open access demands. The interconnection requirement proposed here ensures that the Internet remains a single network, while limiting the threat that heavy-handed regulation would pose to the Internet's vibrancy.

2. A SAMPLER OF INTERNET INTERCONNECTION DISPUTES

   Many of the most significant clashes among Internet carriers and businesses are actually conflicts over interconnection--either over the threshold question of whether interconnection will be allowed or over the terms and conditions of interconnection. This Part assembles a sampler of those interconnection disputes. In particular, it describes (a) the concerns over peering and transit arrangements, through which Internet backbones and smaller ISPs interconnect; (b) open access disputes concerning ISP access to high speed Internet access services offered by cable companies; (c) instant messaging disputes, centering around the market leader AOL's refusal to make its instant messaging system interoperate with other systems; and (d) reciprocal compensation disputes surrounding Internet-bound telephone calls. This list is not intended to be exhaustive, but rather a collection of some of the more publicized interconnection disputes which can serve as general examples of the need for an Internet interconnection policy. (3) Additionally, as to these selected disputes, the FCC has engaged in at least preliminary consideration. In general, the FCC has not adopted specific rules requiring interconnection or otherwise regulating on a comprehensive basis.

   1. Peering

      By contrast to the voice...