The radical change of the Internet in the last ten years
In the cross-sectional arguments and counterarguments on the proposal for a fair contribution of large traffic generators to the costs that they induce in telecommunication networks, there is one that deserves special attention. It is often mentioned that this issue was addressed more than ten years ago and did not receive the necessary support to move forward, and since nothing has changed, there is no point in bringing it up again ten years later. The claim that nothing has changed on the Internet in the last ten years is surprising.
The truth is that in the last ten years everything has changed on the Internet: the network architecture of the Internet has changed, business models have changed, the volume of traffic has grown exponentially, and the balance between the companies that make up the Internet ecosystem have shifted.
From the first Internet, based on websites, with a multitude of companies, and a balanced ecosystem between producers and consumers of content, and the telecommunications operators that transport that content, the last decade has seen the consolidation of an Internet dominated by a very small number of companies: the hyperscalers. Thanks to their business acumen and the “winner takes all” trend in Internet business models, these companies have reached a position of dominance in the Internet ecosystem that by 2022 is already unquestionable and incontestable giving rise to a structural problem that requires a solution. This situation has led regions such as the European Union to promote legislative responses such as the Digital Markets Act (DMA).
If there is no denying this reality, all companies and authorities involved in the future and the smooth functioning of the digital ecosystem should consider that the time has come to review some of the rules and models that in the early Internet age have been agreed, and that no longer fit the reality of 2022. It is time to lay a more solid foundation for the new era of the Internet than the current one, which can only be done on the basis of an understanding of ‘ e Internet architecture and its evolution.
Initial internet architecture
The Internet is a network of networks, consisting of thousands of interconnected networks. The interconnection architecture of networks on the Internet was initially hierarchical. There were 3 levels of networks: Tier 1 were global networks whose connection ensured full accessibility to any content or any user anywhere in the world; Tier 2 corresponds to regional networkswhile Tier 3 were the local networks with which Internet users and content and application providers (CAPs) were connected. Tier 1 is what is traditionally known as the Internet spine
In the early stages of the Internet, application and content providers and users connected to an operator who provided the Internet access service, and who was responsible for the connection with a higher-level operator to achieve transit to the global Internet .
As can be seen, the connection between the various networks that make up the Internet was done with two different services. If a network at a lower level connects to a higher level, it pays for the so-called transit service. This service allows a user of this network to reach any destination, or access any content, hosted on any network connected to the Internet. Networks on the same level can also connect directly to a so-called peering agreement. By connecting two networks directly, the use of transit service is avoided. This service provided direct access to the users and content of the two connecting networks, but did not provide visibility of the users and content of other networks.
At the commercial level, in transit agreements, the “downstream” network pays the “upstream” network for the service. In contrast, peering agreements are based on unregulated criteria on the number of users and content providers each network has, and on the traffic exchanged. Since the operators seeking interconnection tended to have similar network structures, the services – and the costs associated with them – were comparable. The implicit assumption of network symmetry (especially symmetry in access networks) and costs lead in many cases to free peering arrangements based on the assumption that payments made to cover costs incurred on the counterparty’s network will be reduced by payments received from that counterparty. In this early Internet model, the parameter of symmetry in the exchange of traffic became a leading criterion in the negotiation of peering agreements.
The flattening of the Internet architecture
The architecture of the Internet had to adapt to the new needs arising from the exponential growth of video traffic (as video streaming). Several elements have been introduced over the years that have drastically changed the Internet architecture. On the one hand, video required capabilities that the basic Internet architecture could not provide. This led to the introduction of one element, CDNs (Content Delivery Networks), clouds specializing in video distribution that reduced the need for increased capacity on higher level networks (1 and 2), and reduced Latency (the time it takes for content to reach the end user), thus improving the user experience. On the other hand, as the big hyperscalers grew and consolidated their platform model, they started building their own selective transport networks (at the most profitable layers) and their own selective CDN infrastructure.
This change has brought a complete transformation in the technical architecture of the Internet. However, the business model for interconnection associated with the first Internet architecture could not evolve. None of the interconnection rules created for the first Internet can be changed. Or rather, we can say that the hyperscalers have not allowed these rules to change, given the advantage they derive from this interconnection model, and use their undisputed market dominance to impose rules and conditions.
With the introduction of these elements, the internet has evolved over the last ten years into a flatter network where the first layers and hierarchy disappear. Those hyperscalers that have achieved a position of dominance and sufficient business scale to do so connect directly to the networks of many operators at their least expensive tiers, bypassing the transit networks, but not as users of the Internetas they did in the first phase, but if “Operators” use the … peering agreements. The creation of their own infrastructure has allowed the large hyperscalers to pay not only for Internet transit costs, but also the costs of distributing their content, thus gaining a competitive advantage over other players who do not have a dominant position and therefore no free peering can force agreements.
The architecture of the Internet has become very centralized and dependent on a few players, the big hyperscalers.
Internet users, telecom operators or content providers?
The majority of Internet transit traffic is now generated by large hyperscalers. In addition, the delivery of its content to end-consumers bypasses the traditional Internet hierarchy. Today, 3 of the top 5 providers of Internet transit connections are hyperscalers. These companies can reach most networks directly without going through the Internet hierarchy.
Surely it is time to ask if the internet giants are connection providers under the supervision of national regulatory bodies and subject to their decisions, whether they are application and content providers, or Internet users, required to pay for the connection service received. What is the role they should play in the Internet connection model?
The advantage of not paying the costs of using networks of operators
As traffic from large hyperscalers increased, and as these companies came to aggregate most of the Internet traffic, they created their own private network to avoid transit costs. They downgraded their connection with local operators under traditional conditions and connected to other networks by forcing free peering.
These companies became a “category” that was not initially foreseen in the Internet connection model: they ceased to be Internet users and became “special” network operators neither with an access network, nor a national network, but with content that gave them a clearly dominant position in the negotiation of peering agreements.
It is essential to understand that when a hyperscaler negotiations a peering agreement with a telecommunications operator, it does not follow the same principles on which peering agreements between operators are negotiated. Providing essential content and applications (due to consumer demand) gives them bargaining power that usually results in free peering agreements. They demand the advantage of not having to pay to use the transport service for their traffic offered by operators.
This does not seem to be a sign of balanced bargaining power between operators and large hyperscalers. Rather, it shows the distortion of a market that by not adapting to the evolution of the Internet can only lead to an unsustainable situation, dominated by a few companies that define the rules, the conditions, and that manage to capture most of the generated value in the digital ecosystem.
Mixing the reality of networks with the reality of large hyperscalers in the interconnection market has resulted in a distorted market. The current definition of the Internet connection market is no longer relevant because it does not consider the reality of the new interconnection model CDN and cloud infrastructure of the hyperscalers.
Given that this situation was never foreseen in the original Internet model, it should lead us to think that the time has come to consider whether this is the right foundation for financing the investment effort faced by telecommunications operators to deploy national backbone and access networks.
The essential debate on how to build a fairer and more sustainable digital ecosystem
The debate about the fair contribution of large Internet companies is the debate about the need to review assumptions that were agreed upon in the 1990s, and which 30 years later still apply to an Internet that bears little resemblance to the internet that was born in the 1990s.
It is legitimate that the companies most favored by these rules want to maintain them even in the Web 3.0 era, but there is a broad global consensus that in order to ensure a fairer and more balanced Internet ecosystem, these rules need to be revised. Legitimate counterarguments to the claims of telecommunications companies must be based on data and facts from today’s Internet, not from an Internet that no longer exists.