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	This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).
	FOR IMMEDIATE RELEASE: September 26, 2000 News Media contact: Michael Balmoris at (202) 418-0253
	FCC RELEASES STUDY OF INTERNET BACKBONE MARKET Study Concludes that Competitive Internet Backbone Market Should Remain Free of Telecommunications Regulation
	Washington, D.C. - The Federal Communications Commission's (FCC) Office of Plans and Policy (OPP) today released the 32nd in its OPP Working Paper Series, entitled "The Digital Handshake: Connecting Internet Backbones." The paper, authored by Michael Kende, Director of Internet Policy Analysis in the Office of Plans and Policy, examines the interconnection arrangements between Internet backbone providers that lead to the universal connectivity that characterizes the Internet. Since its commercialization in 1995, the Internet has served as an example of a network industry in which interconnection agreements are reached through commercial negotiations in a "handshake," rather than a regulated, environment. This paper offers a primer describing the existing Internet interconnection agreements - notably peering arrangements - which have arisen in place of traditional regulation. Issues covered include: Interconnection Agreements - The paper shows how competition, governed by antitrust laws and competition enforcement, can prevent the emergence of a dominant firm, and act to restrain larger backbones from engaging in behavior that might otherwise warrant industry-specific regulations, such as interconnection obligations. Future Internet Services - The paper shows how the Internet marketplace may prevent any fragmentation of the Internet as it evolves to support new real-time services. International Interconnection - The paper concludes that legacy international telecommunications cost-sharing models are not appropriate for the Internet backbone. OPP periodically issues working papers on emerging issues in communications; these papers represent the individual views of their authors and do not necessarily reflect the views of the FCC, any FCC commissioner, or other staff. A summary of the working paper is attached. The full text is available on the FCC's web site at www.fcc.gov. - FCC - Office of Plans and Policy contact: Michael Kende, (202) 418-7512, mkende@fcc.gov.

September 26, 2000

The Internet is a network of networks, owned and operated by numerous companies, including the Internet backbone providers that use telecommunications networks and routing equipment to deliver data traffic to and from their customers. Internet backbone providers must interconnect with one another in order to enable their customers to exchange traffic with the customers of other backbones, resulting in the universal connectivity that is the hallmark of today's Internet. In an example of the Commission's "unregulation" of the Internet, interconnection between backbone providers is not regulated; instead, backbones decide whether, how, and where to interconnect in commercial negotiations among themselves.

This paper examines the interconnection agreements that have evolved in place of traditional interconnection regulations. The most commonly known form of interconnection is peering, an agreement enabling backbones to exchange traffic with one another at no cost. Another form of interconnection is known as transit, an agreement whereby one backbone pays another backbone for delivering its traffic.

In the past several years, a number of parties have questioned whether it is fair when larger backbones refuse to peer with smaller backbones. This paper demonstrates that in a competitive backbone market, there may be legitimate reasons for a backbone provider to not peer with another backbone. The paper shows that, in place of peering, backbone providers offer transit arrangements. As long as transit arrangements are available on a competitive basis, smaller backbones can enter and ensure that the backbone market remains competitive. The paper concludes that competition, governed by antitrust laws and competition enforcement that can prevent the emergence of a dominant firm, can act to restrain the actions of larger backbones in place of any industry-specific regulations, such as interconnection obligations. If a dominant backbone provider should emerge through unforeseen circumstances, however, regulation may be necessary, as it has been in other network industries.

There is concern that in the future, backbones may attempt to differentiate themselves by offering real-time services only to their own customers. As a result, the Internet would "balkanize," with competing backbones not interconnecting to provide all services. This paper demonstrates how market forces, including consumer demands, are likely to ensure that Internet backbone providers continue to provide universal connectivity. Any future calls to overturn the status quo and impose interconnection regulations on Internet backbone providers bear the burden of identifying the harms that would be remedied, as well as identifying a focused means for resolving these harms.

The paper also examines an interconnection issue raised by a number of carriers outside the United States, particularly from the Asia-Pacific region, who question whether it is fair that they must pay for the whole cost of the transmission capacity used to carry Internet traffic between international points and the United States. The paper describes the market forces that currently govern these interconnection arrangements, and concludes that they need not be supplemented by the imposition of any international interconnection regulations.