[8617] in Commercialization & Privatization of the Internet
Re: CIX COnnectivity
daemon@ATHENA.MIT.EDU (Marvin Sirbu)
Fri Nov 26 17:43:10 1993
Date: Fri, 26 Nov 1993 17:40:45 -0500 (EST)
From: Marvin Sirbu <ms6b+@andrew.cmu.edu>
To: com-priv@psi.com
Cc: com-priv@psi.com
In-Reply-To: <9311261952.AA01312@spare-parts.crd.Ge.Com>
I posted a message along these lines a year or so ago, but it seems
increasingly relevant today.
The history of telephone networking provides considerable insight into
the consequences of flat rate service pricing. For many years the
telephone companies would offer local residential service or WATS
service at a flat rate to customers. However these service offerings
carried with them a tariff condition which forbade the customer from
"reselling" these services. The telephone carriers justified the resale
prohibition on the grounds that
the flat rate service price covered the costs of providing service based
on average customer usage. Customers who in turn resold service would
have usage levels much higher than average, and thus the price would
generally not cover the cost of providing them service.
These prohibitions on resale were gradually removed by the FCC, in part
by the 1976 Resale and Sharing decision which allowed Telenet and Tymnet
to resale service by the packet over lines leased from AT&T, and
completely with the 1980 MTS and WATS Market Structure 3rd Report and
Order.
AT&T responded to the lifting of its restrictions on resale by moving to
eliminate flat rate tariffs whereever possible. WATS tariffs went from
being flat rate independent of usage to entirely usage sensitive. The
local operating companies moved to make business tariffs usage sensitive
and to categorize any residential flat rate tariff customer as a
business if the residential customer engaged in resale in any way (cf
the attempts to classify BBS operators as "businesses ineligible for
residential tariffs).
What can we learn from this history that might be relevant to the
current debate? As currently organized, the CIX must insist that CIX
members' customers do not engage in resale; otherwise the price that a
CIX member pays for interconnection would be too low, and the agreement
to carry traffic without settlements would be untenable. The
consequence is a never ending
semantic debate about when a customer is actually a reseller and must
join the CIX.
The FCC recognized the impossibility of differentiating between
resellers and "shared user networks" or consortia of the type described
recently by Dick St. Peters. By eliminating any restrictions on resale,
the FCC forced the carriers to abandon efforts to make such
distinctions, and to move to cost based pricing rather than averaged
prices.
I believe the CIX must eventually move away from its current position in
which it is beset with impossible decisions about who is a reseller.
Instead, when it moves to cost based interconnection (i.e. settlements),
it won't matter any more whether the large amount of traffic delivered
to the interconnection point originated with a single large University
or Corporate customer of a CIX member, or with a resale network attached
to a CIX member.
Also, when, as a CIX member, one can get paid for accepting the traffic
of another CIX member, there will be a clear financial incentive to
accept any traffic that comes one's way, rather than refusing to route
such traffic because one is concerned that it came from a resale network
instead of an end user.
This is not to imply that there won't be enormous problems negotiating
appropriate settlement rates; one need only look at the current
controversies over international settlement rates, or the tariffs for
interconnection between the Local Exchange Carriers like the RBOCs and
emerging competitors such as Teleport or MFS. In the long run, however,
it is easier to negotiate settlements than to continue to argue over who
is a reseller.
Marvin Sirbu
CMU
