There is a reported dispute between Level 3 and Cogent Communications, described as two major Internet backbone providers, concerning the terms of the peering arrangement whereby they exchange Internet traffic by connecting their networks. According to a CNET News.com article, the dispute has led to some customers experiencing disruptions in getting to some Internet sites.

The reason for the dispute: "Level 3 contends that its arrangement with Cogent is no longer financially viable, since it is larger than the other company. It has asked Cogent to seek other arrangements, possibly including paying for the traffic exchange, a Level 3 representative said." Cogent argues--cogently, I'm sure--that its network is at least as big as Level 3's and that it shouldn't have to pay. (This sounds like a special variant of the ol' "level playing field" argument that may be directed against any company above a "Level 2".)

Anyway, the peering interconnection arrangements of Internet backbone providers are not presently regulated by the FCC. I suspect that the dispute will be resolved in the marketplace, or, possibly in court if there are any colorable claims of a breach of a contractual agreement. In any event, I suspect that the dispute among Cogent and Level 3 will be resolved fairly quickly without regulatory intervention, or that entirely new peering arrangements involving other backbone providers will be negotiated fairly quickly, in a way that does not lead to any significant disruption of Internet access. (If I am wrong, I am sure I'll hear about it, and we can debate the whys and wherefores.)

It is worth noting that if the House Commerce Committee draft were the law, the providers almost surely already would be arguing their case before the FCC, because one or the other would think they would have a better shot at reaching a preferred outcome through litigation rather than negotiation. If the House draft were law, the heretofore unregulated Internet backbone providers, now classified as "BITS" [broadband Internet transmission"] providers, would be required to be registered with all State PUCs in which they offer BITS and with the FCC. And under the new law each BITS provider "has the right and duty to interconnect and exchange traffic with other requesting BITS providers, BIT providers, and telecommunications carriers." But there is no standard set forth in the draft for determining the interconnection "rights and duties" (not even "impairment" which caused us so much angst in the last eight years!). So it is easy to imagine a years-long Section 251-like litigation saga before the agencies and the courts even to settle the basis upon which disputes are supposed to be resolved.

In the proposal of the DACA Regulatory Framework Working Group, the question of how to treat interconnection was the most contentious issue. Ultimately, it was decided that the FCC should have jurisdiction to resolve interconnection disputes between service providers, presumably including Internet backbone providers based on a standard less stringent than pure antitrust jurisprudential principles. Nevertheless, under the DACA draft, the circumstances under which the FCC lawfully could exercise its power are well-defined and considerably circumscribed. For example, the exercise of interconnection authority is tied to the agency making findings of insufficient marketplace competition, a substantial and non-transitory risk to consumer welfare, and the impact of mandating interconnection on investment and innovation.

The current dispute between Level 3 and Cogent provides a good opportunity to think about how much, in this age of increasing inter-modal competition, we want to rely on regulators, as opposed to the marketplace, to settle disputes among service providers, and the costs and benefits of each approach.