A Practical Navigator for the Internet Economy

WorldCom/MCI Merger: Internet at Risk? -- Merger Would Lessen MCI/WorldCom Incentive to Upgrade Its Interconnections to Remaining Backbones - John Curran's March 13 CWA Speech -- Replies by Vint Cerf and Curran Follow - Merger would Yield Single Dominant Player pp. 1 - 11

On March 13, 1998 at the Mayflower Hotel in Washington DC, the Consumer Project on Technology and the Communications Workers of America presented a half day symposium on the proposed WorldCom MCI merger. John Curran, the CTO of GTE Internetworking, closed the symposium with an hour long address and question session. We publish a transcript of his talk and of the questions from the audience followed by a rebuttal written for the COOK Report by Vint Cerf and a final response by John Curran.

The most commonly expressed concern has been the newly merged company would control so much of the backbone market that it could raise prices to downstrean ISPs with impunity. However, in his talk, John made a much more subtle and compelling case in looking at the changed relationship that would occur among the five to seven backbones that are either totally or partially privately interconnected. These backbones account for 90% of the Internet's traffic. However, because none of the backbones accounts for as much as 30% of the traffic (not even UUNET plus ANS), satisfactory connectivity to the overwhelming majority of the internet is dependent on these top five to seven networks cooperating with each other to install upgrades to their private connectivity as rapidly as possible in order to be sure that down stream customers have satisfactory capacity to all parts of the Internet. Everyone loses by not cooperating in continuing to build the network and everyone wins when all increase their interconnect infrastructure as rapidly as possible.

Curran pointed out that if, suddenly by way of merger, one network were to aggregate a substantial majority (greater than 60%) of the network's traffic, the balance that has kept everyone locked in a win - win relationship changes in a such a way that slowness to upgrade links becomes much less of an irritant to the larger partner and much worse for the smaller which all of a sudden finds its connectivity to the majority of the Internet degraded.

The post merger 'Goliath' network, by slowing down the rate of its private interconnect upgrades, can create a situation where dissatisfaction among its competitor's customers increases faster than among its own - with the result that those customers may begin to disconnect from the smaller competing backbone and migrate to the "Goliath." Given the frantic pace of growth, the shortage of capital, and the myriad of things competing for management's attention, in a post merger Internet, the larger network would not have to conspire overtly against the smaller. Because the balance of win - win would have been altered to win - lose, just by "inadvertent" slowness to respond to the interconnect needs of its smaller competitors, the Goliath would find itself in a situation where forward momentum would favor its continued growth.

The question period brought out another factor in the equation. The Internet can function well without regulation because of its current balance of large backbones having an interest in interconnection. Change this by creating a WorldCom/MCI "Goliath" and you may inherit a situation where the only way to create a balance to the overwhelming dominance of WorldCom/MCI is to impose regulation on the industry. Such a move would slow down the speed of innovation but would also likely suit just fine the LECs and dominant IXCs that are threatened by the technology paradigm shift of the Internet.

We offered MCI a chance to rebut Curran. It accepted. Vint Cerf wrote us a 2500 word response where he maintained that the overall size of MCI and WorldCom was closer to 20% of the net and stated that the size issue was really impossible to deal with because no one had any measurements that were adequate. Vint dealt only obliquely with John's analysis of the motivation to increase interconnect infrastructure. When we pressed him on the issue he replied he simply didn't find it the psychology described by John to be credible.

Finally John responded to Vint's comments. Among the points he made: "Based on the traffic flow statistics I've seen to date, each major backbone currently handles a minority of the Internet's inter-provider traffic, with specific percentages ranging between 10 to 30 percent for the top handful of backbone providers. (Representatives of several networks have told me that they agree with these generalizations, but I would welcome input from anyone with significantly different numbers.) . . . ."

"The current cooperative environment encourages providers to resolve traffic exchange problems before customers are forced to pursue such extreme steps as obtaining secondary Internet connections to access poorly interconnected backbones. But after a WorldCom-MCI merger, customers facing performance problems caused by their provider's degraded interconnection with the dominant backbone would have to trade in their old provider for a direct connection to the merged firm's network. This switch would be a customer's only opportunity to bypass the degraded interconnection between the MCI/WorldCom backbone and the customer's current provider, and to achieve unfettered, quality access to the majority of Internet destinations under the Goliath's control. "

"As customers migrate, the dominant provider would have ever-larger direct connectivity to Internet destinations and ever less dependence on remaining backbone providers. The natural end-state is obvious -- one dominant network that would be the Internet."

The COOK Report concludes: This merger is not about the scaling of the internet by creating new infrastructure. It is about the creation of new debt and a $170 million dollar retention bonus pool to be paid by WorldCom to top executives of MCI, money that, if WorldCom had been trying to scale the Internet rather than build an empire, could have been put into fiber and other infrastructure.

Scharf on DNS and BIND, pp. 12 - 16, 24

Jerry Scharf explains the stresses that Internet growth and dominance of .com have placed on DNS and BIND. He talks about the possible future of an internet directory service. He also describes the need for DNS SEC and explains how it will work when it is released by year's end. Finally he describes some of scaling issues currently facing BIND. This interview done in London on January 27, 1998 gives an overview (not readily available elsewhere) of the issues facing DNS as a protocol and BIND as its implementing software.

pgMedia Makes NTIA Filing, pp. 17-18

pgMedia has new Washington DC lawyers for its anti-trust suit against NSF and NSI. In a filing with NTIA it describes the technology that would support its DNS registration system. We asked DNS guru Paul Vixie to critique it. Paul finds it not viable. We interpolate his comments within the text of the filing.

Legal Issues in Internet Governance, pp. 19 - 22

When William Bode won, in early February, an injunction against the disbursement of the NSF sponsored Intellectual Infrastructure Fund, high level administration officials, promised to get better legal representation from the justice department for NSF. Bode was suing to overturn not only the IIF money but all registration monies taken in by NSI.

When the promised help had not arrived as the March 17th court date neared, we faxed a protest to the Attorney General emphasizing that poor legal representation by DOJ of NSF could endanger the stability of Magaziner's reform efforts. We suggested that Justice treat the Court hearing on March 17 seriously, stating that failure to do so could have serious consequences and promising to go public if Justice did nothing. On March 17th Justice did just that (nothing), sending back the same AG to defend NSF who had appeared with negative success earlier.

Dan Steinberg is a Canadian lawyer who has written an interesting legal summary of the Bode and pgMedia cases, and a lengthy filing by Karl Auerbach. His point is that unexpected developments may cause these cases to interact with each other with unexpected legal outcomes. The US government, he adds, should have competent legal talent reviewing the further development of these issues with regard to their impact on the ability of the US to make policy. Unfortunately, there is no such person in place. Meanwhile Ira Magaziner has sold his Washington DC home. He responded to our query asking whether he may be leaving government service soon, with an injunction: not to worry because he would be staying on the job.