Recently I was asked for my opinion on Google paying France Telecom (FT) to deliver traffic into FT’s network, i.e. Google paying to peer with FT. I wasn’t aware Google pays FT. I don’t even know if it’s true. But I do know this is a topic fraught with misunderstandings. Also, if there is a “problem” here, the problem is one of competition (or lack thereof) in portions of the French broadband access market. It is not a problem that can be or should be fixed by “network neutrality” regulations or legislation.

To understand what’s happening, you need to understand the Internet’s business model and you need to know something about peering as it works in the real world.

The most succinct definition of the Internet I’m aware of is: Internet (n.) A voluntary agreement among network operators to exchange traffic for their mutual benefit.

This is very different from the telephone networks (fixed or mobile) where relations between operators are governed by laws and regulations, change at a regulatory pace, i.e. decades, and are continuously gamed by political processes.

Each Internet operator needs to be able to reach all possible Internet addresses, so interconnection is essential. If you are a small operator, like netBlazr, you purchase “Internet transit” services from a larger operator. Rates are volume dependent and arrangements are similar to those of any other business or individual purchasing an Internet access service. If you are a large operator, a large content provider or a very large business, then interconnection costs and arrangements become negotiable. Two operators in Holland will likely agree to exchange that portion of their respective traffic that is destined for each other’s networks at the AMS-IX which is local, rather than pay for Internet transit services that would likely carry that traffic to London or the US where a higher tier operator would handle the exchange. Thus the two Dutch operators engage in peering for that portion of their traffic for which it makes sense.

This pattern is repeated throughout the Internet as each operator evaluates where, how, and with whom it makes sense to exchange portions of their traffic so as to minimize costs, increase performance or achieve other goals important to that operator. Thus there are vastly more interconnection contracts, formed under more diverse terms, for the Internet than ever was the case for the telephone network. Further, this network of agreements is in constant flux as individual operators find better deals.

It’s instructive to follow the growth of YouTube from their founding through their acquisition by Google. When YouTube began, they had to pay standard rates for Internet access. As they grew to be a significant content source, their cost of Internet access fell as more and more operators asked to peer with them, as I discussed two years ago.

So between Google and France Telecom, who has negotiating leverage? and why?

France Telecom already has peering agreements with multiple other Internet backbones, so their customers have several paths to get to Google content. Why would either party want to connect directly?

First, it might cut costs. Whatever pre-agreement path the traffic takes involves some cost. Perhaps that’s money paid to other operators or it may just be the cost of maintaining the facilities needed for the pre-agreement traffic (e.g. to go via London). I can’t guess the specifics for Google or for France Telecom, but each has a possible interest here.

Second, it will likely improve performance. Even shaving 50 milliseconds off of round trip times (RTT) can improve user experience as accessing a single web page can require the exchange of dozens of messages, thus 50 ms less RTT can shave more than a second off the page load time. In a competitive market, France Telecom might want to advertise their network as the “fastest,” but local access competition is not that great in France (or in many markets, like the US). France Telecom has nearly 50% market share. They are losing ground to Free, but apparently it’s not enough to justify a marketing campaign based on the “fastest” network. Google on the other hand, has a strong reason to want better user experiences. In Google experiments with search latency, longer latencies reduce the number of searches a user does per day. Given the number of Google search users on the France Telecom network, Google can directly compute their monetary return from cutting search latency by X ms. So Google’s negotiators have hard numbers in their back pocket when they go to talk with France Telecom.

Is this good or bad? Well, if France Telecom doesn’t have to compete on the performance of their service, that suggests a failure of competition policy. But then a solution should address competition in the French Internet access market, not government regulation of peering or the imposition of “network neutrality” regulations on operators that don’t have a monopoly position.

For myself, I look forward to continued growth of new providers in France, like Free, as I discussed in the January issue of NGN Magazine.