A financial dispute between two major Internet backbones has led to dropped traffic between their networks, a high-stakes game of chicken that's angering customers affected by the network disruptions.

Early Wednesday morning Level 3 Communications terminated its "peering" agreement with Cogent Communications, a step Level 3 says it took after months of fruitless negotiations. Peering is a service agreement common among ISPs, which directly connect their networks and exchange traffic without charge. On Internet traffic monitor Keynote Systems' "Internet Health Report" chart of traffic speeds between Tier One backbones, the link between Level 3 and Cogent has been colored bright red for the past day, showing no packets exchanged between the two ISPs.

Peering is mutually advantageous when both partners exchange similar traffic volumes, but Level 3 says it was carrying the bulk of the traffic in its deal with Cogent. "The larger company ends up disadvantaged because it ends up providing essentially free capacity," said Level 3 spokeswoman Jennifer Daumler. "In Cogent's case, we determined that the arrangement was not reasonable or commercially viable."

Cogent CEO Dave Schaeffer disputes Level 3's characterization and says the dropped peering arrangement is really Level 3's attempt at playing hardball with a rival that has been undercutting it on pricing.

"The root cause of this is Level 3's strong desire to pressure Cogent into raising our prices," Schaeffer said. "They have been very vocal and very upset at our gain in market share and our pricing policy."

Large businesses and those for which network connectivity is critical generally have redundant agreements with multiple ISPs. For them, the dispute between Cogent and Level 3 is an annoyance but not a major problem; they can rely on their other vendors to route traffic across Cogent and Level 3's networks. For customers who are "single homed" solely to the network of either Cogent or Level 3, however, the dropped connection can leave some Web sites unreachable.

"None of our users in the field who dial up can get their e-mail," said Steve Bernard, IT support technician for Creative Marketing Associates, a marketing services company in Shelby Township, Michigan. His company uses a Cogent T-1, but its SBC dial-up access for mobile users runs through Level 3 servers. Just last week, Creative Marketing Associates had DSL installed as protection against an outage on its Cogent T-1. The company's IT staff is currently reconfiguring its network to provide an alternate route in for mobile users, over its DSL. Until that change is complete, its remote employees will remain cut off.

The IDG News Service is a Network World affiliate.