Level 3, Cogent resolve peering spat, renew deal

Two feuding top-tier ISPs said Friday that they have struck a deal to renew their traffic exchange agreement and avert a repeat of a showdown that blacked out connections between their customers earlier this month.

Level 3 Communications and Cogent Communications have agreed on what they called a "modified" version of their original peering arrangement, which enabled the two providers to directly connect their networks and exchange Internet traffic across them without charge. In early October, Level 3 discontinued its peering arrangement with Cogent . Neither side warned its customers in advance about the looming disconnection, which left many customers scrambling to make alternative arrangements after parts of the Internet abruptly went dark for them

Three days into the standoff, Level 3 backed down and restored its peering connection to Cogent . However, it called the move a temporary one, and said it would once again terminate the arrangement on Nov. 9.

Friday's deal removes that deadline and puts in place an agreement that the two companies say will keep traffic across their networks flowing smoothly. The deal includes commitments from each party about the characteristics and volume of traffic to be traded, according to a written statement. Level 3, based in Broomfield, Colo., pulled the plug on the earlier arrangement after deciding it was carrying the bulk of the load in the traffic exchange.

Most significantly for customers, the new deal specifies that peering connections between Level 3 and Cogent not be terminated without advance notice to their customers. A representative of Level 3 declined comment, but Cogent's CEO called the deal a good one for the carriers.

"What we worked very hard on is making sure we protect customers," Cogent CEO Dave Schaeffer said. "There is a mandatory requirement for the companies to remain connected to one another, and to notify the customers with ample notice about changes."

Peering skirmishes aren't uncommon among ISPs, and Cogent, in Washington, D.C., has been "depeered" before by other rivals. The outage earlier this month was significant, though, in its scope: Customers and industry analysts were shocked that two tier-one Internet backbones would essentially play chicken with traffic between their networks.

Cogent defiantly maintains it did no wrong, since it wasn't the one responsible for deciding to let traffic drop. "It was a very confusing situation for us," Schaeffer said.

In a conference call with analysts last week following Level 3's quarterly earnings announcement, Level 3's president and COO, Kevin O'Hara, acknowledged that the situation could have been handled more gracefully.

"During the quarter, we modified the nature of a number of relationships with the goal of making sure that the agreement remained equitable to both sides. We remain committed to that goal. In one instance this quarter, a number of Level 3 customers and Cogent customers were hurt as we pursued this strategy. I apologize to both sets of customers," O'Hara said. "We recognize that we have an obligation to customers of the Internet, and in this instance, we contributed to letting them down."

Level 3 may be chastened by the backlash, but Tier 1 Research telecom analyst Daniel Berninger expects peering to remain a contentious issue that drives vendors to play hardball. Since the 1990s, free peering agreements have grown scarcer as mergers reduce the number of telecom companies and enlarge the size disparities between the remaining vendors. When various outstanding acquisition deals close, Sprint Nextel and the owners of MCI and AT&T will be significantly larger than other Internet backbones, a position those vendors could use to pressure other carriers to pay for traffic exchange deals, Berninger said.

"I think this was a trial run," Berninger said. "I would not expect Level 3 to do something similar in the future, because I think that this was a bad experience for them in terms of the feedback they got, but it showed that these peering relationships are very fragile and very important. What happens when AT&T goes to SBC and MCI goes to Verizon?"

Level 3's disconnection from Cogent prompted protests from their affected customers, but it didn't scare the industry into a larger reconsideration of peering, and it hasn't yet sparked interest among government regulators, Berninger noted.

"I think this issue will come back to haunt us again," he said.

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Copyright © 2005 IDG Communications, Inc.

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