Who Owns the Internet?

Baldwin Louie — Thu, 02 Mar 2000 17:00:00 -0500

BOSTON - That no one owns the Internet is taken as a truism. But the infrastructure on which the global network runs is owned by a handful of powerful corporations that can, and often do, use their control over the Internet backbone to their advantage in business negotiations. The influence these companies exert, some industry insiders fear, is strangling smaller companies and reducing customer choice.

"I can give you an example that shows that the Internet is owned by someone," says Jilani Zeribi, a senior analyst at market researcher Current Analysis in Sterling, Va. "Look at old peering arrangements, which were basically, 'I'll connect to your network, you carry my data and I'll carry yours.' The carriers started to realize that smaller ISPs were free-riding on their network, so they started charging for peering arrangements. Just the fact that someone wields that kind of power shows that someone owns the Internet."

A relatively small number of companies own and operate the fiber and cables that form the Internet infrastructure, with most of the power centered in the U.S., which has been the dominant nation in terms of Internet backbone and use. MCI WorldCom's UUNet division, ATT (T), GTE (GTK)'s Internetworking, Global Crossing (GX), Qwest Communications International (Q) and PSINet (PSIX) are among the U.S.-based major players. Globally, Telstra, the Australian national telecommunications carrier, and Global TeleSystems Group (GTS), which offers broadband in 20 European countries as well as various Asian incumbent telecommunications companies, have major ownership stakes.

Although industry executives, analysts and observers present the same general list of big infrastructure owners, they say there is no reliable way to measure exactly which company owns how much. One figure bandied about is that UUNet owns 30 percent of the backbone, with everyone else falling in line behind. AT&T claims the No. 2 spot.

Perhaps more important than placing numbers on ownership are the questions about what it means to have an ownership stake in the Internet, to have invested millions in getting the infrastructure up and keeping it running. What kind of power is conferred on the main Net owners, and how might they wield that power - for good or for nefarious ends?

Like analyst Zeribi, numerous others interviewed for this article pointed to peering arrangements as perhaps the prime example of how companies exert control. There also are issues related to co-location - where a number of ISPs, say, have their servers and other hardware located in the same spot, typically owned by a major vendor like UUNet - and to network access points, or NAPs, which are the spots where ISPs trade packets with other ISPs. NAPs are located globally, with some set up at college campuses and others in company buildings. Some NAPs are operated by organizations that charge no fees. Others are part of telecommunications vendors that charge monthly fees that can soar into thousands of dollars.

Working out co-location agreements can be tough because it involves "getting into the facilities of some of the big players," says Vince DiBiase, senior VP and chief sales officer for ICG Communications (ICGXQ), an integrated communications service provider based in Englewood, Colo. "It's not necessarily their fault," he adds. "At least on the surface it's not. They only planned so much space for the Internet and now it's so big."

The process can be "outrageously long and difficult and costly" to work through, he says.

Likewise, although NAPs are supposed to be neutral territory and therefore not subject to the same squabbles that result from working out peering arrangements between vendors, "getting in and out of the NAPs is tricky," DiBiase says.

While various people interviewed contend that the Internet business is so competitive that new players will always emerge to take over if the big guns become too powerful and wield their influence unfairly, DiBiase and others suggest that it's also the case that large infrastructure players and large service providers bolster each other's position.

Again, he points to UUNet, whose parent company, MCI WorldCom, did not respond to requests for executive interviews for this article. UUNet provides Internet backbone for America Online (dossier), the world's largest Internet service provider. Given AOL (dossier)'s millions of global Internet subscribers and its ever-growing presence, UUNet won't approach its deals with that company in the same way that it approaches agreements with smaller ISPs, or with the mom-and-pop ISPs that seem to be springing up on every corner.

Instead, UUNet offers AOL a much better deal on pricing because of the huge volume of traffic AOL brings to the UUNet backbone, DiBiase says - "a cost advantage that a smaller ISP doesn't get."

Examples of power-wielding by the Internet infrastructure heavyweights reflect the influence of the phone companies, who were quick to jump into the Internet infrastructure business. After all, the telephone infrastructure was already in place, with dialup being the first Internet access option. For some, the extension of phone company power into the Internet is a troublesome aspect of infrastructure ownership.

"You have the entire history of the big phone companies trying to avoid orders by regulatory commissions to open their networks to competition," says James Love, director of the Consumer Project on Technology, a Washington, D.C., organization started in 1995 by consumer advocate Ralph Nader. "You have the entire history of the efforts of AT&T to avoid court orders and FCC [Federal Communication Commission] orders. You have a whole historical thing with the telecommunications industry with exclusive dealing, anticompetitive dealing, anything they can dream up to screw their competitors."

The effect, in Love's view, is "less competition in the ISP market, high barriers to entry, more consolidations and mergers, and eventually much more monopolistic control over the Internet." In other words, less choice for consumers.

"There are clear dominant players in the Internet, and clear issues when one player comes to dominate too much," Zeribi says, mentioning UUNet. He adds, "if they raise their prices on peering, for example, that will have immediate and direct consequences on other companies."

There is disagreement about how far those consequences might extend. Analysts, industry observers and executives of companies that own Internet infrastructure contend that the market is so highly competitive as to be, in effect, self correcting. Were one company to become too strong and begin throwing around its weight to the detriment of others, market forces would take over.

The consequences of any power play to block competition would be short term, insists J.B. Haller, a VP at Current Analysis. "There are pricing elasticities in the market. ... They wouldn't do that anyway, it does not make market sense."

As might be expected, executives at the large companies that own Internet infrastructure adamantly agree. Whatever their particular biases, it is worth noting that they deal in the market daily. Their companies all have to work with each other because the Internet consists of far-flung computer networks joined by cables, fiber optics and satellites owned by disparate companies. When it comes to establishing Internet standards, each has a voice.

"There's a minor concern by a lot of people who don't understand the market power of the Internet, and that includes the U.S. Justice Department and the European Union," says David Kunkel, vice chairman and executive VP of PSINet in Herndon, Va., about the potential for a few companies to wield undue power and influence over the Net.

Leonard Kleinrock, whose academic papers played a central role in establishing data networking technology, puts it this way: "The network is so flexible, and it's such an open network in terms of competition and architecture that if anyone began to flex some power, someone else would step in to compete with them."

A professor of computer science at the University of California (dossier) at Los Angeles and the chairman and founder of Normadix, a network startup in Santa Monica, Calif., Kleinrock was a key figure in the development of the Advanced Research Projects Agency network, better known as the Arpanet, the precursor to the Internet.

While there is no doubt that large Internet-infrastructure owners have taken advantage of their size in business negotiations, Kleinrock and many executives who deal with the Internet on a day-to-day basis agree that no coterie of big players has so much power that it can shut down competition.

Kleinrock sums it up: "The bottom line is that no one is in a position to close down the Internet."

Nancy Weil writes for the IDG News Service.

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Who Owns the Internet?