IP: May 98 COOK Report:MCI/WorldCom Merger Puts Internet at Risk -

[Dave Farber <farber () cis upenn edu>]

WorldCom/MCI Merger:
Internet  at Risk?  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), 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 market 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.


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