Wednesday, October 10, 2012

When Internet Traffic and Peering Agreement meet French Competition Law

By Nathalie David, Ph.D., Berkeley LL.M. Candidate

On September 20, 2012, the French Competition Authority (Autorité de la concurrence) released an interesting decision that is believed to be the first on this topic by a competition authority. It confirms that data network operators who conclude an agreement to organize peering – the voluntary interconnection of separate data networks and the exchange of data between these networks – can charge fees for the opening of additional data transit technical capability.

In 2005, Cogent, a US telecommunication operator, signed a data transit agreement with the French telecommunication company France Télécom, via its transit operator business Open Transit. According to this “peering agreement”, the exchange of data between networks, usually free, was subject to “peering fees” when the traffic between transit operators becomes asymmetric. The contract stated that France Télécom would charge a fee to open new technical capacity if the incoming traffic on its network was 2.5 higher than its outgoing traffic. The purpose of such policy was to protect France Télécom’s domestic network, Orange, from congestion. At this time, Mega Upload – which has since been shut down by U.S. authorities – was a customer of Cogent. The amount of video uploaded by subscribers of Orange caused a strong asymmetry in the traffic (up to 13 times greater in one direction than in the other). France Télécom asked Cogent to pay for the opening of additional capacity of interconnection. Cogent challenged this demand for violation of the antitrust laws claiming, among other things, that France Télécom was compromising the peering system. 

The Competition Authority held that France Télécom’s demand was not anti-competitive. France Télécom did not refuse to give Cogent access to its network (between 2005 and 2011, France Télécom actually opened several times, for free, new capacity to meet Cogent’s demands), but it only asked Cogent to pay the opening of new capacities in accordance to its contractual policy regarding peering, without challenging the capacities already afforded for free. The court explained that such demand was not unusual in the internet industry in case of traffic asymmetry. In this case, the demand was particularly legitimate because the traffic was highly asymmetric, and Cogent was aware of its contractor’s peering pricing policy. 

Even though France Télécom’s request was held legal, the Competition Authority pointed out the lack of transparency and formalized relationship between the domestic network of France Télécom Orange and its transit operator business Open Transit. It held that this situation made it difficult to control potential margin squeeze and discriminatory practices, which therefore eased the implementation of such illegal practices. 

In response to these concerns, France Télécom proposed to formalize and monitor the application of an internal protocol between Orange and Open Transit describing the technical, operational and financial rules applicable to the supply of interconnection services. Following some consultations and adjustments, the Antitrust Authority decided that these commitments were relevant, credible, and verifiable and made them mandatory. In the event of future litigation, they should enable the Authority to verify that France Télécom has not implemented discriminatory or margin squeeze practices against competitors. The internal protocol shall be communicated to the Authority within three months, and its implementation will be monitored by the Authority during three years. 



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