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					Micro Economics

               Too much Internet backbone?

               SHANE GREENSTEIN
               greenstein@kellogg.northwestern.edu



           The last issue of the now           geography of these connections provides        suppliers invested in the Web to support
defunct Red Herring magazine in March          insight into the network’s economic            a myriad of targeted customer needs.
2003—may it rest in peace—devoted its          determinants.                                      Four institutional factors shaped net-
last breaths to a cover article discussing        That said, interpreting the size of back-   work infrastructure in the commercial era:
the strategies of entrepreneurs who were       bones and comparing the backbones in           First, the commercial network developed
buying up each other’s networks at fire        different regions is not straightforward.      distinct cooperative institutions for
sale prices. The article seemed to imply       Its presence depends on many parame-           exchanging data. It retained several of the
that commercial providers had over-            ters, such as population size, type of local   NSF-developed public exchange points
invested in backbone capacity in the US.       industry, and other facets of local            but transferred their operation to associ-
   Is there any economic sense in claim-       demand.                                        ations of private firms.
ing that there is too much backbone?              More to the point, delivery resources           Second, a few other large firms
   The commercial Internet consists of         are concentrated in some areas. Net-           exchanged traffic using private peering—a
hubs, routers, switches, points of pres-       works overlap in many locations. This          bilateral agreement between two firms to
ence, and a high-speed, high-capacity          redundancy looks inefficient, but that is      exchange data at no cost to save each of
pipe that transmits data. People some-         too simple an observation.                     them monitoring costs—but did not dis-
times call this pipe a backbone for short.                                                    criminate on any basis other than flow size.
The Internet’s backbone connects servers       Features of the Internet backbone                  Third, many smaller ISPs paid for
operated by different Internet service            The backbone for US networks grew           access to larger networks, entering into
providers (ISPs). It connects city nodes       out of the network built for the US Nation-    long-term contracts.
and transports data over long distances,       al Science Foundation by IBM and MCI.              Fourth, and quite significantly, popular
mostly via fiber optic lines of various        They designed NSFnet to serve the              Web sites, such as Yahoo, made deals with
speeds and capacity.                           research needs of universities, and it con-    cache/mirror sites operated by firms such
   No vendor can point to a specific piece      nected several thousand universities by        as Akamai, Digital Island, and Inktomi.
of fiber and call it a backbone. This con-     the early 1990s. NSFnet had concentrat-        These deals eliminated much of the dif-
cept is fiction—one network line looks         ed much of its communications infra-           ferences in performance among loca-
and functions pretty much the same as          structure around a dozen supercomputer         tions—at least for the most popular sites
any other line—but the fiction is a conve-      centers. This infrastructure connected to      that could afford to pay these mirror sites.
nient one. Every major vendor has a net-       other major research universities in many      It also eliminated much of the competitive
work with lines that run from one point to     locations, resulting in a geographically       differences among the backbone locations.
another. It is too much trouble to refer to    concentrated transmission network with             To the delight of some and the dismay
such lines as “intermediate transmission       wide dispersion of access points.              of others, a multitiered system emerged.
capacity devoted primarily to carrying traf-      The few loci of concentration in NSFnet     The tiers were associated with footprint
fic from many sources to many sources.     ”    were quite different from the concentra-       size and traffic volume; they largely pro-
   The backbone’s presence and structure       tion that developed after commercializa-       vided shorthand designations for those
provide information about which cities are     tion. The commercial Web’s connectivity        that carried data over long distances, and
playing the most prominent role in the         did not arise from a single entity support-    those that collected charges from others
Internet’s development and diffusion. The      ing a single purpose. Instead, multiple        for transit service.



                                                                                                          0272-1732/03/$17.00  2003 IEEE
78                                             Published by the IEEE Computer Society
   For example, the largest firms all                From the outset, the distribution of         Coordination or crazy building?
became tier 1 providers. These firms includ-      backbone capacity did not perfectly emu-           Commercial firms in most industries do
ed AT&T, IBM (before it sold its provider ser-   late population distribution within metro-      not coordinate their building plans with
vice to AT&T), MCI, UUNet (before                politan regions. Seattle, Austin, and           each other; the firms building the com-
WorldCom purchased both), and Sprint.            Boston have a disproportionately large          mercial Internet were no different. This led
Most regional and local ISPs became lower-       number of connections (relative to their        to replicated transmission capacity along
tier ISPs, purchasing interconnection from       populations) while larger cities such as        similar paths. The backbone network of
one of several national providers.               Philadelphia and Detroit have dispropor-        the late 1990s embodied features that
   Rarely do engineers and economists            tionately fewer connections. In addition,       strongly reflected both the lack of coordi-
see the world in precisely the same way,         the largest metropolitan areas are well         nation and presence of dynamic incen-
but on this one instance there was gener-        served by the backbone while areas such         tives. Both forces arose from the absence
al agreement. My engineering friends             as the rural South have few connections.        of monopoly.
commented that data interchange pre-                On a broad level, this design feature           To be sure, the US backbone is not a
served the architectures’ end-to-end             looks familiar to observers of other US         monopoly. There is a multiplicity of play-
consistency—that is, it did not alter per-       communications networks. As found in            ers building it, competing with each other.
formance based on the user’s identity or         land-based line networks, there are             This competition enhances the dynamic
the application type. Stated simply, trans-      economies of scale in high-capacity             incentives of each player to grow quickly,
mission capacity built anywhere interact-        switching equipment and the transmis-           price competitively, experiment broadly,
ed with transmission capacity situated           sion of signals along high-capacity routes.     and tailor network services to fill cus-
anywhere else. Appropriate contracts han-        In addition, there are a few (commonly          tomer needs. The impatient environment
dled the costs of interconnection among          employed) right-of-way pathways (along          of the late 1990s provided strong incen-
ISPs and backbone firms. Facility owner-          rail lines, highways, and pipelines, for        tives to grow quickly, even when the
ship did not induce discrimination based         example) that are available for long-dis-       growth was redundant. In other words, a
on the origin or destination of the data or      tance transmission lines. Thus, straight-       competitive market among network
type of application.                             forward economic reasons dictate that           providers will necessarily lead to uncoor-
   Economically speaking, the preserva-          each firm have only a few major trunk           dinated build-outs, such as overlapping
tion of end-to-end consistency had three         lines running along similar paths.              footprints and other redundancies.
significant consequences: First, it did not          Remarkably, despite the entry of many           Is this outcome necessarily bad? Yes and
discourage vendors from building geo-            firms and the growth of the total capaci-        no. To be sure, these overlaps and redun-
graphically overlapping networks. Sec-           ty, maps of Internet backbone for US data       dancies appear inefficient after the
ond, vendors could specialize with               transmission have not changed much              network is built, but this is a myopic inter-
regional footprints. Third, this built-in con-   from 1997 to the present. This speaks to        pretation. A competitive market gives all
sistency prevented firms with national           the durability in economies of scale in         players strong incentives to quickly build
footprints from having big advantages in         high-capacity switching and transmission,       their network, price it low, and figure out
the deployment of end-to-end applica-            even during a period of high growth. In         how to customize it to user needs. It
tions that require low amounts of signal         other words, as with many communica-            should be no surprise, therefore, that the
delay, such as virtual private networks or       tion networks, the present backbone net-        commercial US backbone looks so
videoconferencing applications.                  work is a hub and feeder system with only       extremely redundant. By the same token,
                                                 a few hubs.                                     the backbone might not have been built so
Geographic dispersion of capacity                   Another notable feature of competitive       quickly in the absence of such competition.
   During the first few years of the Inter-       backbones is multiple data-exchange                Related, uncoordinated investment of
net’s commercialization, a handful of US         points. Choices for data exchange loca-         sunken investments can potentially lead
cities or regions dominated backbone             tions have persisted into the commercial        to price wars in the event of overbuilding.
capacity. Specifically, San Francisco/Silicon     era. To be sure, some of these points           Indeed, it would be surprising if uncoor-
Valley, Chicago, New York, Dallas, Los           would have arisen under any system              dinated investment resulted in too little
Angeles, Atlanta, and Washington, DC,            because of their central location within        infrastructure during a period of sustained
contained links to the vast majority of back-    the midst of traffic flow. For example, data      demand growth, as occurred in the late
                             ,
bone capacity. As of 1997 these seven            exchange in New York or Washington, DC,         1990s.
areas accounted for 64.6 percent of total        makes sense for traffic along the US East
capacity. By 1999, even though network           Coast. The same is true for Dallas or           Where are we today?
capacity quintupled over the previous two        Atlanta in the South, Chicago in the Mid-         These are not pleasant times for back-
years, the top seven still accounted for         west, and San Francisco and Los Angeles         bone providers. Spring 2000 saw the
58.8 percent of total capacity.                  in the West.                                    decline of financial support for dot-coms.



                                                                                               MARCH–APRIL 2003                           79
MICRO ECONOMICS



The 11 September terrorist attacks shook    consolidation to completely eliminate
business confidence in long-term invest-     redundancies, this shakeout will reshape
ments. This low continued as the media      the precise ownership of the backbones
publicized the WorldCom financial scandal.   carrying future data traffic flows.
   This down cycle is not over, which       Observers lament that much of the
leaves an open question about the long-     installed fiber remains unlit, while those
term state of US backbone networks.         with financial acumen prowl the bank-
Qwest, Level 3 Communications, Sprint,      ruptcy courts like jackals after a kill, gath-
Global Crossing, WorldCom’s MCI,            ering together the assets of others. The
Williams Communications, PSINet, AT&T,      final ownership configuration remains
and others all invested heavily in redun-   unknown as of this writing.
dant transmission capacity during the          Yes, it looks crazy, but this is what you
boom. UUNet, a WorldCom division, was       expect in a market with uncoordinated
the largest backbone data carrier in the    investment and a period of intense
US until the scandals that lead to World-   growth followed by a period of collapse.
Com’s bankruptcy. PSINet overextended       That is not so notable. The notable out-
itself and had to declare bankruptcy.       come is that the players built the network
   Although nobody expects ownership        as fast as they did.




         Coming Next Issue                      MAY-JUNE 2003
              Guest Editors Alberto Sangiovanni-Vincentelli, UC Berkeley, and
                          Luciano Lavagno, Politecnico di Torino


          Directions and Trends in Microelectronics
     Topics will include

     •   Electronic System-Level Design and the Automotive Industry;
     •   Systems on Chip: Now and in the Future;
     •   Interconnect Opportunities for Gigascale Integration; and
     •   The Evolution of ICs and Microelectromechanical Systems (MEMS) Technology.




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