Deutsche Telekom, Orange and Telefonica raided over interconnection abuse fears

The secretive interconnection deals between telecoms companies are now officially a hot topic. We’ve already seen Verizon(s vz) and Cogent Communications(s ccoi) lock horns in the U.S. over the cost of carrying heavy video traffic, with the result of some of Verizon’s customers seeing poor Netflix(s nflx) performance. And on Wednesday we saw Verizon and AT&T(s t) lose their bid to stop the French telecoms regulator from examining the terms of these so-called peering arrangements.
Now the European Commission’s antitrust department has jumped into action, confirming on Thursday that, a couple of days back, it raided the offices of several unnamed telecoms firms. Helpfully, Reuters has the names of three of them: Deutsche Telekom, Orange and Telefonica(s tef).
Details are thin on the ground right now, but this is definitely to do with interconnection. As the Commission said in its statement:

“Internet players interconnect with each other through a combination of wholesale services to cover all possible Internet destinations. Internet connectivity allows market players (e.g. content providers) to connect to the Internet so as to be able to provide their services or products at the retail level. This service is crucial for the functioning of the Internet and for end users’ ability to reach Internet content with the necessary quality of service, irrespective of the location of the provider.”

Deutsche Telekom said in a statement that data and emails had been seized from its offices, and confirmed that the “the allegations are that the companies, coming from various markets, may have abused their possibly dominant position on the worldwide Internet traffic market.”
“Deutsche Telekom is surprised by the initiation of further investigations by the Commission into the global market for Internet traffic, since previous allegations have all turned out to be unfounded. Similar investigations carried out by national regulatory bodies, who have also dealt with the issue in great detail, have also been abandoned,” the firm said.
It also added that, because “major providers based in the United States” dominate the global traffic market, Deutsche Telekom is “not the right target for these investigations”.

Interconnection – but at what cost?

There are a lot of players in the data carriage market, making sure that bits get from web service providers such as Google to your computer or smartphone and back. The major categories of player are the web service provider, the backbone provider (companies such as Cogent — the ones with the fat pipes that do the heavy lifting), and the ISP, which acts as the “last mile” link between the backbone and the user’s device.
Right now there’s a huge amount of tension between the ISPs and the backbone providers, mostly due to the proliferation of video traffic. These players have traditionally used “peering” agreements, where they agree to carry each other’s traffic for free in the expectation of reciprocity, but the recent twist is that the ISPs are trying to extract money from the backbone providers in order to carry the data over that last mile.
Again, we don’t know the details of the European Commission’s anti-competition fears, but sources have suggested that these raids are the result of a complaint from a backbone provider. If an ISP decides to start demanding cash, there’s not a lot the backbone provider can do about it. After all, the ISP demanding the money is the only connection between the backbone and the user. And if the backbone provider doesn’t pay up, the quality of services such as YouTube and Netflix may suffer — in the end, the consumer is the loser.
Stay tuned…