Cogent, Level 3 Make Amends

Terms of the deal, announced late Friday, weren&'t disclosed. But the modified peering arrangement calls for Cogent or Level 3 to pay for Internet traffic running over each others' network if that traffic exceeds a certain threshold, Jeff Henriksen, director of marketing communications at Washington-based Cogent, said in an e-mail. Peering is a common practice that Internet backbones such as Level 3 and Cogent use to give customers the simplest access to all of the Internet.

"There are penalties charged to either party if they exceed a certain imbalance in traffic," said Henriksen. "We do not expect to trigger any penalties. So in our mind, this is a settlement-free agreement."

On Oct. 6, Level 3 cut off the free peering connection between it and Cogent, which severed access to tens of millions of IP addresses. The move caught solution providers and master agents off guard, sending them scrambling to help customers and reassess backup measures. Level 3 restored the peering connection but said it would again pull the plug on Nov. 9 if Cogent didn&'t make certain changes.

Sureel Choksi, executive vice president of Level 3, Broomfield, Colo., said the problem was that Cogent ran more traffic over Level 3's network than Level 3 ran over Cogent&'s, an imbalance that was costing Level 3 money when it factored in the expense of maintaining the bandwidth eaten up by Cogent.

But under the new arrangement, "the companies have agreed to the settlement-free exchange of traffic subject to specific payments if certain obligations are not met," Level 3 and Cogent said in a joint statment.

Daniel Berninger, senior analyst at Tier 1 Research, said Level 3 maintains an expensive network, and when it thinks a fellow Internet peer is running more bandwidth over its network than Level 3 is running back across that peer&'s network in return, it takes action, such as threatening to cut off peer connections unless payments compensate for the traffic imbalance.

During Level 3's third-quarter earnings call last week, company president and COO Kevin O'Hara addressed the peering situation and expressed regret over the impact that the dispute with Cogent had on customers.

"Level 3 has thousands of contracts for buying and selling goods and services and also for exchanging traffic with other carriers. Any contract, to be sustainable over time, must remain equitable to both parties. Peering is one form of agreement that allows carriers to exchange traffic between their respective networks. At the time each agreement was entered into, the agreement made sense. However, in an industry that is as dynamic and fast-growing as the Internet, the value of an agreement to either party is likely to change over time as a result of the evolution of their respective businesses," O'Hara said.

"During the quarter, we modified the nature of a number of relationships with the goal of making sure that the agreement remained equitable to both sides. We remain committed to this goal. In one instance this quarter, a number of Level 3 customers and Cogent customers were hurt as we pursued this strategy. I apologize to both sets of customers,” he said. “In addition to achieving the contractual goal with interconnecting carriers, we recognize that we have an obligation to customers of the Internet and, in this instance, we contributed to letting them down."