Evaluating the competitive effects of mergers of internet backbone providers

Abstract

This article analyzes the usefulness of the traffic measurement methodologies used by the European Commission (EC) and the United States Department of Justice (DOJ) in assessing the competitive effects of mergers of Internet backbone providers. The analysis concludes that the traffic ratios used by the EC to estimate market shares when it reviewed the merger application of MCI and WorldCom, and by the EC and the DOJ when they reviewed the proposed merger of Sprint and MCI WorldCom, have significant limitations. In particular, the article shows that these measurements provide a potentially misleading picture of the effect of a merger of backbone providers, even under the assumption that the Internet is a rigid hierarchy, and that this problem is likely to become worse as the use of secondary peering, multihoming, and intelligent content distribution services become more widespread.