In short
Most peering and cross-connect agreements for AI data centers are private commercial contracts. They fall outside the mandatory interconnection duties of the federal Communications Act. The Communications Act imposes mandatory interconnection duties directly on telecommunications carriers by statute, not only through agreements between them. 47 U.S.C. § 251 The Act imposes a general duty on all carriers to interconnect, and stricter duties on incumbent local exchange carriers. 47 U.S.C. § 251 But when neither party is a carrier, the terms are governed by ordinary contract law. The FCC is overhauling its interconnection rules and considering whether to preempt state and local laws that could impede wireline infrastructure. FCC Advancing IP Interconnection NPRM, FCC NPRM, FCC Build America NOI
Which federal laws cover network interconnection for AI data centers?
The Communications Act of 1934 sets the foundation. Its interconnection rules apply only to companies that the law treats as telecommunications carriers. The Act does not automatically govern how a private AI data center operator connects to a cloud network.
The general duty to interconnect
Section 251(a) says that every telecommunications carrier must interconnect, directly or indirectly, with the facilities of other carriers. 47 U.S.C. § 251(a) The duty is technology neutral, but it binds only carriers. If you are not a carrier, this section has no force over your peering arrangement.
Extra duties for incumbent local carriers
The legacy phone companies, called incumbent local exchange carriers or ILECs, have extra duties under Section 251(c). They must provide interconnection at any technically feasible point for telephone exchange service. The terms must be just, reasonable, and nondiscriminatory. 47 U.S.C. § 251(c)(2) These duties were built for the old circuit switched voice network, known as TDM. They have never been applied to voice over IP networks. Law firm analysis
The power to remove state barriers
Section 253(a) says that no state or local law may prohibit, or effectively prohibit, any entity from providing telecommunications service. 47 U.S.C. § 253(a) The FCC can preempt such laws. 47 U.S.C. § 253(d) This power is at the center of a new push to challenge state AI laws that might block AI data center permits or fiber builds.
What is the FCC doing to update the interconnection rules?
The FCC has two major proceedings underway that matter for AI data center peering. One would sunset old TDM obligations and explore a new IP interconnection framework. The other would remove local permitting barriers to wireline infrastructure.
Sun setting TDM and moving to IP interconnection
As of June 2024, ILEC switched access lines encompassed only 3.1 percent of the voice telephony market. Free State Foundation Comments The FCC proposes to end mandatory TDM interconnection by December 31, 2028. Law firm analysis After that date ILECs would no longer have to maintain TDM gear under Section 251(c)(2). The FCC is asking whether to replace the TDM rules with a lighter IP to IP interconnection framework based on Sections 201(a) and 251(a). FCC Advancing IP Interconnection NPRM
An important open question is whether interconnected VoIP counts as a telecommunications service or an information service. That classification decides whether the FCC can impose IP interconnection duties at all. The agency has not resolved this question in two decades, and the current proceeding may force a decision. FCC Advancing IP Interconnection NPRM, Law firm analysis
Removing state and local barriers to wireline
In September 2025 the FCC opened a Notice of Inquiry to gather facts on whether it should use its Section 253 power to preempt local permitting barriers that slow down wireline deployments, including the fiber links that feed AI data centers. FCC Build America NOI The trade group INCOMPAS argued that Section 253 should preempt state AI laws that condition a data center or fiber permit on an AI governance certification, or that restrict the use of algorithmic tools for core network functions. INCOMPAS Comments A coalition of 22 state attorneys general opposed that view. They argued that AI is an information service outside the FCC’s Section 253 reach. State AGs Reply Comments The outcome is uncertain, but a ruling that expands preemption could be a useful tool for AI data center developers facing aggressive local rules.
The Talkie Communications case
A pending FCC petition shows how preemption fights play out in practice. An internet service provider, Talkie Communications, asked the FCC to preempt Maryland county zoning rules and state fees that it said blocked its combined telecom and broadband build. The county argued Section 253 did not apply because Talkie had not proved it was actually providing a telecommunications service. The case was still open in early 2026. Broadband Breakfast
How do peering and cross-connect agreements actually work?
Peering means two networks agree to exchange traffic directly, without paying a third party transit provider. For AI data centers, peering reduces latency, cuts transit fees, and improves reliability. It comes in two forms.
Public peering at Internet Exchanges
At an Internet Exchange Point, or IXP, multiple networks plug into a shared Ethernet switch fabric. Members exchange traffic according to the IXP’s rules, often without any settlement fee. The United States has 194 unique Internet Exchanges across 478 facilities, connecting over 3,000 networks. Newby Ventures Large operators run their own IXPs. Digital Realty’s DRIX platform operates in six US markets and claims 99.999 percent uptime over more than a decade. Digital Realty Equinix Internet Exchange spans 12 US locations. Equinix Internet Exchange These exchanges are a core part of the AI data center connectivity fabric because they let cloud providers, content networks, and AI operators swap huge data flows without touching the public internet.
Private peering and cross connects
Private peering is a direct connection between two networks inside a single AI data center, through a cross-connect. A cross-connect is a physical cable linking one tenant’s equipment to another tenant’s equipment, or to a carrier’s network. The agreement that governs it is a private contract. It covers installation procedures, ongoing access rights, pricing, and termination. If a cross-connect dispute arises, it can disrupt the tenant’s operations and even trigger a lease default. Law firm analysis
Network operators use a free community database called PeeringDB to find potential peers. The database lists peering policies, locations, and traffic volumes. CAIDA research study
| Peering type | Where it happens | Who governs | Key terms |
|---|---|---|---|
| Public peering (IXP) | Shared Ethernet fabric at an IXP facility | IXP operator’s rules, industry custom | Settlement free, open to members, standard SLA |
| Private peering | Direct cross-connect between two networks inside an AI data center | Private contract between the two parties | Negotiated fees, dedicated bandwidth, custom SLA, access and maintenance rules |
What makes AI data center network design different?
AI training and inference move data in a pattern that is very different from a conventional cloud or colocation facility. The network inside the building and the peering links to the outside must be designed for that pattern from the start.
Power density reshapes the network
An AI GPU rack consumes 30 to 50 kilowatts, and large AI systems can exceed 80 kilowatts per rack. A traditional CPU rack draws 5 to 10 kilowatts. Cisco Blog That jump in power density forces a complete redesign of power delivery and cooling, which in turn dictates where networking equipment and peering points can sit. The network topology must follow the power and cooling layout.
Specialized GPU interconnects
AI clusters do not run on ordinary TCP/IP. They use fabrics like InfiniBand or RDMA over Converged Ethernet, also called RoCE, to get the lossless, non blocking bandwidth that GPU-to-GPU communication demands. Next-generation GPU platforms may need 800 Gbps Ethernet links. Cisco Blog That means the peering agreements that connect the AI data center to the outside must be able to handle traffic bursts that are far larger than standard internet traffic.
What it means for agreements
When negotiating a peering or cross-connect deal for an AI facility, the developer must make sure the contract allows enough physical space and power for high density networking gear. The agreement should also address latency guarantees, jitter tolerances, and the right to upgrade to higher speeds without penalty. These are commercial terms, not statutory requirements, but they are essential to the project.
| Feature | Traditional data center | AI data center |
|---|---|---|
| Traffic pattern | North south, client to server | East west, GPU to GPU |
| Rack power | 5 to 10 kW | 30 to 80 plus kW |
| Network fabric | TCP/IP, standard Ethernet | InfiniBand, RoCE, 800 Gbps |
| Peering needs | Internet transit, content delivery | Direct cloud on ramps, high bandwidth private links |
| Latency sensitivity | Moderate | Extremely low, microseconds |
Real examples of peering for large AI projects
The Stargate Project, a joint venture among OpenAI, SoftBank, Oracle, and MGX, plans $500 billion in total investment and up to 10 gigawatts of capacity. OpenAI announcement, OpenAI announcement Its first campus in Abilene, Texas will host over 450,000 NVIDIA GB200 GPUs. IntuitionLabs A project at that scale cannot function without a web of private peering and cross-connect agreements linking it to cloud providers, internet exchanges, and private network backbones.
Digital Realty’s DRIX platform illustrates the other side. It offers settlement free peering at speeds up to 100 Gbps at key interconnection hubs, including 60 Hudson Street in New York and Ashburn, Virginia. Digital Realty, PeeringDB Equinix provides direct cloud on ramps to AWS, Azure, and Google Cloud from its facilities. Those on ramps are often structured as private peering agreements. For an AI data center operator, securing a direct on ramp at an Equinix or Digital Realty site can be a gating condition in a financing package.
Open legal questions and how they affect deals
Several legal uncertainties could reshape the way peering and network agreements are written for AI data centers. Counsel should track each one.
Will the FCC classify VoIP as a telecommunications service? If the answer is yes, then IP-to-IP peering between carriers could become subject to mandatory interconnection duties, which would bring many more agreements under a federal framework with regulated rates and dispute resolution. The NPRM opened the question but has not resolved it. FCC Advancing IP Interconnection NPRM
Can state AI laws be preempted? The Wireline NOI and the INCOMPAS comments argue that some state AI laws may effectively prohibit the provision of telecommunications service. If courts agree, AI data center developers could use Section 253 to challenge local permits that condition approval on AI ethics certifications or restrict the use of AI in network operations. The state AGs strongly oppose that view. Until a court decides, the threat of preemption is a negotiating lever, not a sure thing.
Do carrier hotel facilities count as providers of telecommunications service? A live but unresolved question is whether an AI data center that functions mainly as a carrier hotel, where many networks interconnect, itself qualifies as a telecommunications service provider under Section 253. If it does, it could claim protection from local restrictions. If it does not, it falls outside FCC preemption. This is expected to be litigated in 2026.
Will the TDM sunset stick? Some 911 authorities and ILECs still rely on TDM equipment. The FCC proposes to sunset incumbent LEC TDM interconnection obligations under sections 251(c)(2) and (c)(6) by December 31, 2028 and seeks comment on what IP interconnection framework should replace them, including how to mitigate harm to critical infrastructure and public safety during the transition. FCC Advancing IP Interconnection NPRM
For deal lawyers, these uncertainties mean that long term peering and cross connect agreements should include change of law clauses that let the parties adjust terms, or exit, if a major FCC classification or preemption decision upends the regulatory baseline.
Key takeaways
- Determine whether either party to a peering or cross-connect agreement is a telecommunications carrier. If not, the Communications Act’s mandatory interconnection rules do not apply, and the agreement is governed by ordinary contract law.
- Watch the FCC’s IP Interconnection NPRM. A decision to classify VoIP as a telecommunications service could broaden the FCC’s reach over IP peering agreements.
- Follow the FCC’s Wireline NOI proceeding. A successful Section 253 preemption argument could help AI data center developers overcome local permitting hurdles, especially where states impose AI specific restrictions.
- AI data center network design is fundamentally different from a traditional facility. Peering agreements must account for high power density, east west traffic patterns, and ultra low latency. Standard templates will not work.
- Document cross-connect terms carefully. Include installation, access, upgrade paths, and termination. A poorly drafted cross-connect agreement can disrupt operations and trigger a lease default.
- Build regulatory flexibility into long term agreements. Include change-of-law clauses that address a shift in FCC classification or preemption outcomes.
Frequently asked questions
Q:What is a peering agreement in the context of an AI data center?
A:A peering agreement is a contract between two network operators to exchange traffic directly, without paying a third party transit provider. In an AI data center, private peering agreements connect the facility to cloud on ramps, content delivery networks, and internet exchanges to move massive data flows with low latency.
Q:Do federal telecommunications laws force AI data center operators to interconnect with other networks?
A:Generally no. The mandatory interconnection duties in 47 U.S.C. § 251 apply only to telecommunications carriers. Carrier-neutral AI data center operators do not directly engage in peering, so peering agreements are negotiated privately between the network operators themselves. Carrier-neutral data center analysis
Q:What is the FCC doing with TDM interconnection and how does it affect AI data centers?
A:The FCC proposes to sunset mandatory TDM interconnection obligations by December 31, 2028 and replace them with an IP based framework. For AI data centers, this could eventually mean new federal rules for IP peering if the FCC classifies VoIP as a telecom service. The outcome is still open. FCC Advancing IP Interconnection NPRM
Q:Can the FCC preempt state laws that restrict AI data center development?
A:Possibly. Under 47 U.S.C. § 253, the FCC can preempt state or local laws that effectively prohibit any entity from providing telecommunications service. The FCC is considering whether some state AI laws, such as those requiring AI ethics reviews for permits, fall into this category. The issue is currently being debated. FCC Build America NOI, INCOMPAS Comments
Q:What is the difference between public peering and private peering for an AI data center?
A:Public peering happens at an Internet Exchange Point where multiple networks connect through a shared switch fabric, often without settlement fees. Private peering is a direct cable connection between two networks inside a single AI data center, governed by a private contract. AI data centers use both, with private peering for high-bandwidth cloud connections.
Q:Why does AI training change network design requirements?
A:AI training involves heavy east west traffic between GPUs, which requires ultra low latency and non-blocking bandwidth. Standard TCP/IP networks are not enough. AI data centers use InfiniBand or RoCE fabrics and may need 800 Gbps Ethernet. AI workloads require high-bandwidth fabrics that drive power density to 40 kW to 120 kW per rack. The separation of AI fabrics into back-end training and front-end service networks also determines where external connectivity and peering equipment are placed. Juniper white paper
Q:What terms should a cross-connect agreement for an AI data center include?
A:The agreement should cover installation procedures, ongoing access rights, pricing (often monthly recurring charges), service level agreements for latency and uptime, upgrade paths to higher speeds, and termination conditions. Cross-connect disputes can trigger lease defaults. Legal analysis
Q:Is there a database to find peering partners?
A:Yes. PeeringDB is a free, community maintained database where networks list their peering policies, locations, and traffic volumes. It is widely used by operators to identify potential peers. DataBank blog
Q:What is the Stargate Project and how does it relate to peering?
A:Stargate is a joint venture planning up to 10 GW of AI data center capacity in the United States. Its Abilene, Texas campus will host hundreds of thousands of GPUs. The project involves partnerships with cloud providers including Microsoft Azure and Oracle as well as technology partners such as Arm and NVIDIA. OpenAI announcement, Reuters
Q:Are peering agreements for AI data centers public?
A:No. Most private peering agreements are confidential commercial contracts. Their terms are not filed with the FCC or any regulator. 47 U.S.C. § 252 requires telecommunications interconnection agreements to be submitted to state commissions.
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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.