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The Growing Complexity of Internet Interconnection

Communications & Strategies, No. 72, p. 51, 4th Quarter 2008

21 Pages Posted: 8 Apr 2009  

Peyman Faratin

Massachusetts Institute of Technology (MIT) - Sloan School of Management

David D. Clark

MIT CSAIL

Steven Bauer

Massachusetts Institute of Technology (MIT) - Laboratory for Computer Science (LCS)

William Lehr

Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Patrick W. Gilmore

Akamai Technologies

Arthur Berger

Akamai Technologies; Akamai Technologies

Date Written: December 31, 2008

Abstract

End-to-End (E2E) packet delivery in the Internet is achieved through a system of interconnections between heterogeneous entities called Autonomous Systems (ASes). The initial pattern of AS interconnection in the Internet was relatively simple, involving mainly ISPs with a balanced mixture of inbound and outbound traffic. Changing market conditions and industrial organization of the Internet have jointly forced interconnections and associated contracts to become significantly more diverse and complex. The diversity of interconnection contracts is significant because efficient allocation of costs and revenues across the Internet value chain impacts the profitability of the industry. Not surprisingly, the challenges of recovering the fixed and usage-sensitive costs of network transport give rise to more complex settlements mechanisms than the simple bifurcated (transit and peering) model described in many earlier analyses of Internet interconnection (see BESEN et al., 2001; GREENSTEIN, 2005; or LAFFONT et al., 2003). In the following, we provide insight into recent operational developments, explaining why interconnection in the Internet has become more complex, the nature of interconnection bargaining processes, the implications for cost/revenue allocation and hence interconnection incentives, and what this means for public policy. This paper offers an abbreviated version of the original paper (see FARATIN et al., 2007b).

Keywords: internet interconnection, economics, public policy, routing, peering

JEL Classification: C78, D61, M21

Suggested Citation

Faratin, Peyman and Clark, David D. and Bauer, Steven and Lehr, William and Gilmore, Patrick W. and Berger, Arthur, The Growing Complexity of Internet Interconnection (December 31, 2008). Communications & Strategies, No. 72, p. 51, 4th Quarter 2008. Available at SSRN: https://ssrn.com/abstract=1374285

Peyman Faratin (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

David Clark

MIT CSAIL ( email )

Stata Center
Cambridge, MA 02142
United States
617-253-6003 (Phone)

Steven Bauer

Massachusetts Institute of Technology (MIT) - Laboratory for Computer Science (LCS) ( email )

United States

William Lehr

Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL) ( email )

Stata Center
Cambridge, MA 02142
United States

Patrick Gilmore

Akamai Technologies ( email )

Cambridge, MA
United States
0016174442839 (Phone)

Arthur Berger

Akamai Technologies ( email )

8 Cambridge Center
Cambridge, MA 02142

Akamai Technologies ( email )

8 Cambridge Center
Cambridge, MA 02142

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