Framing the Value of Internet Exchange Participation

24 Pages Posted: 31 Mar 2013 Last revised: 22 Sep 2013

See all articles by Jesse Sowell

Jesse Sowell

Massachusetts Institute of Technology (MIT) - ESD

Date Written: March 29, 2013


Internet eXchanges (IXes) are developed to localize traffic, reduce connectivity costs, and reduce latency. Historically, transit savings were sufficiently substantive to justify investment in IX interconnection strategies, overshadowing other benefits enjoyed by IX participants. Recent work argues these basic IX effects facilitate regional economic development. In developed regions, as transit prices converge with comparable per volume price on Internet exchanges, a new question emerges: given this convergence, what additional value and benefits does the IX provide existing and would-be participants? Governance and organization studies of IXes provide some of the nuance necessary to answer this question. Based on interviews with IX managers and participants, there is value in a more fluid market of interconnection options that facilitate investment deferral and greater control over the repurposing of interconnection resources. Interconnection is presented in terms of platforms and how they implement interconnection options, highlighting how the mechanics of these implementation frame network actors’ decisions regarding how to maximize access to and investments in interconnection markets.

Semi-structured interviews of a wide range of network operators and IX operators over the last year and a half imply decision heuristics for optimizing value and network resilience: selectively increasing redundancy, increasing unique interconnection partners, and reducing switching costs, are among the most common criteria. This work distills decision heuristics identified thus far into a partially parameterized model of interconnection decision making across platforms that serve as markets for interconnection options. Unpacking decision heuristics contributes to more precisely explaining the mix of interconnection options available to actors that both derive value from network- and application-level services but who also influence infrastructure investment and strategy decisions through the options they select. This work demonstrates how IX-platforms facilitate greater access to interconnection options and defer bargaining and measurement costs necessary for more specific asset investments. IX-enabled interconnection contributes to the “flattening” of the Internet by providing an investment path to more sophisticated bundles of (flatter) bilateral relations rather than participating solely in the transit hierarchy. The model developed here provides a clear formalism for comparing these.

Two classes of parameters are missing: connectivity cost information and parameters representing actor-specific valuations of system properties such as redundancy or latency. A key contribution is to understand the options available by carefully specifying the parameter space based on empirical observation: what are the variables and how are they conceptually related? This work unpacks the mechanisms implementing two common types of interconnection option and concludes with working hypotheses that will be further refined and tested in ongoing work. The next stage of this work focuses on identifying appropriate operationalizations, data sources for cost, and strategies for comparing (validating) theoretical valuations based on empirical operationalizations of variables such as redundancy.

A social science approach to indicator development is applied to frame heuristics as background concepts that are refined into specifications of incentives, relationships, and potential indicators. Variables specified here represent possible systematizations of background concepts elicited from interviews. Neither the specification nor the relationships are presented as being writ in stone — rather, they are a part of an ongoing project to elicit empirical trends in the interconnection industry. The variety of network actors that engage with IXes, their value propositions, and the means by which they connect to IX platforms provide insight into which interconnection options are appealing to which types of actors as well as common trade-offs. Qualitatively, this gives insight into which types of actors are willing to invest in which mixes of infrastructure types and topologies. By highlighting trade-off conditions in the demand for interconnection, this specification provides direction for further identification of interconnection costs and the constraints by those making investment decisions.

The framework offers a number of contributions. Different interconnection modes are conceptualizes independently, but the framework subsequently highlights mutual dependence and benefits. Working hypotheses argue that different platforms structure and mediate interconnection option implementations (transport, colocation, IX), how they are interleaved with one another in practice, and offer a first pass at identifying and realizing critical paths through investment decisions as they grow and develop specific relationships (and asset investments) beyond simple transit. Building on the notion of a real option, flexibility in general purpose resources (IX-mediated interconnection) facilitates staged, dynamic investment decisions and learning effects.

Suggested Citation

Sowell, Jesse, Framing the Value of Internet Exchange Participation (March 29, 2013). TPRC 41: The 41st Research Conference on Communication, Information and Internet Policy, Available at SSRN: or

Jesse Sowell (Contact Author)

Massachusetts Institute of Technology (MIT) - ESD ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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