Congestion, Private Peering and Capacity Investment on the Internet.

This paper presents a model of private bilateral and multilateral peering arrangements between Internet backbone providers when the network is congested. We study how different forms of interconnection and the competitive conditions of the market affect backbones' investments in network and peering point capacities. We show that network and peering point capacities are equilibrium complements; increasing competition reduces capacity investments (under-investment), thus worsening the quality of service both with multilateral and bilateral peering; under bilateral peering the inefficiency is less severe. Because of under-investment, welfare may be lower when the market is more competitive. We also show that asymmetries between backbones, which can take the form of uneven content distribution or product differentiation, may reduce under-investment and improve the quality of service. The introduction of an "inverse capacity interconnection fee" where providers pay each other a fee which is negatively correlated with their installed capacity may play the role of a coordinating mechanism towards a Pareto superior outcome.Internet, peering, congestion, QoS, capacity investment, interconnection

Differentiated Traffic-based Interconnection Agreements for Next Generation Networks

The issue of inter-provider cost distribution in international interconnection has been a subject of intense debate in the past few years. For various reasons, developing countries have had to bear high costs for international Internet connectivity. The transition of communication networks to IP-based networks enhances the urgency to resolve the apparent lack of fairness in international interconnection. This is due to the development of cheap technologies for voice communications, which reduces the revenues of developing countries received from international telephone calls, and at the same time, places the burden of international Internet connectivity costs on developing countries. There exists a large body of literature toward achieving the equitable and sustainable expansion of infrastructures in developing countries. It is mainly focused on proposing interconnection pricing schemes. However, the existing approaches strike the balance between the two objectives of interconnection pricing, viz., competition development and profitability quite differently. Hence, no single solution has a clear advantage over the others. The alternative approach towards solving the interconnection cost-sharing problem involves compensating each provider for the costs that it incurs in carrying traffic generated by other providers. However, compensation between providers cannot be solely done based on the traffic flows, because it provides a poor basis for allocating any costs. In the Internet, it is not clear who originally initiated a transmission, and therefore, who should pay for the costs. The key contribution of this dissertation is to support the development and profitability of the communications market by reducing the existing imbalance in the interconnection cost allocation. A novel technique called Differentiated Traffic-based Interconnection Agreement (DTIA) was proposed. The key idea behind DTIA is that instead of performing intercarrier compensation based on traffic flows, compensation is performed based on the original initiator of a transmission. Determination of a transmission initiator in packet-switched networks is a complicated task that deals with technical issues and considerable costs. We have tackled this challenge by marking the information about the transmission initiator in the IP packet header, and have proposed a traffic differentiation mechanism that has low computational complexity. In DTIA, providers get compensated differently for traffic originally initiated by their own customers, as opposed to traffic initiated by customers of other networks. Such an approach stimulates the development of market by ensuring that each provider is compensated for utilization of its infrastructure. In order to evaluate the differentiated traffic-based approach, we formulated economic models and analyzed their behaviors from different perspectives. Compared to existing solutions, the DTIA model enhances the economic efficiency of the market by improving social welfare