Paid Peering: Pricing and Adoption Incentives
Large access providers (ISPs) are seeking for new types of business agreements and pricing models to manage network costs and monetize better the provision of last-mile services. A typical paradigm of such new pricing norms is the proliferation of paid peering deals between ISPs and content providers (CPs), while on top of this, some ISPs are already experimenting with usage-based tariffs, usually through data-plans, instead of the typical fixed-based charging. In this work we define as common platform, the infrastructure in which a single ISP transacts with several CPs through peering agreements. In this context, we examine whether, and under which market conditions, the profitability of the involved stakeholders improves when the establishment of this platform is accompanied by a monetary compensation from the CPs to the ISP (paid peering), v.s. a scenario where their deal is a typical settlement-free one. In both cases, we assume that the ISP implements a usage-based access pricing scheme, implying that end-users will pay more for higher transaction rates with the CPs. Our framework captures some of the most important details of the current market, such as the various business models adopted by the CPs, the end-users' evaluation towards the ISP's and CPs' level of investments and the traffic rates per transaction for the offered services. By analysing the equilibrium derived by a leader-follower game, it turns out (among other practical takeaways) that whether or not the profitability of a CP improves, it highly depends on whether its business model is to sell content, or if it obtains its revenue from advertisements. Finally, we extract that consumer surplus is considerably higher under paid peering, which in turn implies improved levels of social welfare.
- C. Courcoubetis, K. Sdrolias, and R. Weber, "Pricing the fast-lanes: A qualitative study on the implications of paid peering agreements," in Proc. IEEE ICC, 2016.
- W. B. Norton, The Internet peering playbook: Connecting to the core of the Internet, DrPeering Press, 2012.
- C. Dovrolis, "The evolution and economics of Internet interconnections", submitted to the Federal Communications Commission (FCC), 2015.
- Sandvine, Global Internet phenomena report, 1H 2014.
- Netflix, Netflix Open Connect, [Online]. Available: https://openconnect.itp.netflix.com/
- Arstechnica, Netflix says 99 percent of its links with ISPs are unpaid, [Online]. Available: http://arstechnica:com/information-technology/2014/08/netflix-sends-99-percent-of-its-traffic-over-free-connections-to-isps
- Arstechnica, Netflix performance on Verizon and Comcast has been dropping for months, [Online]. Available: http://arstechnica:com/information-technology/2014/02/netflix-performance-on-verizon-and-comcast-has-beendropping-for-months
- Gigaom, Confirmed: Comcast and Netflix have signed a paid peering agreement, [Online]. Available: https://gigaom:com/2014/02/23/confirmed-comcast-andnetflix-have-signed-a-peering-agreement
- T.Wheeler, M. Clyburn, J. Rosenworcel, A. Pai, and M. O'Rielly, "Notice of proposed rulemaking, in the matter of protecting and promoting the open Internet," Federal Communications Commission (FCC), 2014.
- C. Courcoubetis, L. Gyarmati, N. Laoutaris, P. Rodriguez, and K. Sdrolias, "Negotiating premium peering prices: A quantitative model with applications," ACM Trans. Internet Tech., vol. 16, no. 2, Apr. 2016.
- D. D. Clark, J. Wroclawski, K. R. Sollins, and R. Braden, "Tussle in cyberspace: Defining tomorrow's Internet," IEEE/ACM Trans. Networking, vol. 13, no. 3, pp. 462-475, June 2005.
- Z. B. Houidi and H. Pouyllau, "The Price of tussles: Bankrupt in cyberspace?," in Proc. workshop on pricing and incentives in networks, June 2012.
- L. He and J. Walrand, "Pricing and revenue sharing strategies for Internet service providers," IEEE/ACM Trans. Networking, vol. 24, no. 5, pp. 942-951, May 2006.
- G. Shrimali and S. Kumar, "Paid peering among Internet service providers," in Proc. ACM GameNets, 2006.
- C. Courcoubetis and R. Weber, "Economic issues in shared infrastructures," IEEE/ACM Trans. Networking, vol. 20, no. 2, pp. 594-6081, Aug. 2011.
- S. Li and J. Huang, "Price differentiation for communication networks," IEEE/ACM Trans. Networking, vol. 22, no. 3, pp. 703-716, June 2014.
- P. Faratin et al, "Complexity of Internet interconnections: Technology, incentives and implications for policy," in Proc. TPRC, 2007.
- A. Lodhi, A. Dhamdhere, and C. Dovrolis, "GENESIS: An agent-based model of interdomain network formation, traffic flow and economics," in Proc. IEEE INFOCOM, 2012.
- R. T. B. Ma, D. M. Chiu, J. C. S. Lui, V. Misra, and D. Rubenstein, "Internet economics: The use of shapley value for ISP settlement," IEEE/ACM Trans. Networking, vol. 18, no. 3, pp. 775-787, 2010.
- J.C. Rochet and J. Tirole, "Platform competition in two-sided markets," J. the European Economic Association, vol. 1, no. 4, pp. 990-1019, 2003.
- J. Musacchio, G. Schwartz, and J. Walrand, "A two-sided market analysis of provider investment incentives with an application to the net-neutrality issue", Review of Network Economics, vol. 8, no .1, pp. 22-39, 2009.
- P. Njoroge, A. Ozdaglar, N. Stier-Moses, and G. Weintraub, "Investment in two-sided markets and the net neutrality debate," Review of Network Economics, vol. 12, no. 4, pp. 355-402, 2013.
- Y. Wu, H. Kim, P. H. Hande, M. Chiang and D. H. K. Tsang. Revenue Sharing among ISPs in Two-Sided Markets. in Proc. IEEE INFOCOM, 2011.
- E. Altman et al., A study of non-neutral networks with usage-based prices, Incentives, Overlays, and Economic Traffic Control, Springer Berlin Heidelberg, pp. 76-84, 2010.
- Cisco, "Moving toward usage-based pricing: A connected life market watch perspective," Cisco Internet Business Solutions Group, Mar. 2012.
- FierceCable, Comcast says it publicly outlined its usage-based pricing philosophy back in 2012, [Online]. Available: http://www.fiercecable.com/cable/comcast-says-it-publicly-outlinedits-usage-based-pricing-philosophy-back-2012
- C. Joe-Wong, S. Ha, and M. Chiang, "Sponsoring mobile data: An economic analysis of the impact on users and content providers," in Proc. IEEE INFOCOM, 2015.