INTRODUCTION
The Internet is a network of networks that realizes its global reach by being able to route data from source nodes on one network to destination nodes that may be across town or on the other side of the globe, and in many cases, are on networks that are owned and operated by different Internet service providers (ISPs).
Along the end-to- end path, the data may need to cross the networks of still other ISPs. Supporting the end-to-end, global connectivity, which is a hallmark of the Internet’s value proposition, requires that the ISPs be interconnected both physically (i.e., there exists an electronic pathway for transporting packets) and via business relationships. These business relationships impact both the flow of traffic and the flow of money across the Internet value chain.Historically, most traffic was exchanged between the largest ISPs on the basis of revenue-neutral peering agreements that routed traffic but not dollars across ISP interconnections. The explosive growth of video traffic, the increased socio-economic importance of the Internet, and the rise of business disputes over who should pay for the increased costs of traffic have raised questions about whether the time has now come for Internet interconnection to be regulated.
In this chapter, we focus on the growing challenge posed by the rise in traffic/usage- related costs for Internet interconnection - attributable today to the rise in entertainment video traffic from content delivery networks (CDNs) - and what this may mean for policy-makers. We conclude that the rising concern over a potential need to regulate interconnection is valid, but point to current structural features, costs, and usage data that suggest that strong regulatory intervention does not seem warranted at this time. While usage-related costs are significant, they are not so large as to require a major disruption in either retail or wholesale (interconnection) pricing.
It is reasonable to expect that both upstream content delivery networks and end user subscribers may be called upon to contribute to recovering the growing traffic-related costs confronting access ISPs, which must continually invest in expanded capacity to meet the needs of exponential traffic growth. Nevertheless, we expect that the forces driving these changes imply that the potential need for regulation will continue and that interconnection will remain a focal issue for future broadband policy.We organize the chapter into three major sections. First, we provide a review of the history of interconnection in the Internet and of some of the academic literature that has sought to make sense of it. Next, we provide our assessment of the current status of interconnection in the Internet and the basis for the preliminary conclusions summarized above. We are aware that our discussion is US-centric although it should be noted that
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many of the trends observed first in the USA are echoed by similar trends in many other markets. We conclude with some thoughts on the future of this important issue and some of the questions that need to be addressed.
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