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1. Analysis of the Requirements of Settlement-Free Interconnection Policies

   https://doi.org/10.1109/TNSM.2023.3254367  

   Nikkhah, Ali; Jordan, Scott (January 2023, IEEE Transactions on Network and Service Management)

   Peering between two networks may be either settlement-free or paid. In order to qualify for settlement-free peering, large Internet Service Providers (ISPs) require that peers meet certain requirements. However, the academic literature has not yet shown the relationship between these settlement-free peering requirements and the value to each interconnecting network. We develop two models to analyze the value to each network from the most common and important requirements in the United States. Large ISPs in the U.S. often require potential settlement-free peers to interconnect at a minimum of 6-8 locations. We find that there is a substantial benefit from this requirement to the ISP, but little incremental benefit from a larger number of interconnection points. Large ISPs often require that the ratio of incoming traffic to outgoing traffic remain below approximately 2:1. In the case of two interconnecting ISPs, we find that this requirement ensures a roughly equal exchange of value. We also show that it is rational for an ISP to agree to settlement-free peering if the content provider agrees to interconnect at a specified minimum number of interconnection points and to deliver a specified minimum proportion of traffic locally, but a limit on the traffic ratio is irrational. 

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2. Should Large ISPs Apply the Same Settlement-Free Peering Policies To Both ISPs and CDNs?

   https://doi.org/10.1109/CCNC51644.2023.10060728  

   Nikkhah, Ali; Jordan, Scott (January 2023, IEEE)

   Large Internet Service Providers (ISPs) often require that peers meet certain requirements to be eligible for free-settlement peering. The conventional wisdom is that these requirements are related to the perception of roughly equal value from the peering arrangement, but the academic literature has not yet established such a relationship. The focus of this paper is to relate the settlement-free peering requirements between two large ISPs and understand the degree to which the settlement-free peering requirements between them should apply to the peering between large ISPs and content providers. We analyze settlement-free peering requirements about the number and location of interconnection points (IXPs). Large ISPs often require interconnection at a minimum of 6 to 8 interconnection points. We find that the ISP’s traffic-sensitive cost is decreasing and convex with the number of interconnection points. We also observe that there may be little value in requiring interconnection at more than 8 IXPs. We then analyze the interconnection between a large content provider and an ISP. We show that it is rational for an ISP to agree to settlement-free peering if the content provider agrees to interconnect at a specified minimum number of interconnection points and to deliver a specified minimum proportion of traffic locally. 

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3. Are the Settlement-Free Peering Policy Requirements for ISPs and CDNs Based on Network Costs?

   https://doi.org/10.2139/ssrn.4178682  

   Nikkhah, Ali; Jordan, Scott (August 2022, TPRC (the Research Conference on Communications, Information, and Internet Policy))

   Peering is an interconnection arrangement between two networks for the purpose of exchanging traffic between these networks and their customers. Two networks will agree to settlement-free peering if this arrangement is superior for both parties compared to alternative arrangements including paid peering or transit. The conventional wisdom is that two networks agree to settlement-free peering if they receive an approximately equal value from the arrangement. Historically, settlement-free peering was only common amongst tier-1 networks, and these networks commonly require peering at a minimum specified number of interconnection points and only when the traffic ratio is within specified bounds. However, the academic literature does not explain how these requirements relate to the value to each network. More recently, settlement-free peering and paid peering have become common between ISPs and CDNs. In this paper, we construct a network cost model to understand the rationality of common requirements on the number of interconnection points and traffic ratio. We also wish to understand if it is rational to apply these requirements to interconnection between an ISP and a CDN. We construct a model of ISP traffic-sensitive network costs. We consider an ISP that offers service across the US. We parameterize the model using statistics about the population and locations of people in the contiguous US. We consider peering at the locations of the largest interconnection points in the US. We model traffic-sensitive network costs in the ISP’s backbone network, middle-mile networks, and access networks. These costs are thus functions of routing policies, distances, and traffic volumes. To qualify for settlement-free peering, large ISPs commonly require peering at a minimum of 4 to 8 mutually agreeable interconnection points. The academic literature provides little insight into this requirement or how it is related to cost. We show that the traffic-sensitive network cost decreases as the number of interconnection points increases, but with decreasing returns. The requirement to peer at 4 to 8 interconnection points is thus rational, and requiring interconnection at more than 8 points is of little value. Another common requirement is that the ratio of downstream to upstream traffic not exceed 2:1. This is commonly understood to relate to approximately equal value, but the academic literature does not explain why. We show that when downstream traffic exceeds upstream traffic, an ISP gains less from settlement-free peering, and that when the traffic ratio exceeds 2:1 an ISP is likely to perceive insufficient value. Finally, we turn to interconnection between an ISP and a CDN. Large ISPs often assert that CDNs should meet the same requirements on the number of interconnection points and traffic ratio to qualify for settlement-free peering. We show that if the CDN delivers traffic to the ISP locally, then a requirement to interconnect at a minimum number of interconnection points is rational, but a limit on the traffic ratio is not rational. We also show that if the CDN delivers traffic using hot potato routing, the ISP is unlikely to perceive sufficient value to offer settlement-free peering. 

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4. A two-sided model of paid peering

   https://doi.org/10.1016/j.telpol.2022.102352  

   Nikkhah, Ali; Jordan, Scott (May 2022, Telecommunications policy)

   Internet users have suffered collateral damage in tussles over paid peering between large ISPs and large content providers. Paid peering is a relationship where two networks exchange traffic with payment, which provides direct access to each other’s customers without having to pay a third party to carry that traffic for them. The issue will arise again when the United States Federal Communications Commission (FCC) considers a new net neutrality order. We first consider the effect of paid peering on broadband prices. We adopt a two-sided market model in which an ISP maximizes profit by setting broadband prices and a paid peering price. We analytically derive the profit-maximizing prices, and show that they satisfy a generalization of the well-known Lerner rule. Our result shows that paid peering fees reduce the premium plan price, increase the video streaming price and the total price for premium tier customers who subscribe to video streaming services; however, the ISP passes on to its customers only a portion of the revenue from paid peering. ISP profit increases but video streaming profit decreases as an ISP moves from settlement-free peering to paid peering price. We next consider the effect of paid peering on consumer surplus. We find that consumer surplus is a uni-modal function of the paid peering fee. The paid peering fee that maximizes consumer surplus depends on elasticities of demand for broadband and for video streaming. However, consumer surplus is maximized when paid peering fees are significantly lower than those that maximize ISP profit. However, it does not follow that settlement-free peering is always the policy that maximizes consumer surplus. The peering price depends critically on the incremental ISP cost per video streaming subscriber; at different costs, it can be negative, zero, or positive. 

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5. When is Regulation of Peering or Usage Fees Warranted?

   https://doi.org/10.2139/ssrn.4512343  

   Nikkhah, Ali; Jordan, Scott (January 2023, SSRN Electronic Journal)

   Debates over paid peering and usage fees have expanded from the United States to Europe and South Korea. ISPs argue that content providers should pay fees based on the amount of downstream traffic they generate. In contrast, content providers contend that customers already pay ISPs for delivering the content they request, and therefore that peering agreements should be settlement-free. The issue has arisen in debates in the United States, Europe, and South Korea over net neutrality, universal service, and infrastructure funding. Regulatory entities are considering whether to regulate peering prices and/or impose usage fees. A key part of the debate concerns whether the market determines the socially beneficial peering price, and if not, how much of a difference there is between the socially beneficial peering price and the market-determined peering price. Our objective here is to understand the range from a cost-based peering price to a profit-maximizing peering price. First, we determine an ISP’s cost for directly peering with a content provider, by analyzing the incremental cost for transporting the content provider’s traffic when it directly peers with the ISP versus when it sends its traffic through a transit provider. We find that this cost-based peering price is positive if there is little localization of content, but it is zero (i.e., settlement-free peering) if there is sufficient localization of content. We also find that the required amount of localization varies with the number of interconnection points. Next, we determine the peering price that maximizes an ISP’s profit using a two-sided market model in which a profit-maximizing ISP determines broadband prices and the peering price, and in which content providers determine their service prices based on the peering price. We find that the profit-maximizing peering price decreases with content localization. These prices establish a range if the peering price is unregulated, from the cost-based peering price (at the low end) to the profit-maximizing peering price (at the high end). Regulatory oversight of peering prices may be warranted when there is a substantial difference between cost-based and profit-maximizing prices. 

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