Internet Topology and Economics How Supply and Demand Influence the Changing Shape of the Global Network Version 1.0 January, 2003 Bill Woodcock Packet Clearing House

ISP Internet Topology Basics Customer IX ISP Customer IX ISP

Internet Topology Basics Customer IX ISP Customer IX ISP Peering

ISP Internet Topology Basics Customer IX ISP Customer IX ISP Transit

Internet Transaction Basics Packet-Switched Originator IX ISP Recipient

Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Originator IX ISP Recipient

Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Originator IX ISP Recipient

Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Originator IX ISP Recipient

Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Symmetric payments Originator IX ISP Recipient

Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Symmetric payments Originator IX ISP Recipient

Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Symmetric payments Originator IX ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Symmetric payments Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient

Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient Preferred Position

Internet Transaction Basics Inbound calls via the PSTN maximizes revenue Originator Telco IX Telco ISP Recipient Preferred Position Revenue

Internet Transaction Basics Outbound calls via the Internet minimizes expenditure Inbound calls via the PSTN maximizes revenue Originator Telco IX Telco ISP Recipient Preferred Position RevenueExpenditure

Protectionism versus Growth Core Periphery

Protectionism versus Growth Core Periphery Peering exists between members of the core, and…

Protectionism versus Growth Core Periphery Peering exists between members of the core, and… Peering exists between members of the periphery, but…

Protectionism versus Growth Core Periphery Only unidirectional transit crosses the border between the core and the periphery Peering exists between members of the core, and… Peering exists between members of the periphery, but…

Protectionism versus Growth Core The oligopoly of the core guarantees its members unidirectional payments from the periphery.

Protectionism versus Growth Core Problems with this strategy:

Protectionism versus Growth Core Problems with this strategy: In order to be effective, the core must be a closed group, so all newly- formed ISPs join the periphery

Protectionism versus Growth Core Problems with this strategy: In order to be effective, the core must be a closed group, so all newly- formed ISPs join the periphery Since both the number of ISPs and the number of customers are growing, the growth rate of the periphery will always exceed that of any fixed subset of the net.

Protectionism versus Growth Core Problems with this strategy: In order to be effective, the core must be a closed group, so all newly- formed ISPs join the periphery Since both the number of ISPs and the number of customers are growing, the growth rate of the periphery will always exceed that of any fixed subset of the net. The periphery is highly incented to minimize the amount of transit which they buy from the core and to maxmize the amount of peering which they exchange amongst themselves.

Protectionism versus Growth

The core continues to shrink: Insufficient supply

Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices

Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices Bankruptcies

Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices Bankruptcies Defections

Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices Bankruptcies Defections Customer attrition

Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices Bankruptcies Defections Customer attrition Sales moratoriums

Protectionism versus Growth Globally, there have been many attempts to replicate this model by taking advantage of local monopoly protection

Protectionism versus Growth However, the borderless nature of the Internet encourages competitors to collaborate With monopolists’ transit providers

Protectionism versus Growth

Bill Woodcock