Paid Peering: Pricing and Adoption Incentives

Large access providers (ISPs) are seeking for new typesof business agreements and pricing models to manage networkcosts and monetize better the provision of last-mile services. Atypical paradigm of such new pricing norms is the proliferationof paid peering deals between ISPs and content providers (CPs),while on top of this, some ISPs are already experimenting withusage-based tariffs, usually through data-plans, instead of the typicalfixed-based charging. In this work we define as common platform,the infrastructure in which a single ISP transacts with severalCPs through peering agreements. In this context, we examinewhether, and under which market conditions, the profitabilityof the involved stakeholders improves when the establishment ofthis platform is accompanied by a monetary compensation fromthe CPs to the ISP (paid peering), v.s. a scenario where their dealis a typical settlement-free one. In both cases, we assume that theISP implements a usage-based access pricing scheme, implying thatend-users will pay more for higher transaction rates with the CPs. Our framework captures some of the most important details ofthe current market, such as the various business models adoptedby the CPs, the end-users’ evaluation towards the ISP’s and CPs’level of investments and the traffic rates per transaction for theoffered services. By analysing the equilibrium derived by a leaderfollowergame, it turns out (among other practical takeaways) thatwhether or not the profitability of a CP improves, it highly dependson whether its business model is to sell content, or if it obtains itsrevenue from advertisements. Finally, we extract that consumersurplus is considerably higher under paid peering, which in turnimplies improved levels of social welfare 1. KCI Citation Count: 5