Interconnect Business Models

One of the most interesting white papers I have read on the economics of network interconnect models was written by Jay M. Atkinson and Christopher C. Barnekov who were working at the FCC. The white paper has a very odd title: "A Coasian Alternative to Pigovian Regulation of Network Interconnection". The title sounds comical for non-economists like me, but if you take the time to dig into this white paper it offers an insightful understanding of interconnect costs between networks. More importantly, it illustrates why interconnect costs between two networks are not equal. When a small and large network interconnect, the larger network tends to experience a disproportionate share of the interconnect cost. This explains why network operators fear a simple bill and keep peering model with smaller networks. You can download the white paper from http://web.si.umich.edu/tprc/papers/2004/348/CoasianAlternative040901b.pdf.

If you do not have the time to read the tedious details covered in this white paper, you can download a presentation I gave at PTC'06 entitled "Interconnect Business Models". It summarizes some of the main points addressed by Atkinson and Barnekov in their white paper.