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Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange;  Market Developments and Policy Challenges"
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Dennis Weller, Senior Advisor, Navigant Economics "IP Traffic Exchange; Market Developments and Policy Challenges"

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BEREC expert workshop on IP-Interconnection in cooperation with OECD …

BEREC expert workshop on IP-Interconnection in cooperation with OECD
November 2nd, Bloom Hotel Brussels, 9:00-17:30

Published in: Technology, Design
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  • 1. IP Traffic Exchange Market Developments and Policy Challenges BEREC/OECD Workshop Brussels, 2 November 2011 Dennis Weller Navigant Economics wellerdennis@mac.comPage 1
  • 2. Growth of the Internet» Two billion users» Eightfold traffic growth in five years › Still dramatic, but less than in previous periods» Global extension of the Internet › High rates of growth in eastern Europe and emerging economiesPage 5
  • 3. Growth in Bandwidth Production by Country and Region » Five-year annualized growth ranges from less than 20% to › 1,470% (Russia) › Over 400% (South Africa, Uganda, Egypt) Annualized percentage growth in domestic Internet bandwidth production, grouped by region, 2005–2010
  • 4. Geographic Expansion of the Internet » Investment in IXPs (now about 350) » Domestic production capacity promotes economic self-sufficiency » Local IXPs reduce need for “tromboning” of traffic » IXPs provide centers for development of Internet assets within region » 53% of countries, including many LDCs, do not yet have an IXP
  • 5. Well-Understood and Accepted Norms for Peering » A survey of 142,210 peering agreements was conducted for the OECD report. » 86% of Internet carriers represented, in 96 countries, including all of OECD » 99.51% of agreements required no written contract » 99.73% had symmetric terms » High prevalence of multilateral agreements » US, Canada, Japan, Singapore were most often selected governing jurisdictions
  • 6. Performance of the Market» Low prices › Wholesale transit at USD 2-3 per megabit per second per month › Rate varies by distance from IXPs and by volume purchased › Equivalent to USD 0.0000004 per voice minute › Roughly constant since 2006: supply/demand ratio worsening at the same time that technological progress drives some input costs down» Universal connectivity with relatively sparse agreements › Less than 1% of a full mesh › Average AS-path length is currently 4.3 › Maximum AS-path length, corrected for prepending, is currently 12.
  • 7. Structural Change in Internet Exchange Model » Reduced role for traditional incumbent networks › High degree of “donut peering” among Internet-centric carriers › Disintermediation of transit › Traditional incumbents marginalizing themselves through lack of interconnection » 10,000 Traditional » 100,000Incumbents » 0 100Prefixes Served Degree of Interconnection
  • 8. Structural Developments in Services» Voice declining in importance › Already a tiny fraction of traffic exchanged › Voice usage declining in all age groups ‒ US Teenagers (ages 13-17) make or receive an average of 3,339 texts per month (Nielsen)» P2P still significant, but share no longer increasing › P2P 40% of traffic in 2010, 16% by 2015 (Cisco) ‒ But still the greatest source of demand for upload capacity» Growth from: › Streaming, direct downloads of video ‒ Fastest growing category 2007-2009 (Atlas) › Applications moving from local storage to online › Supported by growth of CDNs
  • 9. Structural Developments in IP Exchange Market» Growth of Content Delivery Networks (CDNs) › Stand-alone providers ‒ Akamai’s revenues have quadrupled in last five years ‒ In 2009, the top five stand-alone CDNs carried almost 10% of Internet traffic › Self-supply by online content providers like Google, which now carries 6% of Internet traffic › Investment in direct transport, caching › Improved quality; alternative to transit» Boundaries blurring between content provider, backbone, local access, CDN, as all are providing these functions» Part of overall evolution toward more direct routing and improved quality
  • 10. Challenge: Deviation from Moore’s LawExponential growth in Interface speeds made possible by research in optoelectronicphysics.After bubble burst in 2000, investment in research dried up -- with a lag, this led todeviation from previous trend. 115% annual exponential 6 gbps / year linear Interface speeds available at IXPs, by year
  • 11. When Worlds Collide -- New and Old Models IP Model Traditional ModelNot Regulated RegulatedGrowin g D ec l i n ing nce!Better Worse rm a Pe r f o Perfo rman ce
  • 12. Policy Challenges» Convergence -- When Worlds Collide › IP and TDM models create different terms of trade, incentives › “Bright line” between the two frameworks › Important to avoid applying old frameworks to IP, in both domestic and international policy» The question of voice» Reform of TDM traffic exchange» De-privatization» Pricing models to support new investment in access networks» Network neutrality and the IP model of traffic exchange
  • 13. Evolution of the Market » All players in the value chain reinventing business models, terms of trade » New variations on the model of Internet traffic exchange › Multilateral peering › Regional peering › Single-hop or backplane access › CDN access or paid peering » Traffic balance -- what role should it play? » Transit, peering, and CDN as substitutes
  • 14. Pricing Options for Local Access Networks » Growth in traffic creates demand for investment by local access network › Shift in delivery mode › Depends on how traffic is delivered ‒ How deep in access network ‒ Caching › Need to distinguish incremental demand associated with online content delivery from more general upgrade investment » Four options suggested by AT Kearney › Non-linear end-user prices ‒ Linkage with wholesale agreements? › Mandatory terminating charge › Coordination for QOS › Provision of CDN functions
  • 15. Network Neutrality and the Internet Market for Traffic Exchange» Many of the questions raised in the network neutrality debate are now being answered in the market for IP agreements › How should Internet content be delivered to broadband users? › What resources should be deployed to improve quality, where, by whom, and on what terms?» Recent disputes in the headlines: › Cogent/Orange › Level 3/Comcast» Current state of play: › Results are mixed, but fall within a reasonable range › Google has peering agreements with 70% of Internet providers › Where paid peering has been agreed, charges are on the lower end of range for transit › Negotiation of considerations in money and in kind › Simple peering model a low-cost alternative

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