Internet Topology and Economics How Supply and Demand Influence the Changing Shape of the Global Net

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Internet Topology and EconomicsHow Supply and
Demand Influence the Changing Shape of the Global
Network

• Version 1.0
• January, 2003
• Bill Woodcock
• Packet Clearing House

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Internet Topology Basics
IX
IX
ISP
ISP
ISP
Customer
Customer
Customer
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Internet Topology Basics
IX
IX
ISP
ISP
ISP
Peering
Customer
Customer
Customer
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Internet Topology Basics
IX
IX
ISP
ISP
ISP
Transit
Customer
Customer
Customer
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Internet Transaction Basics
Originator
Recipient
ISP
ISP
IX
Packet-Switched
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Internet Transaction Basics
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
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Internet Transaction Basics
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
8
Internet Transaction Basics
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
9
Internet Transaction Basics
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
18
Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
21
Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Channel-Switched
Directional call progress
Preferred Position
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
IX
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
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Internet Transaction Basics
Inbound calls via the PSTN maximizes revenue
Preferred Position
Telco
Telco
Telco
Originator
Recipient
Revenue
ISP
ISP
IX
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Internet Transaction Basics
Inbound calls via the PSTN maximizes revenue
Preferred Position
Telco
Telco
Telco
Originator
Recipient
Revenue
Expenditure
ISP
ISP
IX
Outbound calls via the Internet minimizes
expenditure
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Protectionism versus Growth
Core
Periphery
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Protectionism versus Growth
Peering exists between members of the core, and
Core
Periphery
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Protectionism versus Growth
Peering exists between members of the core, and
Core
Periphery
Peering exists between members of the periphery,
but
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Protectionism versus Growth
Peering exists between members of the core, and
Only unidirectional transit crosses the border
between the core and the periphery
Core
Periphery
Peering exists between members of the periphery,
but
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Protectionism versus Growth
The oligopoly of the core guarantees its members
unidirectional payments from the periphery.
Core
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Protectionism versus Growth
Problems with this strategy
Core
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Protectionism versus Growth
Problems with this strategy In order to be
effective, the core must be a closed group, so
all newly- formed ISPs join the periphery
Core
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Protectionism versus Growth
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.
Core
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Protectionism versus Growth
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.
Core
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Protectionism versus Growth
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Protectionism versus Growth
The core continues to shrink Insufficient
supply
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Protectionism versus Growth
The core continues to shrink Insufficient
supply Declining prices
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Protectionism versus Growth
The core continues to shrink Insufficient
supply Declining prices Bankruptcies
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Protectionism versus Growth
The core continues to shrink Insufficient
supply Declining prices Bankruptcies Defections

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Protectionism versus Growth
The core continues to shrink Insufficient
supply Declining prices Bankruptcies Defections
Customer attrition
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Protectionism versus Growth
The core continues to shrink Insufficient
supply Declining prices Bankruptcies Defections
Customer attrition Sales moratoriums
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Protectionism versus Growth
Globally, there have been many attempts to
replicate this model by taking advantage of
local monopoly protection
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Protectionism versus Growth
However, the borderless nature of the
Internet encourages competitors
to collaborate With monopolists transit
providers
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Protectionism versus Growth
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• Bill Woodcock
• woody_at_pch.net
• www.pch.net/resources/papers/topology-and-economic
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