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
Internet Topology Basics
IX
IX
ISP
ISP
ISP
Customer
Customer
Customer
Internet Topology Basics
IX
ISP
IX
ISP
ISP
Customer
Customer
Peering
Customer
Internet Topology Basics
IX
ISP
IX
ISP
ISP
Customer
Customer
Transit
Customer
Internet Transaction Basics
Originator
Recipient
ISP
ISP
Packet-Switched
IX
Internet Transaction Basics
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
IX
Internet Transaction Basics
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
IX
Internet Transaction Basics
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
IX
Internet Transaction Basics
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Channel-Switched
Directional call progress
Payments follow call progress
Telco
Preferred
Position
Telco
Telco
Originator
Recipient
ISP
ISP
Packet-Switched
Approximately symmetric data transaction
Symmetric payments
IX
Internet Transaction Basics
Inbound calls via the PSTN
maximizes revenue
Telco
Preferred
Position
Telco
Telco
Originator
Recipient
Revenue
ISP
ISP
IX
Internet Transaction Basics
Inbound calls via the PSTN
maximizes revenue
Telco
Telco
Telco
Originator
Revenue
Expenditure
ISP
ISP
IX
Outbound calls via the Internet
minimizes expenditure
Preferred
Position
Recipient
Protectionism versus Growth
Periphery
Core
Protectionism versus Growth
Peering exists between
members of the core, and…
Periphery
Core
Protectionism versus Growth
Peering exists between
members of the core, and…
Periphery
Core
Peering exists between
members of the periphery, but…
Protectionism versus Growth
Peering exists between
members of the core, and…
Periphery
Core
Peering exists between
members of the periphery, but…
Only unidirectional transit
crosses the border between
the core and the periphery
Protectionism versus Growth
The oligopoly of the core guarantees its members
unidirectional payments from the periphery.
Core
Protectionism versus Growth
Problems with this strategy:
Core
Protectionism versus Growth
Problems with this strategy:
In order to be effective, the core must be a closed group, so all newlyformed ISPs join the periphery
Core
Protectionism versus Growth
Problems with this strategy:
In order to be effective, the core must be a closed group, so all newlyformed 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
Protectionism versus Growth
Problems with this strategy:
In order to be effective, the core must be a closed group, so all newlyformed 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
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
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
[email protected]
www.pch.net/resources/papers/topology-and-economics