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Discussions over paid peering and usage fees have become a global phenomenon, with ISPs insisting content providers pay for the substantial downstream traffic they generate, while content providers argue for settlement-free agreements, citing that consumers already pay ISPs for content delivery and content providers reduce costs for ISPs by delivering traffic close to customers. This contention is echoed in debates around net neutrality and related policies across the United States, Europe, and South Korea, prompting regulators to consider whether to regulate peering prices and/or impose usage fees. This question gains significance in the United States in light of the recent Federal Communications Commission (FCC) decision to consider the reinstatement of net neutrality rules. Our study examines whether the peering price set by the market aligns with the socially optimal peering price. We first analyze the cost-based peering price, which reflects the ISP’s incremental costs for direct content delivery versus via transit providers. We discover that this price can effectively be zero with sufficient content localization, yet remains above zero without it, influenced by the number of interconnection points. We then evaluate the profit-maximizing peering price using a two-sided market model, finding that increased content localization decreases this price. These prices establish a range if the peering price is unregulated, from the cost-based peering price (at the low end) to the profit-maximizing peering price (at the high end). Regulatory oversight of peering prices may be warranted when there is a substantial difference between cost-based and profit-maximizing prices. Finally, our study informs the debate on potential regulatory interventions about peering prices or usage fees. We compare unregulated market outcomes with those under regulatory measures aimed at maximizing consumer surplus or social welfare. Through our analysis, we identify optimal peering prices within our determined range, considering the influence of content localization and interconnection points on these prices.

In April 2020, Netflix, Inc. and its Korean subsidiary Netflix Services Korea Ltd. filed a lawsuit against SK Broadband, Inc., seeking confirmation that there were no obligations to bear network costs. On June 25, 2021, the Seoul Central District Court rejected Netflix's argument and acknowledged the existence of an obligation to negotiate fees. Netflix subsequently appealed the decision on November 5, 2021. However, on September 18, 2023, SK Broadband and parent SK Telecom suddenly announced in a joint statement with Netflix that they had agreed to establish a strategic partnership to end all disputes. This study provides an overview of the case, discusses the related concepts, and analyzes the meaning of the case outcome in terms of efficient resource allocation within the broadband ecosystem. A model analysis revealed that, with the freedom of price setting, the effect of introducing paid peering is neutral with respect to resource allocation; however, when that freedom is impaired, for example by price regulations or net neutrality obligations, the introduction of paid peering not only generates benefits for the introducing players and their customers but it also results in damage to overall social welfare. In addition, this study shows that paid peering can be used as a means of internalizing externalities when the external economies of network/content investment are considered. These arguments are expected to make a theoretical contribution to the debate on shifting the economic burden of network infrastructure to over-the-top players, and help the telecom regulator to better design universal broadband scheme. • Incentives for paid peering are present only when network operators are constrained. • Voluntary paid peering harms economic welfare in a short-term framework. • In the long-term, paid peering can improve welfare and attain fair cost distribution. • Transparency of peering agreements should be improved. • Paid peering may help support universal broadband service. [ABSTRACT FROM AUTHOR]

With the rapid growth of congestion-sensitive and data-intensive applications, traditional settlement-free peering agreements with best-effort delivery often do not meet the QoS requirements of content providers (CPs). Meanwhile, Internet access providers (IAPs) feel that revenues from end-users are not sufficient to recoup the upgrade costs of network infrastructures. Consequently, some IAPs have begun to offer CPs a new type of peering agreement, called paid peering, under which they provide CPs with better data delivery quality for a fee. In this article, we model a network platform where an IAP makes decisions on the peering types offered to CPs and the prices charged to CPs and end-users. We study the optimal peering schemes for the IAP, i.e., to offer CPs both the paid and settlement-free peering to choose from or only one of them, as the objective is profit or welfare maximization. Our results show that 1) the IAP should always offer the paid and settlement-free peering under the profit-optimal and welfare-optimal schemes, respectively, 2) whether to simultaneously offer the other peering type is largely driven by the type of data traffic, e.g., text or video, and 3) regulators might want to encourage the IAP to allocate more network capacity to the settlement-free peering for increasing user welfare. [ABSTRACT FROM AUTHOR]

From the beginning of the Internet as a government-funded network of networks through the commercialization of the Internet, the Internet ecosystem had gone through tremendous changes. The economic models for charging for connectivity was invented, the interconnection regimes were created and evolved, and Internet Peering was employed as a local routing and business optimization. But how has it changed recently, and what are the trends moving forward into the 21st century? This paper describes the dramatic evolution of the Internet Peering ecosystem from the economic downturn in 2001 to the massive paradigm shifts playing out right now in 2011. These shifts are "massive" in the sense that the power positions of the players has changed, and the underlying assumptions of peering equity have adjusted accordingly. [ABSTRACT FROM AUTHOR]