1. 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

2. ISP Internet Topology Basics Customer IX ISP Customer IX ISP

3. Internet Topology Basics Customer IX ISP Customer IX ISP Peering

4. ISP Internet Topology Basics Customer IX ISP Customer IX ISP Transit

5. Internet Transaction Basics Packet-Switched Originator IX ISP Recipient

6. Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Originator IX ISP Recipient

7. Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Originator IX ISP Recipient

8. Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Originator IX ISP Recipient

9. Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Symmetric payments Originator IX ISP Recipient

10. Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Symmetric payments Originator IX ISP Recipient

11. Internet Transaction Basics Packet-Switched Approximately symmetric data transaction Symmetric payments Originator IX ISP Recipient

12. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Symmetric payments Originator Telco IX Telco ISP Recipient

13. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

14. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

15. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

16. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

17. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Originator Telco IX Telco ISP Recipient

18. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient

19. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient

20. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient

21. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient

22. Internet Transaction Basics Packet-Switched Channel-Switched Approximately symmetric data transaction Directional call progress Symmetric payments Payments follow call progress Originator Telco IX Telco ISP Recipient Preferred Position

23. Internet Transaction Basics Inbound calls via the PSTN maximizes revenue Originator Telco IX Telco ISP Recipient Preferred Position Revenue

24. Internet Transaction Basics Outbound calls via the Internet minimizes expenditure Inbound calls via the PSTN maximizes revenue Originator Telco IX Telco ISP Recipient Preferred Position RevenueExpenditure

25. Protectionism versus Growth Core Periphery

26. Protectionism versus Growth Core Periphery Peering exists between members of the core, and…

27. Protectionism versus Growth Core Periphery Peering exists between members of the core, and… Peering exists between members of the periphery, but…

28. Protectionism versus Growth Core Periphery Only unidirectional transit crosses the border between the core and the periphery Peering exists between members of the core, and… Peering exists between members of the periphery, but…

29. Protectionism versus Growth Core The oligopoly of the core guarantees its members unidirectional payments from the periphery.

30. Protectionism versus Growth Core Problems with this strategy:

31. Protectionism versus Growth Core Problems with this strategy: In order to be effective, the core must be a closed group, so all newly- formed ISPs join the periphery

32. Protectionism versus Growth Core 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.

33. Protectionism versus Growth Core 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.

34. Protectionism versus Growth

35. The core continues to shrink: Insufficient supply

36. Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices

37. Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices Bankruptcies

38. Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices Bankruptcies Defections

39. Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices Bankruptcies Defections Customer attrition

40. Protectionism versus Growth The core continues to shrink: Insufficient supply Declining prices Bankruptcies Defections Customer attrition Sales moratoriums

41. Protectionism versus Growth Globally, there have been many attempts to replicate this model by taking advantage of local monopoly protection

42. Protectionism versus Growth However, the borderless nature of the Internet encourages competitors to collaborate With monopolists’ transit providers

43. Protectionism versus Growth

44. Bill Woodcock woody@pch.net www.pch.net/resources/papers/topology-and-economics