1. © 2007 AT&T Knowledge Ventures. All rights reserved. AT&T and the AT&T logo are trademarks of AT&T Knowledge Ventures. The Evolving Internet Traffic, Engineering, and Roles - A Study of Performance and Economic Models - Joseph D Houle, K. K. Ramakrishnan, Rita Sadhvani, Murat Yuksel, Shiv Kalyanaraman September, 2007

2. Page 2 Internet Industry’s Challenge… Provide cost-effective Internet access while: Applications continue to diversify relative to demands on the network The number of users continues to grow at an annual rate of 12.5%. The average traffic per user is expected to grow even faster at 25% per year.

3. Page 3 Approaches to Consider Build Differentiated Networks Investigate Alternative Business Models Premium Best Effort D Diff = g D BE =(1-g) D DD Completely ad-driven Revenue model where the consumer pays only for consumption device. Advertising is a critical component and helps subsidize the subscription costs to the consumer. Advertising is important component; Premium ad-free channels, e.g. HBO. Subscription revenues driven business model. Advertising revenue an insignificant component. Independent press Broadcast TV Broadcast Radio Publications New York Times Time, Fortune Cable TV Internet Portals AOL Satellite Radio XMRadio 100% Advertising Driven 100% Consumer Paid

4. Page 4 Network Model Descriptions NN Best Effort D Premium (no partitioning of resources) Best Effort D Diff = g D BE =(1-g) D Scheduling (e.g. priority) DD TermExplanation D Total traffic. Assumed to be the same for both the Differentiated and Best Effort models. Assumptions are the same for Best Effort on unmanaged networks. g Proportion of differentiated traffic as a fraction of the total ( Diff =premium traffic arrival rate; BE = best effort arrival rate)  D,  N Total capacity of the differentiated and Best Effort model, respectively N -DN -D Required Extra capacity = - ( N -  D ) /  D *100 Required Extra Capacity (REC) = - / * 100 Best Effort model – Differentiated model –

5. Page 5 Single Link Analysis for Required Extra Capacity (REC) Analyze the Required Extra Capacity (REC) of a single link with differentiation vs. best effort using standard Poisson (M/M/1) and MMPP models: Required additional capacity to maintain the same loss performance for premium traffic. Required additional capacity to maintain the same delay performance for premium traffic. 60% Utilization, 20% Premium ~1k packet queueing delay  160% REC a=0.5, r=4 (slightly more bursty than M/M/1) a=0.5, r=8 (even more bursty) 60% Utilization, 20% Premium ~1k packet queueing delay  80% REC Link Delay

6. Page 6 Network Delay Analysis for Two Topologies 60% Utilization 40% Premium 4 ms Ave Queueing Delay  70% REC Build network models (based on Rocketfuel ISP Backbone topologies) out of the link model Use the more conservative MMPP assumptions of a=0.5, r=4 Averages the queueing delays and utilizations Abovenet TopologySprintlink Topology 60% Utilization 40% Premium 4 ms Ave Queueing Delay  60% REC Network Delay

7. Page 7 Network Loss Analysis for Two Topologies 60% Utilization, 40% Premium 0.4% loss prob.  60% REC Same Rocketfuel topologies as Delay Same MMPP burstiness assumptions (a=0.5, r=4) with a buffer size of 60 packets Abovenet TopologySprintlink Topology 60% Utilization, 40% Premium 0.4% loss prob.  70% REC Network Loss

8. Page 8 Engineering Summary Network Engineering Summary Required Extra Capacity is useful to look at… In all situations the (REC) is significant for typical operational scenarios, more than 50% extra capacity. With continued growth in traffic and varity of applications, differentiation will continue to be important Results are sensitive to assumptions; most assumptions in this analysis are conservative. Different topologies produce the same shape curve and similar values. Even with small amount of video traffic, we still need lots of extra capacity. Internet Business Model Evolution Advertising Revenue - examples in content delivery markets Multi-sided Markets - overview Flows: – Revenue – Traffic

9. Page 9 Advertising driven Revenue model. Consumer pays minimally for content delivery, they need to buy the radio or TV. The Continuum Independent press Broadcast TV Broadcast Radio Publications New York Times Time, Fortune Cable TV Internet Portals AOL Satellite Radio Advertising is the major component of revenue model. Advertising subsidizes the subscription costs. Advertising is minor, not insignificant, component of revenue model. Premium channels such as HBO, that are ad-free demand an additional fee. Advertising is very small component of revenue model. Subscription revenues drive the entire business model, making it quite often, unsustainable business model. Advertisement DrivenConsumer Paid

10. Page 10 Business Model Flexibility is Critical Some proposed legislation would force the service provider to participate only in the rightmost side of the continuum. Advertising DrivenConsumer Paid The Internet needs the ability to support different business models depending on the application or user to optimize the consumer value and continue investment in broadband infrastructure. AOL is moving away from a subscription based model to an advertising model. NYT is diversifying its revenue by growing its online edition which will be primarily advertisement funded. A blended mix of cost assignment between end user and content owner would serve the end user’s needs.

11. Page 11 Multi-Sided Markets - Overview A multi-sided market has a mediation platform that enables two or more groups of customers who value the other's participation on the same platform in order to generate/receive value. Content Provider Content Consumer - The Internet - A Multi-sided-Market Mediation Platform For Content Delivery Price structure of multi-sided markets tends to evolve to be proportional to the business value received.

12. Page 12 Content Provider Content Consumer Content Provider’s ISP Content Consumer’s ISP Yesterday’s Internet Revenue Flows Consumers buy Internet access from their service provider Content providers buy Internet access from their service provider But no revenue flow between ISP… interconnection agreements were set up as simple settlement-free peering Traffic Flows (A quick look under the Internet covers) Routing practice between ISPs is “hot potato”, i.e. hand-off as quickly as possible. – Sending ISP provides short-haul transport over its network to nearest peering point with receiving ISP – Receiving ISP provides long-haul transport to final destination With relatively symmetrical traffic, transport burden on both ISPs are similar X A’s ISP B’s ISP B A

13. Page 13 New Role of Today’s Internet Content Provider Content Consumer Content Provider’s ISP Content Consumer’s ISP Revenue Flows Consumers buy Internet access from their service provider Content providers buy Internet access from their service providers Consumers buy content from their content providers (maybe subsidized by advertising revenue) Content Providers use the Internet as the delivery vehicle for their product Traffic Flows Now that content provider’s ISP is sending a lot more traffic than it is receiving, any Content Consumer’s ISP that it peers with will carry lion’s share of transport burden. Consumer's ISP Content Provider’s ISP Content Provider Content Consumer

14. Page 14 The Evolved Internet Based on Market Forces A differentiated network that has evolved to meet the performance requirements and business model of the Content Providers. Advertising revenue given an opportunity to play a role. Multi-sided market economics given an opportunity to better align cost with benefit to the various parties. A market-driven Inter-ISP settlement model. Content Provider Content Consumer Taken together these could provide a winning solution all around:  Applications can get the performance from the network they require  More value for consumers

15. Page 15 Thank You For Your Time and Interest “… if and when consumers switch their consumption of entertainment media from broadcast and broadcast cable technologies to IP-based delivery, we would expect that paid content - or advertiser supported content - will have to take up a larger share of the burden of maintaining the core of the Internet”. Dr. Shawn O’Donnell, “An economic map of the Internet,” Proceedings of TPRC, September 2002