1. Anticipating the Metering and Settlement Implications of the Drive for Internet Quality of Service Joseph P. Bailey, Ph.D. <jbailey@rhsmith.umd.edu> Robert H. Smith School of Business University of Maryland, USA www.rhsmith.umd.edu/tbpp/jbailey/pub

2. © Joseph P. Bailey, 1998 Outline b Defining Quality of Service b Interconnection Models b Pricing Policies b Interconnection and QoS b Analysis and Conclusions

3. © Joseph P. Bailey, 1998 Internet Economics Research and education in ensuring the self- sustaining economic growth of the Internet

4. © Joseph P. Bailey, 1998 Quality of Service (QoS) b User-defined b End-to-End service is often required b Heterogeneous applications have different bandwidth requirements b Network separates different classes of traffic (no longer just best effort service) b Trade-off of different quality metrics is possible

5. © Joseph P. Bailey, 1998 QoS Protocols b Internet Protocol version 4 (IPv4) ReSerVation Protocol (RSVP)ReSerVation Protocol (RSVP) Real Time Protocol (RTP)Real Time Protocol (RTP) b Internet Protocol version 6 (IPv6) how these technologies will be diffused is unknown and requires proper economic incentives

6. © Joseph P. Bailey, 1998 Interconnection Models b Peer-to-Peer Bilateral b Hierarchical Bilateral b Third Party Administrator b Cooperative Agreement sizeexperiencetechnology customer base } Interconnection increases social welfare, but benefits (and prices) are often asymmetric!

7. © Joseph P. Bailey, 1998 Pricing Policies b Flat-Rate b Capacity-Based pricing based upon expected usepricing based upon expected use b Usage-Sensitive pricing based upon actual usepricing based upon actual use accounting and settlementsaccounting and settlements

8. © Joseph P. Bailey, 1998 Comparison of Interconnection Models

9. © Joseph P. Bailey, 1998 Tragedy of the Internet Commons? b Without pricing there is no incentive to ask for a lower quality of service b There may not be enough high-quality service for all who request it b Pricing may fluctuate with demand for optimal allocation of bandwidth b Incentive to artificially congest your network?

10. © Joseph P. Bailey, 1998 Plan for QoS adoption b Identify adoption of new technologies within your organization Will you adopt QoS?Will you adopt QoS? When will you adopt?When will you adopt? b Enter bilateral contracts specifying QoS parameters price, bandwidth, TCP protectionprice, bandwidth, TCP protection b Do not enter into contracts that extend beyond your technology horizon

11. © Joseph P. Bailey, 1998 Conclusions b All models of interconnection agreements may be vulnerable to opportunism b Trust between parties may alleviate the need for usage-sensitive pricing, however... b Usage-sensitive pricing will become more pervasive accounting and billing standards neededaccounting and billing standards needed prices that provide proper incentives must be setprices that provide proper incentives must be set