The existing model for Internet traffic exchange works well, and...
The existing model for Internet traffic exchange works well, and a “sender pays” approach isn’t needed, the Organisation for Economic Co-operation and Development said Monday in a report on market developments and policy challenges (http://xrl.us/bnvhkz). The findings counter claims by…
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some European telcos and regulators that the current model doesn’t provide enough revenue for access networks to fund investments to build high-speed broadband networks, or give online service providers the right market incentives to make the best use of network resources, it said. The report said the existing model has boosted growth and competition and has lowered data prices to 100,000 times less than that for a voice minute. The authors surveyed 4,300 networks representing 140,000 direct exchanges of traffic online, finding that nearly 100 percent of peering arrangements are done by handshake, with no written contract and with data exchanges taking place without money changing hands, the OECD said. Another mechanism for cutting transaction costs is widespread use of multilateral peering in which many networks that meet at an Internet exchange join a single agreement, the report said. The average number of agreements reported was 32.8 for each of the entities surveyed, it said. In fact, 62 percent of respondents have 10 or fewer such agreements, it said. That has made it possible to ensure global connectivity among two billion users via a relatively small number of agreements, it said. That’s driving prices down, unlike in the voice traffic arena, which “has been contentious,” requires strong regulatory oversight, and involves complex inter-network contracts, it said. Large content providers and content distribution networks have expanded their networks and peering to all parts of the world, saving them, their customers and the ISPs they peer with millions of dollars annually and improving quality of service, it said. But this Internet traffic exchange model can only exist in an environment that encourages market entry and investment, it said. Regulators must let telecom and non-telecom operators enter the market to compete and interconnect, it said. Given the “enormous difference in performance” between the heavily regulated telephony sector and the Internet sector, the report said, “As incumbent networks adopt IP technology, there is a risk of conflict between legacy pricing and regulatory models and the more efficient Internet model of traffic exchange.” If regulators draw a “bright line” between the two, they can ensure that the inefficiencies of the voice market don’t take hold on the Internet, the OECD said.