Modeling the evolution of interconnection agreements between Internet service providers

Abstract

This paper presents and analyzes some critical issues aspects at stake in the South American Internet access market. We present the prevalent interconnection schemes for the exchange of local and regional traffic in the South American region, trying to identify the main incentives large Internet Service Providers or ISPs have for improving the financial conditions under which interconnection agreements occur, usually at the expense of smaller ISPs. In fact, the model of cooperative agreement for the exchange of domestic (national) traffic has been adopted all through the region and the Internet access market has benefited from the cost reduction and the improvement in the quality of service that the operation of a traffic exchange point has brought in each country. Our work has focused on the impact of new forms of interconnection agreements such as secondary peering arrangements and multi-homing on the stability of Internet growth in the region. We use a model of bargaining to identify the threats which the current agreements are currently facing.