January 1997 - Test - lists.nanog.org

RE: peering charges?
by Danny Stroud 27 Jan '97

27 Jan '97

Fine. But when pricing models get complicated I do what Pushpendra Mohta said, "follow the money." That usually clears things up and makes it easy to discern who is the seller and who is the buyer. Refer back to my original message. I have seen people buy things that I never really understood the basic motivations--- ultra expensive sports cars, for example. Have you ever heard the question, "Why do they charge so much for Italian sports cars?" Answer: Because they can. des ---------- From: Mike Leber Sent: Monday, January 27, 1997 1:28 AM To: Danny Stroud Cc: Vadim Antonov; davec(a)ziplink.net; madison(a)queber.acsi.n.et; nanog(a)merit.edu Subject: RE: peering charges? On Mon, 27 Jan 1997, Danny Stroud wrote: > I empathize with your angst over the charging issues. But the answer is in > microeconomics. Those that have something that others want can charge for it. Yes, however things are more complicated than that. The Internet ecomony is particulary bizzare in that the activity of a vistor visiting a web site (the majority of Internet traffic) is not a simple zero sum economic transaction. This is because the visitor wants to visit the site and the site owner typically wants them to visit (both get value). Assume you have a network A (which only does dialup) serving 100,000 dialup customers, and network B (which only does hosting) hosting 10,000 virtual hosts. By directly peering they create new value for their respective (and different) customer bases. Unlike consumable hardgoods, you can create more of your product (external connectivity) by selectively giving it away. The selection process, amoung other things, aims to reduce lost sales by not giving peering to potential customers. Mike. ps. Some may say networks A and B are enduser networks, but most of the largest networks now offer one or both of these services directly. +------------------- H U R R I C A N E - E L E C T R I C -------------------+ | Mike Leber Direct Internet Connections Voice 408 282 1540 | | Hurricane Electric Web Hosting & Co-location Fax 408 971 3340 | | mleber(a)he.net http://www.he.net | +---------------------------------------------------------------------------+

1 0

Re: peering charges?
by Vadim Antonov 27 Jan '97

27 Jan '97

Dirk Harms-Merbitz <dirk(a)power.net> wrote: >The big problem is the current incentive to cripple network connections. The incentive to reduce quality down to the minimal level accepted by the target customer base is the prominent feature of any market. >Why should it cost more to connect at 100MB/sec vs. 56KB/sec? If the same >amount of packets are transfered? Why should I pay more beyond the >one-time cost of buying interface electronics? Because there is a real cost for long-haul packet transport. Why people pay higher rent for houses than for studio apartments? "Connection costs" is rent on transmission facilities, plus overhead (upkeep of the property, insurance, administration, etc). >Many real-time problems with packet switching (out of order arrival of >packets, need to re-order packets) essentially go away when speed >increases, i.e. things move out of perceptible ranges into in-perceptible >time variations. That does not parse. Internet as is does not reorder packets. Increasing speed does not change anything in this respect. It only shrinks time scale. And, i never suspected that reordering is a problem in real-time world. 0.5 sec variance (a lot!) with 1.5Mbps MPEG-2 video stream (better-than cable TV quality) requires stunning 100 kilobytes worth of buffers. The only reason reordering is a problem is because TCP has no reasonable selective ACKs (the existing SACK options are close to useless), so kludges like VJ's fast retransmit are necessary on high delay-bandwidth networks. >Settlement based on whoever takes more traffic would be nice. Would you please describe any useful mechanism of traffic-based inter-backbone settelemts? >It gives a very direct incentive to build better networks. Nah. It is like saying that "usage-based" pricing at McDonalds gives a very direct incentive to sell something better resembling food. >Lets say MAE's >and NAP's are run in a cost-recovery mode and my only monthly cost as a >network is the cost of my circuits, i.e. having a connection to the >MAE/NAP. They do it now. >As soon as my network takes more traffic than my circuit costs >I'm making money. I assume "my network takes more traffic" means "there are more packets (bytes, etc) going into my network", right? So, you want to charge others for your customers browsing their customer's servers? >Money that can be used directly to build a better >network which will take even more traffic, i.e. generate more money. In a >sense, this would provide best case capitalism with routers deciding from >whom to buy. I love it. Do you really think you discovered a fount of money? Any settlement game is zero-sum by definition. When ISP A pays ISP B some sum, A has less resources to invest into infrastructure. On average, customers do not win. >All energy would go into building better networks... neither >advertising, nor salespeople are necessary in this scenario! Ah, i'd like to live in that world of yours. --vadim

3 2

RE: peering charges?
by Vadim Antonov 27 Jan '97

27 Jan '97

Danny Stroud <dannystroud(a)msn.com> wrote: >I suspect that the ease of anointing bandwidth as a surrogate >for value will make it so until someone is able to measure the economic value >of an individual packet or web page hit. Until then I predict that the >networks with the biggest infrastructure will be in the best position to >extract peering charges. The computational cost of any microeconomical tweaking (such as resource reservation) by far exceeds the cost of delivering the service. Ergo: those who don't do that will be able to offer comparable quality of service at lower prices. The exception is static priorities. I think what will happen is that providers will be offering different "mixes" of priorities, or charge separately for priority traffic. Reservation is a non-issue. It is a bunch of B.S. I won't go into detalied explanation why, i did that many times already (i can point to a relevant paper). >Batten the hatches, the onslaught of change is upon us. I suspect that this >is the first of many economic model changes in the Internet. des I do not think there's going to be any large change. After all, the present economical model is as old as the modern civilization. In fact, the only significant change in 90s was demise of "reseller" surcharges -- which was something i was instrumental in transplanting from Russia to US (an ISP in Russia i founded with friends in 1990 created an enormous infrastructure by _subsidizing_ local ISPs by means of "wholesale" pricing and technology transfer; in effect we reinvented franchise business). The lack of the high entry barrier for small ISPs was what got Sprint into big league, and made it possible and practical for mom-and-pop ISPs to bloom (which they did immediately). Technology was available for years before the ISP boom. Ultimately, Sprint's tactics forced incumbent backbone ISPs to reevaluate the reseller surcharges (or lose the small ISP market completely). --vadim

2 1

Re: peering charges?
by Sean Donelan 27 Jan '97

27 Jan '97

>What do you think the final outcome will be ? If TCI cant find a way to >recoup these costs from subscriber or advertising fees, the costs will >trickle down to the users. Just because FoxSports went after TCI for >what would seem like convenience of billing and collection doesnt mean >that the end user wont end up with the tab for the distribution of this >Compelling Content. And I am sure if TCI subscribers want that content, >they would mind paying the extra 8c. Depending on how competitive the market is, TCI may pass the cost on to either their customers (higher rates) or on to their shareholders (lower earnings). But instead, I expect TCI will choose to drop some other channel that has a smaller, less vocal following. If it is for convience of billing and collection, why wouldn't an IAP get dragged into paying for MTV? I'm sure it would be more convient for VIACOM to charge InternetXYZ one invoice for $1 million, rather than billing each of XYZ's IAP customers. Follow the money always works. In the pipeline example, the pipeline company only collects money from the shipper. If the pipeline company sold the pipeline contents itself at the delivery point, I'd expect the shipper would want a cut of the money. As long as IAPs are charging money on both ends, expect producers of compelling content to want lower prices from the sending IAP side, and a cut of the money on the receiving IAP side. In any case, I don't see how the IAPs expect to be left out of it. As soon as they have a functioning system for transfering funds between themselves, aka settlements, I expect IAPs to become ground zero for the money scramble.

1 0

Re: peering charges?
by Sean Donelan 27 Jan '97

27 Jan '97

>[How the Content Distributors split these fees among themselves >(for example peering vs. transit) should have no conceptual bearing on >the economics of content distribution costs between Provider and >Consumer. In other worlds, leave the IAPs out of this debate of who >pays for the content distribution. Treat this as a cost of doing >business and pay the IAP] You are forgetting your first rule, follow the money. As long as IAPs have money, they won't be left out of the debate. FoxSports-Midwest recently announced they were going to start charging cable companies 8 cents per subscriber to carry NHL hockey games. TCI balked, and was going to drop FoxSports. FoxSports ran a crawl-line across the bottom of the last NHL hockey game saying TCI customers would no longer be able to watch NHL hockey. What do you think the final outcome was? Did TCI end up paying FoxSports, or did FoxSports end up paying TCI? Things get more interesting when content is available via one IAP, and not available (or greatly degraded) through another IAP in the same market. If IAPs abandon the current universal connectivity model for the Internet, expect a huge bidding war for content to break out. Universal connectivity was the one advantage the Internet had over private online services. It also let IAPs avoid paying content producers. -- Sean Donelan, Data Research Associates, Inc, St. Louis, MO Affiliation given for identification not representation

3 3

RE: peering charges?
by Danny Stroud 27 Jan '97

27 Jan '97

I empathize with your angst over the charging issues. But the answer is in microeconomics. Those that have something that others want can charge for it. Those that want it pay. If you want to get to a network bad enough you will pay for it-one way or another. The concept of transit is not very different from what people are now referring to as settlement charges. The magic is in making your network a more desirable destination than the other guys. In many industries there are often "surrogates" for value that are used to set pricing. Per minute charges in wireless (cellular, PCS, etc.) is and example. Not all minutes are of equal economic value but for the most part you pay the same rate whether you are talking to your mother or closing a billion dollar business deal. I suspect that the ease of anointing bandwidth as a surrogate for value will make it so until someone is able to measure the economic value of an individual packet or web page hit. Until then I predict that the networks with the biggest infrastructure will be in the best position to extract peering charges. Batten the hatches, the onslaught of change is upon us. I suspect that this is the first of many economic model changes in the Internet. des Danny E. Stroud President GES Internet ---------- From: owner-nanog(a)merit.edu on behalf of Vadim Antonov Sent: Sunday, January 26, 1997 12:54 AM To: davec(a)ziplink.net; madison(a)queber.acsi.net Cc: nanog(a)merit.edu Subject: Re: peering charges? Eric D. Madison wrote: >Since some of the larger vendors (Cisco mostly) has introduced accounting >features into their software settlements could start any time. a) the accounting was there for years, so what b) a 100-byte packet travelled from provider A to provider B. Should A pay to B or vice versa? So far nobody gave any useful answer to that question. There are no settlements because traffic has little relevance to relative worth of connectivity from one provider to another. The large ISPs are generally interested in market share or peers, not in volume of mutual traffic. --vadim

2 1

Re: peering charges?
by Sanjay Dani 27 Jan '97

27 Jan '97

> Date: Sun, 26 Jan 1997 10:30:12 -0500 (EST) > From: Nathan Stratton <nathan(a)netrail.net> > Yes, and the current peering requirements are enough to keep most small > ISPs from growing. I am spending 10s of thousands a month over what I need > to spend just because people want to see full DS3 network. I can > understand people would want me to be at all NAPs, but why should I need > 10X the bandwidth I need for my customers? > > There are also problems with providers saying that I need to be at every > NAP they are at, but what do I do when say a NAP in the east can't give me > a connection? They first don't want to let me in at all, then they say Perhaps I'm cynical or naive or both. It seems to me like you're working towards a target that the "big" providers keep moving at their will and at _your_ expense. It would be interesting to see if you could have actually saved money by _buying_ just the amount of bandwidth you currently need from the big provider(s) that matter most from an engineering standpoint. Of course I'm ignorant about your long term business objectives that may justify the infrastructure investment. Regards, Sanjay. --------------------------------------------------------------- Web Professionals, Inc. 20370 Town Center Lane, Suite 245 +1 408-865-0899 Cupertino CA 95014 USA http://web.professionals.com ---------------------------------------------------------------

1 0

RE: peering charges?
by Danny Stroud 27 Jan '97

27 Jan '97

I do not believe your CEO is mistaken. I also do not believe you have missed an announcement. But I do believe (with good cause and information) that the rumor of impending peering charging policies is real and imminent. Due to some non-disclosure issues I can say no more. Take your CEO's advice and follow up on it. des ---------- From: owner-nanog(a)merit.edu on behalf of Dave Curado Sent: Saturday, January 25, 1997 10:17 PM To: nanog(a)merit.edu Subject: peering charges? Curious thing, the CEO of my company called me the other day and was worried about who we were peering with. It seems someone put a bug in his ear that the larger providers were about to start charging some of the smaller providers for bilateral peering. I haven't heard anything about that at all... so either a) the ceo is mistaken b) I've missed some important annoucement recently either is possible. Has anyone else heard anything about this? Thanks, davec

1 0

Re: peering charges?
by Vadim Antonov 27 Jan '97

27 Jan '97

Pushpendra Mohta wrote a good essay on economics of content distribution. Now, i have a silly question -- should we bother with any elaborate pricing? I don't think the current Internet economy is broken. --vadim

5 4

Re: peering charges?
by Jim McManus 26 Jan '97

26 Jan '97

Or...since the business model of many (but not all) major web sites is related to advertising, they should pay isp's for access to their audience (client base of isp). It is the audience that makes the web site more valuable....not the other way around. Jim At 12:11 AM 1/26/97 -0800, Jonathan Heiliger wrote: >On Sat, 25 Jan 1997, Vadim Antonov wrote: > >|} There are no settlements because traffic has little relevance to >|} relative worth of connectivity from one provider to another. The large >|} ISPs are generally interested in market share or peers, not in volume >|} of mutual traffic. > >Large ISPs should probably be interested in access to content, without it >their users could find the Internet a very boring place. > > >-jh- > > >

6 5