Internet Policy Day 1 - Workshop Session No. 2 Market structure Prepared for CTO by Link Centre, Witwatersrand University, South Africa

Internet PolicyDay 1 - Workshop Session No. 2

Market structure

Prepared for CTO by Link Centre, Witwatersrand University, South Africa

CTO / DFID Internet Policy workshop, Jamaica, 22-26 April 2002

Sessions Summary Day 1

– Session 1History and technical background– Session 2 Market structure

Day 2– Session 3Governance processes– Session 4Interconnection and exchanges

Day 3– Session 5The impact of telecommunications regulation– Session 6Internet specific policy issues

Day 4– Session 7Content on the Internet – Session 8E-commerce issues

Day 5– Session 9Internet tools for regulators– Session 10 Conclusion, review and evaluation


Internet Market Structure

The purpose of this session is to explore the business structures operating within the global Internet, to get an overview of the economics of the Internet and to identify potential problems with the current models.

Specifically, the objectives are to understand the roles played by different players in the Internet industry:– Telcos– ISPs– End-users


Topics of Discussion

The network – Local topology– International topology– Regional networking

The money The issues

– First and second tier ISPs – ISPs vs. Incumbents – IAPs vs. ISPs


The Network


The Network


The Network: Local Topology

Customer connects to an ISP Connects via telephone lines to an ISP’s

network Temporary (telephone, ISDN) or

permanent (leased line) connection Different types of connections have

different speeds – ADSL – Mobile/Cellular – Wireless



End user– Increasing number of owner-build

wireless metropolitan networks– End users may not actually be “end”

users and may, in turn, resell



Corporate networks– Could have one Internet connection,

or more than one – Security concerns mean that access

to Internet services is often more limited than private connections



The ISP connects to the Internet– ISP has connections to large parts of the Internet – ISP also has an international connection (usually

to the US). Multiple connections, where affordable, provide a level of redundancy

– Connection may be via undersea cable or via satellite

– This is usually the most expensive component of the cost of Internet access from outside the US



Interconnection (ISP-ISP)– Internet interconnection

points are sometimes referred to as “peering points”

– More efficient to have a means of keeping local traffic local

Latency Cost


The Network: International Topology

Backbone carriers– Telecommunications companies– Largest ISPs

Major exchanges – Much like in the national situation, Internet exchange

points enable like-sized networks to exchange traffic– Examples include MAE-East and MAE-West

Smaller ISPs – Connect to backbone carriers – Pay a transit fee for their traffic to be carried to

exchange points


The Network: Regional Networking

The US operates as a global hub for Internet traffic

Most Internet links are to the US or to the US via the network of a neighbouring country

Often a national as well as a regional problem


The Money: Who pays?

The customer pays the ISP– Monthly subscription charges or traffic-based

charges – What about “free” providers

The customer pays the telephone company– Telephone bill – call charges and line rental– Highest portion of the cost in developing countries

The ISP pays the telephone company

– Rental of equipment and lines



The telephone company pays the ISP

– Gain interconnection fees from customers of other telcos dialing into ISP facilities via their network

– Commission on traffic brought into the network (this forms the basic business model for many “free” ISPs in the UK)



The ISP pays another ISP – Peering charges, transit charges– Virtual ISP services

The telephone company pays another telephone company – Co-location, transit, interconnection

charges


The Money: Problems

Everyone pays the United States

Imbalances in telecommunications charges mean that regional internetworking is not efficient


Other forms of ISP

IAPs vs. ISPs – Definition vs. usage

Hosting companies Content development companies Security companies

Related issues– Paying for content– Linking content to access (M-Web)


The Issues

1st and 2nd tier ISPs– what are they and

is the discussion relevant?

ISPs vs.

incumbents– Competing with a

critical supplier


Discussion: Cheating the system

Buy a large Internet pipe (assume to the US) Negotiate with a US operator to handle voice

traffic coming from your network Begin moving all international voice traffic

onto the Internet pipe Watch as the international settlement system

swings in your favour Use the money generated to fund the Internet

pipe.

So -- what’s the catch?


Summary

ISPs operate at several different levels It is difficult to define an ‘ISP’ exactly ISPs use IXPs to exchange traffic cost-

effectively and efficiently Most Internet traffic passes across a the

US ‘hub’ Billing for Internet traffic is complex and

depends mostly on perceived value

Documents

Internet Policy Day 1 - Workshop Session No. 2 Market structure Prepared for CTO by Link Centre, Witwatersrand University, South Africa