Effects of ISP Interconnection Agreements on Internet Competition: The Case of the Network Access Point as a Cooperative Agreement for Internet Traffic Exchange

Abstract

This paper presents and analyzes the main aspects of the historical development and the current issues at stake in the South American Internet access market. We have studied the interconnection schemes for the exchange of local and regional traffic in the South American region, trying to identify the main incentives large 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; the Internet access market has benefited from the cost reduction and the improvement in the quality of service that the operation of a NAP has brought in each country. We have also contacted representatives of the cooperative exchange points (also called Network Access Points or NAPs) at Latin American NAPs Second Meeting in Buenos Aires, Argentina. The most important achievement of this work is the understanding of the basics upon which the stability of the exchange points is founded. This is especially critical for the growth of Internet in South America. We have identified come crucial aspects such as the characteristics of the interconnection agreements and the payments ISPs make to the NAP administration. We have developed a sufficiently detailed understanding of important issues such as the impact of new forms of interconnection such as secondary peering agreements and multi-homing on the stability of Internet growth in the context of the fast developing and ever more complex South American Internet access markets. We have collected information on the structure of exchange points in different countries in the region to study the ISPs patterns of behavior arising from the new interconnection agreements, in particular, and the changes in the traditional hierarchy induced by new contract forms, in general. Such agreements are essentially bilateral agreements at the exchanges, a relatively new feature in South and Central America. For that purpose we have developed theoretical models using bargaining theory and have also dealt with cost allocation problems at cooperative exchange points.