Effects of ISP Interconnection Agreements on Internet Competition: TheCase of the Network Access Point as a Cooperative Agreement for InternetTraffic Exchange
This paper presents and analyzes the main aspects of the historicaldevelopment and the current issues at stake in the South AmericanInternet access market. We have studied the interconnection schemes forthe exchange of local and regional traffic in the South American region,trying to identify the main incentives large ISPs have for improving thefinancial conditions under which interconnection agreements occur,usually at the expense of smaller ISPs. In fact, the model ofcooperative agreement for the exchange of domestic (national) traffichas been adopted all through the region; the Internet access market hasbenefited from the cost reduction and the improvement in the quality ofservice that the operation of a NAP has brought in each country. We havealso contacted representatives of the cooperative exchange points (alsocalled Network Access Points or NAPs) at Latin American NAPs SecondMeeting in Buenos Aires, Argentina. The most important achievement ofthis work is the understanding of the basics upon which the stability ofthe exchange points is founded. This is especially critical for thegrowth of Internet in South America. We have identified come crucialaspects such as the characteristics of the interconnection agreementsand the payments ISPs make to the NAP administration. We havedeveloped a sufficiently detailed understanding of important issues suchas the impact of new forms of interconnection such as secondary peeringagreements and multi-homing on the stability of Internet growth in thecontext of the fast developing and ever more complex South AmericanInternet access markets. We have collected information on the structureof exchange points in different countries in the region to study theISPs patterns of behavior arising from the new interconnectionagreements, in particular, and the changes in the traditional hierarchyinduced by new contract forms, in general. Such agreements areessentially bilateral agreements at the exchanges, a relatively newfeature in South and Central America. For that purpose we have developedtheoretical models using bargaining theory and have also dealt with costallocation problems at cooperative exchange points.