How Can Equitable Peering be Achieved Between ISPs and Content Providers?

Disagreements between Internet Service Providers (ISPs) and content providers over peering fees have risen to the level of potential government regulation. ISPs assert that content providers should pay peering fees based on the volume of downstream traffic. Content providers assert that consumers pay ISPs to transmit the content they request, and thus peering agreements should be settlement-free. We determine the fair peering fee between an ISP and a transit provider or content provider. We first consider cost sharing between an ISP and a transit provider. We derive the peering fee that equalizes their net backbone transportation costs. We illustrate how the peering fee depends on the traffic ratio and the amount of localization of that content. We then derive the peering fee between an ISP and a content provider that results in the same net cost to the ISP, and illustrate how the peering fee depends on the number of interconnection points and the amount of localization. We use these results to dispense with the ISP argument that they should be paid regardless of the amount of localization of content.