Investigating the Influence of Market Shares on Interconnection Settlements

This paper investigates the role of providers´ market shares for consumers and websites on interconnection settlements between networks. We proposed to differentiate traffic into two types, referred to as native and stranger in order to determine an original initiator of transmission in the IP network and to compensate the interconnection costs. In comparison to the existing financial settlement, under which the payments are based on the net traffic flows, the proposed model governs cost compensation according to the differentiated traffic flows. Analytical studies were provided using Nash bargaining solution to explore how the presented approach affects the providers´ payments. The key consequence of the obtained results shows that symmetry of the costs is not required prerequisite for peering, and asymmetric providers can arrange interconnection without monetary transfers.