Whenever the communications business undergoes dramatic technological and regulatory change, there is conflict among business ecosystem participants about way “regulatory rules of the game” should evolve. So it is perhaps no surprise that stakeholders disagree about how network interconnection business models should work, in a future when all traffic is based on Internet Protocol. And generally speaking, that has meant a choice between the older “voice-based” settlements model and the newer “peering” model.

The immediate trigger seems to be that several OECD member countries have undertaken efforts to reform their existing regulation of TDM interconnection. Another key issue is video entertainment.

A new analysis conducted for the Organization for Economic Cooperation and Development argues that the Internet interconnection framework works better than the older voice-oriented settlements regime.

There are important potential revenue and business model implications, depending on which model is chosen, one might argue. Basically, the paper argues that legacy “voice” regulation should not be applied to future Internet services.

It should come as no surprise that there is some preference by legacy voice network owners to apply the older voice interconnection model to all IP traffic carried on the “public” networks, a move that would impose possibly significant new costs on some within the ecosystem, while raising revenue for the backbone network providers.

The rapid growth of Internet traffic creates a challenge for local access networks to provision increased capacity in middle mile facilities, the researchers note. “In particular, online delivery of video content is a challenge for access networks not designed with that in mind,” in particular because video entertainment represents a highly unbalanced exchange of traffic between networks.

Incumbent service providers have reason to worry that a shift to Internet style interconnection frameworks will be harmful to them as all traffic shifts increasingly to IP, and bilateral and other interconnection revenues disappear.

The study, prepared by Dennis Weller of Navigant Economics and Bill Woodcock of Packet ClearingHouse, is unequivocal: Peering is the way to go.

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