%0 Generic
%A Sowell, Jesse
%C Fairfax, VA, USA
%D 2013
%F discovery:10183567
%I SSRN
%T Framing the Value of Internet Exchange Participation
%U https://discovery.ucl.ac.uk/id/eprint/10183567/
%X Internet eXchanges (IXes) are developed to localize traffic, reduce connectivity costs, and reduce latency. Historically,  transit savings were sufficiently substantive to justify investment in IX interconnection strategies, overshadowing other benefits enjoyed  by IX participants. Recent work argues these basic IX effects facilitate regional economic development. In developed regions, as  transit prices converge with comparable per volume price on Internet exchanges, a new question emerges: given this convergence,  what additional value and benefits does the IX provide existing and would-be participants? Governance and organization studies of  IXes provide some of the nuance necessary to answer this question. Based on interviews with IX managers and participants, there  is value in a more fluid market of interconnection options that facilitate investment deferral and greater control over the repurposing  of interconnection resources. Interconnection is presented in terms of platforms and how they implement interconnection options,  highlighting how the mechanics of these implementation frame network actors’ decisions regarding how to maximize access to and  investments in interconnection markets.  Semi-structured interviews of a wide range of network operators and IX operators over the last year and a half imply decision  heuristics for optimizing value and network resilience: selectively increasing redundancy, increasing unique interconnection partners,  and reducing switching costs, are among the most common criteria. This work distills decision heuristics identified thus far into a  partially parameterized model of interconnection decision making across platforms that serve as markets for interconnection options.  Unpacking decision heuristics contributes to more precisely explaining the mix of interconnection options available to actors that both  derive value from network- and application-level services but who also influence infrastructure investment and strategy decisions  through the options they select. This work demonstrates how IX-platforms facilitate greater access to interconnection options and  defer bargaining and measurement costs necessary for more specific asset investments. IX-enabled interconnection contributes to  the “flattening” of the Internet by providing an investment path to more sophisticated bundles of (flatter) bilateral relations rather than  participating solely in the transit hierarchy. The model developed here provides a clear formalism for comparing these.  Two classes of parameters are missing: connectivity cost information and parameters representing actor-specific valuations of system  properties such as redundancy or latency. A key contribution is to understand the options available by carefully specifying the  parameter space based on empirical observation: what are the variables and how are they conceptually related? This work unpacks  the mechanisms implementing two common types of interconnection option and concludes with working hypotheses that will be further  refined and tested in ongoing work. The next stage of this work focuses on identifying appropriate operationalizations, data sources  for cost, and strategies for comparing (validating) theoretical valuations based on empirical operationalizations of variables such as  redundancy.  A social science approach to indicator development is applied to frame heuristics as background concepts that are refined into  specifications of incentives, relationships, and potential indicators. Variables specified here represent possible systematizations of  background concepts elicited from interviews. Neither the specification nor the relationships are presented as being writ in stone—  rather, they are a part of an ongoing project to elicit empirical trends in the interconnection industry. The variety of network actors  that engage with IXes, their value propositions, and the means by which they connect to IX platforms provide insight into which  interconnection options are appealing to which types of actors as well as common trade-offs. Qualitatively, this gives insight into which  types of actors are willing to invest in which mixes of infrastructure types and topologies. By highlighting trade-off conditions in the  demand for interconnection, this specification provides direction for further identification of interconnection costs and the constraints by  those making investment decisions.  The framework offers a number of contributions. Different interconnection modes are conceptualizes independently, but the framework  subsequently highlights mutual dependence and benefits. Working hypotheses argue that different platforms structure and mediate  interconnection option implementations (transport, colocation, IX), how they are interleaved with one another in practice, and offer a  first pass at identifying and realizing critical paths through investment decisions as they grow and develop specific relationships (and  asset investments) beyond simple transit. Building on the notion of a real option, flexibility in general purpose resources (IX-mediated  interconnection) facilitates staged, dynamic investment decisions and learning effects.
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