TAILIEUCHUNG - INTERNET INTERCONNECTION AND THE OFF-NET-COST PRICING PRINCIPLE

Cormac Callanan is director of Aconite Internet Solutions () which provides expertise in policy development in the area of cybercrime and Internet security & safety. Holding an MSc in Computer Science, he has over 25 years working experience on international computer networks and 10 years experience in the area of cybercrime. He has provided training at Interpol and Europol and to law enforcement agencies around the world. He currently provides consultancy services around the world and worked on policy development with the Council of Europe and the UNODC. In 2008, in conjunction with co-author Marco Gercke, he completed a study of best practice guidelines for the cooperation between service providers and law enforcement against cybercrime () adopted at the 2008. | Internet Interconnection and the Off-Net-Cost Pricing Principle Jean-Jacques Laffontt Scott Marcusi Patrick Rev Jean Tirole August 8 2002 We are grateful to Mike Riordan Aaron Schiff Julian Wright and to the participants of the IDEI conference on the Economics of the Software and Internet Industries January 18-20 2001 for helpful reactions on an earlier draft. Concerning Scott Marcus the opinions expressed do not necessarily reflect the views of the FCC or of any of its commissioners. We also thank the editor Jennifer Reinganum and two referees for their comments. University of Toulouse IDEI GREMAQ . tFederal Communications Commission FCC USA. University of Toulouse IDEI GREMAQ . University of Toulouse CERAS Paris and MIT. Abstract The paper develops a framework for Internet backbone competition. In the absence of direct payments between websites and consumers the access charge allocates communication costs between websites and consumers and affects the volume of traffic. The paper analyzes the impact of the access charge on competitive strategies in an unregulated retail environment. In a remarkably broad range of environments operators set prices for their customers as if their customers traffic were entirely off-net. The paper then compares the socially optimal access charge with the privately desirable one. Finally when websites charge micropayments or when websites sell goods and services the impact of the access charge on welfare is reduced in particular the access charge is neutral in a range of circumstances. Keywords Internet Networks Interconnection Competition Policy. JEL numbers D4 K21 L41 43 L51 L96. 1 Introduction Long an emanation of voluntarist public policies the Internet has moved in recent years to a market paradigm. While still partly run on the basis of legacy agreements the Internet industry is actively searching for a business model that will increase Internet usage and will facilitate the evolution to enhanced offerings based on .

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