Stanford Networking Seminar

12:15PM, Thursday November 3, 2011
Packard 202

How Many Tiers? Pricing in the Internet Transit Market

Vytautas Valancius
Georgia Tech

About the talk:
Large Internet Service Providers are increasingly selling “tiered” contracts, which offer Internet connectivity to wholesale customers in bundles, where each bundle is priced at rates based on the cost of the links that the traffic in the bundle is traversing. Although ISPs have already begun to implement and deploy such tiered pricing contracts, little is known about how to structure them. Although, in theory, contracts that sell connectivity on finer granularities improve market efficiency, they are also more costly for ISPs to implement and more difficult for customers to understand. The goal of this talk is to explore whether the current tiered pricing practices in the wholesale transit market yield optimal profits for ISPs and whether better pricing strategies might exist. In the process, we present two contributions: (1) we develop a novel way of mapping traffic and topology data to a demand and cost model; and (2) we fit this model on three large real-world networks: an European transit ISP, a content distribution network, and an academic research network, and run counterfactuals to evaluate the effects of different pricing strategies. The results show that the common ISP practice of structuring tiered contracts according to the cost of carrying the traffic flows (e.g., offering a discount for traffic that is local) is close to optimal and that adding more pricing tiers improves efficiency only marginally.

About the speaker:
Vytautas Valancius is a Ph.D. candidate at Georgia Institute of Technology advised by professor Nick Feamster. His research interests include inter-domain routing and Internet economics. Prior to his Ph.D studies, Vytautas built a few large data networks, earned CCIE, and obtained M.Sc. and B.Sc degrees from KTH, Sweden and from Vilnius University, Lithuania, respectively.