In a previous post I've given an introduction to the different kind of interconnections between different networks that form the Internet: Transit, Peering and Paid Peering. In this post I'd like to put down my notes on Paid Peering and who pays whom for what:
Paid Peering is used, for example, between access networks and content delivery networks or the content companies themselves, with the content side paying the access networks for the privilege to connect directly. From what I can tell, content providers used to pay content distribution networks such as Akamai to store their content closer to the subscribers and to deliver it from there. In turn Akamai paid for peering to the access networks. At some point some content providers started to build their own distribution networks and hence wanted to directly peer with access networks. In some cases they got this peering for free, especially from smaller access network providers because they could not risk not offering the content to their subscribers. Also, free peering to the content provider was/is probably be cheaper for them then to get this data over a Transit link for which they have to pay.
The balance of power is different though when a larger access network operator comes into play as they argue that the content provider should pay for the peering as that was also the way it was done before when a content distribution network was between them and the content. The prime reason given for this is that they have to invest in their own network to transport the rising amount of video content and hence should be reimbursed by the content companies. The interesting part is the discrepancy to the small access network operators which seem to do just fine without this cross financing. In other words, paid peering between access network operator and content company is an interesting way to create monopolies that can be exploited when it comes to content heavy applications.
Due to this it is easy to confuse paid peering and network neutrality as is frequently done in the press. Net neutrality requires all packets to be forwarded with equal priority while paid peering regulates who pays whom for a connection. In other words, an access network operator can be as network neutral as it wants and still get money from the content provider via paid peering.
For those who want to follow this train of thought I can recommend Dean Bubley's recent blog post on why 'AT&T's shrill anti-neutrality stance is dangerous'.