THE COLOMBIAN NETWORK ACCESS POINT

THE COLOMBIAN NETWORK ACCESS POINT: INSIGHTS ON COST ALLOCATION AND INTERCONNECTION AGREEMENTS Fernando Beltrán Associate Professor [email protected] César García Instructor [email protected] Center for Studies on Management of Network Services, CGSR Department of Industrial Engineering Universidad de Los Andes Bogotá, Colombia Phone (+57 1) 339 4949 Fax (+57 1) 332 4321 Diana Sarria Business Solution Engineer [email protected] Equant Bogotá, Colombia Phone (+57 1) 524 0333 Fax (+57 1) 618 0712 April 2002

Extended abstract Colombian ISPs have sought for ways to optimize their use of international bandwidth (purchased from US Internet backbone) by agreeing to establish an exchange point for Internet traffic, therefore avoiding the use of international channels when routing local traffic. The operation of the so-called NAP (Network Access Point) Colombia, set up in 1998, brought on another kind of issues: those regarding the allocation criteria of the NAP’s monthly operation cost among the participating ISPs. The major concerns regarding the operation of the NAP Colombia may be summarized as i) the cost allocation criterion to be used for allocating recurrent expenses, ii) the policy issues for admitting new members into the agreement and, iii) tariff schemes for new services: bilateral agreements and transit. In our work we propose to adapt the the Henriet and Moulin (1996) cost allocation method in order to efficiently allocate the monthly cost operation among the NAP members. Other cost methods like the proportional method and the private cost method – which assigns to any participant the NAP’s monthly operational cost divided by the number of participants – provide incentives for undesired behaviors by the ISPs. The Henriet and Moulin’ s cost allocation method fulfills certain axiomatic properties like additivity, sustainability and no transit. Henriet and Moulin show that their method (the external cost method) satisfies three main axioms, namely, additivity, sustainability and no transit. According to the additivity axiom, the external method is additive with respect to costs; the sustainability axiom makes it unprofitable for any coalition of users to duplicate the network for its internal traffic. The no transit axiom makes it unprofitable for two users i and j to route their traffic through a third node k. The application of the external method is analyzed under the light of the additional issues presented above: the cost allocation problem when new members are accepted, and the presence of bilateral agreements and transit services. Keywords (JEL code): Telecommunications (L96), Information and Internet Services (L86)

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