As always when the communications business undergoes dramatic technological and regulatory change, there will be conflict among business ecosystem participants about the way “regulatory rules of the game” should evolve. Quite frequently, regulatory models tending to favor one segment or another will be preferred by the stakeholders who would benefit.

In a broad sense, that has been true of virtually every major regulatory decision facing “Internet” ecosystem stakeholders. In the U.S. market, for example, “high-speed Internet access” provided by cable operators is regulated as an “information service.”

Telcos supplying high-speed access often face a framework that is more typical of a “common carrier” model.

The immediate trigger seems to be that several OECD member countries have undertaken efforts to reform their existing regulation of TDM interconnection. Another key issue is video entertainment.

A new analysis conducted for the Organization for Economic Cooperation and Development argues that the Internet interconnection framework works better than the older voice-oriented settlements regime. There are important potential revenue and business model implications, depending on which model is chosen, one might argue.

Under the current system, operators have an incentive to invest and expand their network to reach new peers and cooperate with other networks to establish new Internet exchange points (IXPs) in areas where there are none, because they save on transit costs, the paper argues.

Basically, the paper argues that legacy “voice” regulation should not be applied to future Internet services.

It should come as no surprise that there is some preference by legacy voice network owners to apply the older voice interconnection model to all IP traffic carried on the “public” networks – a move that would impose possibly significant new costs on some within the ecosystem, while raising revenue for the backbone network providers.

The rapid growth of Internet traffic creates a challenge for local access networks to provision increased capacity in middle mile facilities, the researchers note. “In particular, online delivery of video content is a challenge for access networks not designed with that in mind,” in particular because video entertainment represents a highly unbalanced exchange of traffic between networks.

Incumbent service providers have reason to worry that a shift to Internet style interconnection frameworks will be harmful to them as all traffic shifts increasingly to IP, and bilateral and other interconnection revenue disappears.

So the issue, going forward, is whether interconnection of networks should have the character of IP traffic interconnection, or the older voice-oriented model of bilateral interconnection. The authors argue that the IP model is preferable.

A survey of 142,000 peering agreements conducted for this report shows that the terms and conditions of the Internet interconnection model are so generally agreed upon that 99.5 percent of interconnection agreements are concluded without a written contract.

The study was prepared by Dennis Weller of Navigant Economics and Bill Woodcock of Packet ClearingHouse.