On the Rise and Fall of ISPs

The Internet topology has witnessed significant changes over the years with the rise and fall of several Internet Service Providers (ISP). In this paper, we propose a new economic model that can aid in understanding the evolution of the Internet topology and provide insight into why certain ISPs fail and others succeed. Our economic model is motivated by the Cournot model for characterizing oligopolistic markets. We model the Internet topology as a conglomeration of Cournot markets across different geographic regions comprising of regional markets within each geographic region and transit markets across geographic regions. By analyzing the Nash equilibrium of the overall system, we characterize a simple relationship between the Nash price, demand, the number of ISPs and fraction of traffic exchange across regions. Our economic model is powerful enough to provide a simplified characterization of the aggregate evolution of the Internet topology within and across geographic regions without the need for capturing individual variations across each ISP. Based on this model, we show evidence that existing bandwidth pricing trends are in striking contrast with the expected Nash equilibrium behavior thereby resulting in the rise and fall of ISPs. We also corroborate the model based on analyzing Internet topology evolution from 2002 to 2008.