The implication of overlay routing on ISPs' connecting strategies

The Internet is composed of many distinct networks, operated by independent Internet Service Providers (ISPs). There are primarily two kinds of relationships between ISPs: transit and peering. ISPs' traffic and economic relationships are mainly decided by ISPs' routing policy. However, in today's Internet, overlay routing, which changes traffic routing at the application layer to better satisfy the applications' demands, is rapidly increasing, and brings challenge to the ISPs' settlement interconnection researches. The goal of this paper is to study the economic implications of overlay routing on ISPs' peering incentive, costs and strategy choice. For this purpose, we introduce an ISP interconnection business model based on a simple ISPs' network. We then study the overlay traffic patterns in the network in various conditions. Combining the business model with traffic patterns, we study the ISPs' economic issues such as incentive to upgrade peering link and cost reduction conditions with various overlay traffic patterns and settlement methods. AT last, we analyze the bilateral Nash equilibrium (BNE) strategy of ISPs in the network. We also give some numerical examples to explain our results.