Using Tuangou to Reduce IP Transit Costs

A majority of Internet service providers (ISPs) support connectivity to the entire Internet by transiting their traffic via other providers. Although the transit prices per megabit per second (Mbps) decline steadily, the overall transit costs of these ISPs remain high or even increase due to the traffic growth. The discontent of the ISPs with the high transit costs has yielded notable innovations such as peering, content distribution networks, multicast, and peer-to-peer localization. While the above solutions tackle the problem by reducing the transit traffic, this paper explores a novel approach that reduces the transit costs without altering the traffic. In the proposed Cooperative IP Transit (CIPT), multiple ISPs cooperate to jointly purchase Internet Protocol (IP) transit in bulk. The aggregate transit costs decrease due to the economies-of-scale effect of typical subadditive pricing as well as burstable billing: Not all ISPs transit their peak traffic during the same period. To distribute the aggregate savings among the CIPT partners, we propose Shapley-value sharing of the CIPT transit costs. Using public data about IP traffic and transit prices, we quantitatively evaluate CIPT and show that significant savings can be achieved, both in relative and absolute terms. We also discuss the organizational embodiment, relationship with transit providers, traffic confidentiality, and other aspects of CIPT.