We think that the major network service challenge in the next 2 years will be to find ways to support interconnection. The technical problems are relatively straightforward; it's the accounting and economic problems that are tricky. We think it inevitable that a system of settlements will emerge.
What are settlements? When you place a call to Paris, you transit at least 3 telco networks: your local provider, a long distance company, and France Telecom. These companies keep track of calls and make payments to each other based on how much traffic flows in each direction through their networks. There is a similar system in place for post offices.
Some economists have suggested that such a settlement policy will likely arise for the Internet. Since one carrier imposes costs on another by sending it incremental traffic, it seems appropriate that some monetary payments accompany this traffic. Others argue that traffic flows are sufficiently symmetric that a ``no settlements'' policy is workable, especially given the nearly-zero incremental cost of transport (as long as capacity is sufficient). Indeed, to date interconnected Internet networks have not used settlements.
Nonetheless, resource usage is not always symmetric, and it appears
that the opportunities to free-ride on capacity investments by other
network providers are increasing. For example, suppose a new net
provider hosts a number of World Wide Web servers near a NAP, and then
purchases a very short connection to the NAP. Web traffic flows are
very asymmetric: a handful of bytes come in from users making
requests, and megabytes are sent back out in response. Thus, for the
low cost of leasing a short-distance connection to a NAP, a provider
could place a huge load onto other networks to distribute to their
users, while this provider does not have to deliver much incoming
traffic.
The new NAPs (funded by NSF) anticipate that interconnected networks will want to implement settlements. The conditions of use for the NAPs explicitly permit settlements, but they must be negotiated independently by the interconnecting networks; as of this writing it appears that none have yet done so. Further, the necessary technical, accounting, and economic infrastructure is not in place.