  We have developed a first of its kind methodology for deriving bandwidth
prices for premium direct peering between Access ISPs (A-ISPs) and Content and
Service Providers (CSPs) that want to deliver content and services in premium
quality. Our methodology establishes a direct link between service
profitability, e.g., from advertising, user- and subscriber-loyalty,
interconnection costs, and finally bandwidth price for peering. Unlike existing
work in both the networking and economics literature, our resulting
computational model built around Nash bargaining, can be used for deriving
quantitative results comparable to actual market prices. We analyze the US
market and derive prices for video that compare favorably with existing prices
for transit and paid peering. We also observe that the fair prices returned by
the model for high-profit/low-volume services such as search, are orders of
magnitude higher than current bandwidth prices. This implies that resolving
existing (fierce) interconnection tussles may require per service, instead of
wholesale, peering between A-ISPs and CSPs. Our model can be used for deriving
initial benchmark prices for such negotiations.
