Peering is the mutually beneficial, cost-free interconnectivity via BGP of two autonomous systems for the purpose of exchanging routing information and IP traffic between those two autonomous systems, exclusively.

The idea behind the concept is a direct exchange of traffic between two networks, without that traffic having to traverse other networks to get to its destination. Any traffic that must traverse more than one network is considered transitory traffic and, therefore, the origin of this traffic is considered a potential source of income.

Obviously, the more peering a network has, the less money it has to pay to other network providers to carry their traffic to providers to which they aren't directly connected. Larger networks will deny peering to smaller networks in order to be able to continue to charge the smaller network fees for access to the larger network.

In the past, the government has had a hand in regulating this type of arrangement, when various larger networks have decided to cut off peering with other smaller networks. The reasoning behind this was due to a lack of mutual benefit to the interconnectivity -- the larger network typically will not receive any where near the same amount of IP traffic from the smaller network as it is sending to that network.

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