April, 2001 Korea Telecom 1

IP Pricing and Interconnection in Korea

by Inho ChungKorea Telecom

(The views in this slide do not necessarily represent the views or policies of Korea Telecom)

April, 2001 Korea Telecom 2

The Trend of Internet in Korea

1995 1996 1997 1998 1999 2000

(~Oct)

No of ISPs

11 16 21 26 54 80

No of Users

( thousands)

366 731 1,634 3,103 10,860 16,400

No of Host

38,644 73,194 131,005 177,299 460,974 -

No of Domain

569 2,644 8,045 26,166 207,023 511,003

April, 2001 Korea Telecom 3

The structure of Internet Service Markets in Korea

• Access Service Providers• Dial-up, ADSL, CATV, ISDN, Private line, B-WL

L, Satellite, Wireless Phone,Wireless Internet

• Internet Service Providers• IP/CPs

April, 2001 Korea Telecom 4

Structure of Internet Networks

ISPISP

IXIX

ASPASP ISPISPASPASP

ISPISP ASPASP ISPISPASPASP

EndUserEndUser

EndUserEndUser

EndUserEndUser

EndUserEndUser

CPCP

CPCP

CPCP

CPCP

April, 2001 Korea Telecom 5

Pricing in Korean Internet Markets

• ASP• Different flat rate per month by speed

» Premium, Lite

• ISP• Flat(All you can eat)

• IP/CP• Free, flat rate, usage rate, mixed• Internet advertisement• Use infoshop service for billing and collecting fees

April, 2001 Korea Telecom 6

The Comparison of Internet Access Services in Korea (at the end of

2000)ISDN ADSL CATV

MODEMSatellite

Market share

7.8% 64.9% 27.0% 0.3%

Installation and

subscription cost (won)

90,000~

100,000

30,000~

80,000

40,000~

570,000

Monthly usage cost

(won)

41.6 per 277 seconds

40,000~

50,000

40,000~

50,000

20,000

April, 2001 Korea Telecom 7

The Interconnection Arrangements in IP

• Peer-to-peer bilateral• Hierarchical bilateral• Third-party administrator• Cooperative Arrangements

April, 2001 Korea Telecom 8

Two Conditions for Peering to Function Efficiently

• Equal level of connectivity between networks

• Volumes of traffic or numbers of subscribers

• The costs of processing traffic less than the costs of developing a payment scheme

April, 2001 Korea Telecom 9

Developments in Peering

• In Oct. 1999 Digex Inc. and AGIS cut off their peering connections due to a dispute

• In 1997 UUNet, MCI, and BBN left the CIX router– 4 largest networks including above 3 contro

lled 85~95% of backbone traffic by 1997

April, 2001 Korea Telecom 10

Peering to TransitUUNet

Allows peering only to large ISPs– To qualify for

peering ISPs have to have more than four backbone networks of DS-3

– Supplier-Supplier Relationship

Forces small ISPs to make transit contracts– Pay $ 2,000 per

month for interconnection service

– Customer-Supplier Relationship

April, 2001 Korea Telecom 11

The Bright and Dark Sides of This Trend

Bright side– Induces large ISPs

to invest their own network

– Improves the service quality and realize economy of scale

Dark side– Discourages new

ISPs to enter into markets

– Possibility of large ISPs’ abuse of market power and balkanization of internet

April, 2001 Korea Telecom 12

Characteristics of Interconnection in Korean IP

Markets• Indirect Interconnection through IX >

direct interconnection between ISP• Mainly two types of interconnection

arrangements• Peering• Supplier-customer relationship

• No dominant system of settlement between ISPs

April, 2001 Korea Telecom 13

Legal Principles in IP Interconnection in Korea

• Major common carriers are required to provide interconnection to every other service providers by law

• Settlements for traffic• Voice network – data network

» No settlements

• Data network – data network» Pay accounting rates for traffic

April, 2001 Korea Telecom 14

Payment of Interconnection Line Costs between Networks

Cases Who pay for interconnection line

costs

KIX-CIX CIX

CIX-CIX Half and half

IX-ISP ISP

ISP-ISP Depends on negotiation

April, 2001 Korea Telecom 15

Settlement between ISPs

• ISPs mainly rent lines from common carriers and pay for line rental

• No settlement between ISPs for traffic in principle

• The large ISPs who are themselves common carriers charge for their service

• KT charge 1.2 times of line rental costs to ISPs for delivering their traffics

April, 2001 Korea Telecom 16

Who should Pay for Delivering Traffic?

• Difficult to distinguish which party gets more benefit from the traffic over internet

• E-mail or web-searching?

• The party who initiates the traffic should pay for the delivery cost

• This is the case in delivering a telephone call even with existence of externality

April, 2001 Korea Telecom 17

Which way to go?

• Do governments need to regulate interconnection in IP markets?– No public position on this issue– Cyber Korea 21

• sharing of carriers’ revenue with ISPs for their contribution to traffic increase

• Do we need to move from peering to transit?– Need more sophisticated settlement system