IP Pricing and Interconnection in Korea

1. IP Pricing and Interconnection in Korea by Inho Chung Korea Telecom (The views in this slide do not necessarily represent the views or policies of Korea Telecom) Korea Telecom

2. The Trend of Internet in Korea Korea Telecom

3. The structure of Internet Service Markets in Korea • Access Service Providers • Dial-up, ADSL, CATV, ISDN, Private line, B-WLL, Satellite, Wireless Phone,Wireless Internet • Internet Service Providers • IP/CPs Korea Telecom

4. Structure of Internet Networks CP CP End User ISP ASP ASP ISP End User IX End User ISP ASP ASP ISP End User CP CP 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 Korea Telecom

6. The Comparison of Internet Access Services in Korea (at the end of 2000) Korea Telecom

7. The Interconnection Arrangements in IP • Peer-to-peer bilateral • Hierarchical bilateral • Third-party administrator • Cooperative Arrangements 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 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 controlled 85~95% of backbone traffic by 1997 Korea Telecom

10. 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 Peering to TransitUUNet Korea Telecom

11. 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 The Bright and Dark Sides of This Trend 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 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 Korea Telecom

14. Payment of Interconnection Line Costs between Networks 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 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 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 Korea Telecom