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)
April, 2001 Korea Telecom 1

No of
ISPs
The Trend of Internet in
Korea
1995 1996 1997 1998 1999 2000
(~Oct)
11 16 21 26 54 80
731 1,634 3,103 10,860 16,400 No of
Users
( thousands)
No of
Host
No of
Domain
366
38,644
569
73,194 131,005 177,299 460,974
2,644 8,045
-
26,166 207,023 511,003
April, 2001 Korea Telecom 2

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
April, 2001 Korea Telecom 3

End
User
End
User
Structure of Internet
Networks
CP
ISP ASP ASP
CP
ISP
IX
ISP ASP
CP
ASP ISP
CP
End
User
End
User
April, 2001 Korea Telecom 4

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 5

The Comparison of Internet Access
Services in Korea
(at the end of 2000)
ISDN ADSL CATV MODEM Satellite
Market share 7.8% 64.9% 27.0% 0.3%
Installation and subscription cost (won)
Monthly usage cost
(won)
90,000
~
100,000
41.6 per 277 seconds
April, 2001
30,000
~
80,000
40,000
~
50,000
Korea Telecom
40,000
~
40,000
~
50,000
570,000
20,000
6

The Interconnection
Arrangements in IP
• Peer-to-peer bilateral
• Hierarchical bilateral
• Third-party administrator
• Cooperative Arrangements
April, 2001 Korea Telecom 7

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 8

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
April, 2001 Korea Telecom 9

Peering to Transit
UUNet
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 10

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 11

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 12

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 13

Payment of Interconnection Line
Costs between Networks
Cases
April, 2001
KIX-CIX
CIX-CIX
IX-ISP
ISP-ISP
Who pay for interconnection line costs
CIX
Half and half
ISP
Depends on negotiation
Korea Telecom 14

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 15

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 16

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
April, 2001 Korea Telecom 17