1. April, 2001Korea Telecom1 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)

2. April, 2001Korea Telecom2 The Trend of Internet in Korea 199519961997199819992000 (~Oct) No of ISPs 111621265480 No of Users ( thousands) 3667311,6343,10310,86016,400 No of Host 38,64473,194131,005177,299460,974- No of Domain 5692,6448,04526,166207,023511,003

3. April, 2001Korea Telecom3 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

4. April, 2001Korea Telecom4 Structure of Internet Networks ISP IX ASP ISP ASP ISP ASP ISP ASP End User End User End User End User End User End User End User End User CP

5. April, 2001Korea Telecom5 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

6. April, 2001Korea Telecom6 The Comparison of Internet Access Services in Korea (at the end of 2000) ISDNADSLCATV MODEM Satellite Market share7.8%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

7. April, 2001Korea Telecom7 The Interconnection Arrangements in IP Peer-to-peer bilateral Hierarchical bilateral Third-party administrator Cooperative Arrangements

8. April, 2001Korea Telecom8 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

9. April, 2001Korea Telecom9 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

10. April, 2001Korea Telecom10 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

11. April, 2001Korea Telecom11 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

12. April, 2001Korea Telecom12 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

13. April, 2001Korea Telecom13 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

14. April, 2001Korea Telecom14 Payment of Interconnection Line Costs between Networks CasesWho pay for interconnection line costs KIX-CIXCIX CIX-CIXHalf and half IX-ISPISP ISP-ISPDepends on negotiation

15. April, 2001Korea Telecom15 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

16. April, 2001Korea Telecom16 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

17. April, 2001Korea Telecom17 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