Margin squeeze in the Internet backbone interconnection market: a case study of Korea

Sun Me Choi (), Christian Fernando Libaque-Saenz (), Sang-woo Lee () and Myeong-Cheol Park ()
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Sun Me Choi: Korea Advanced Institute of Science and Technology (KAIST)
Christian Fernando Libaque-Saenz: Korea Advanced Institute of Science and Technology (KAIST)
Sang-woo Lee: Electronics and Telecommunications Research Institute (ETRI)
Myeong-Cheol Park: Korea Advanced Institute of Science and Technology (KAIST)

Telecommunication Systems: Modelling, Analysis, Design and Management, 2016, vol. 61, issue 3, No 9, 542 pages

Abstract: Abstract The present research analyzes the need for regulating the Internet backbone market by focusing on the Korean case, which resembles well the situation of the international market. The Korean market, indeed, follows the tier-based structure of the international market, whereas it is one of the few countries that have regulated to some extent interconnection among Internet service providers (ISPs) by dividing the exchange traffic into direct and indirect. Moreover, likewise it has being discussed at the international level, recently some Korean ISPs have raised a local discussion about the need for improving regulation in the local Internet backbone market because of a potential margin squeeze. These interconnection issues have been stressed by the network value gap among ISPs in the Korean context. The present research shows that when asymmetric networks compete with price discrimination, environments lacking of effective regulation may lead powerful backbone ISPs to squeeze other competitors’ profits and monopolize the lower-tier market by raising interconnection charges. Consequently, our findings suggest that the Korean government should more actively monitor the charges in the Internet backbone market, while discuss the potential need for additional regulatory intervention in these cases.

Keywords: Interconnection; Margin squeeze; Internet backbone market; Internet regulation (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11235-015-0010-0

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