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Hee-SuKim PhDHeeSuKim,Ph.D. Vice President Economics and Management Research Lab KTCorporationKTCorporation 2011. 6. 24 Data Explosion: N-screen, Cloud, OTT video streaming, P2P Internet Traffic Volume (per person)ChanningTrafficPatterns a. Data Explosion Growth of Internet traffic per person: The world’s most -Korea (33G/mon)pp * Source : Economist (June 2011)*Source:CiSCO(2011) 1
Citation preview
Changing Patterns of Internet Trafficg gand Net Neutrality
2011. 6. 24
Hee-Su Kim Ph DHee Su Kim, Ph.D.Vice President
Economics and Management Research LabKT CorporationKT Corporation
1. Changing Traffic Patterns a. Data Explosion
Data Explosion: N-screen, Cloud, OTT video streaming, P2P
Growth of Internet traffic per person: The world’s most - Korea (33G/mon) p p
Changes in Internet usage patterns: Web P2P Video
Increases in the share of video traffic: 37%(2010) 56%(2014) (Cisco, 2011)
Internet Traffic Volume (per person)Channing Traffic Patterns
* Source : Economist (June 2011)* Source : CiSCO (2011)
1
1. Changing Traffic Patterns b. Asymmetric Traffic Usage
A fraction of the heavy users takes up most of the traffic
Negative impacts on average Internet usersNegative impacts on average Internet users
Fixed Internet usage: the top 10% users’ share, 68%(’08) 80%(’10)
Mobile Internet usage: the top 1% users’ share, 27%(’10.3) 33%(’11.3)
Mobile: Share of Traffic by UsersFixed: Share of Traffic by Users
83
93
80
70
80
90
100
to u
sers 2500
3000 Traffic(TB)
Traffic due to the Top 1%
Traffic of all users
33%
68
40
50
60
70
f Tr
affic
due
t
850 41000
1500
2000
33%
27%20
30
40
0 10 20 30 40 50 60 70 80 90 100
% o
f
2008 2010
68.6 66.9 82.6 142.6 153.3 173.9 220.0
352.0 484.4
621.3 719.3 696.0
850.4
0
500
1000
27%
* Source: KT(2010)2
* Source: Atlas(2011)
0 10 20 30 40 50 60 70 80 90 100% of Users
10.3 4 5 6 7 8 9 10 11 12 11.1 2 3
1. Changing Traffic Patterns c. Peak-Time Extension
Peak-time lasts for an extended period due to Always-on n/w services:streaming, cloud, and so on.
Peak-time traffic is less effective to control (capacity expansion is more pressing) comparedwith the past (short duration of peak time).
Always on n/w Service Internet Traffic on Peak TimeAlways on n/w Service
SNS-Keep Alive Traffic ㆍFrequent keep-alive’i l f
Internet Traffic on Peak-Time
ㆍInternet traffic: Expect to change similar to the video traffic pattern
Video-StreamingㆍIncreases in
signals forSNS degradesmobile n/w
[ KT Traffic (2011) ]
TVInternet
ㆍIncreases invideo contents& streamingservices
Cloud-Netbook ㆍAlways-onInternetconnected PCenvironment 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 0 1 2 3 4 5environment
3
* Olleh TV, Internet traffic
1. Changing Traffic Patternsd. Limitation of Mobile n/w
Recurrent traffic overload puts n/w redundancy at risk.
n/w utilization rate: Fixed 85% (Jan 2011), mobile 119% (Dec 2010)n/w utilization rate: Fixed 85% (Jan 2011), mobile 119% (Dec 2010)
An indefinite capacity expansion of the mobile network is impossible.
Fixed: building backbone vs. Mobile: limitation due to spectrum scarcity
Limitation of the Mobile n/w
g p y
Investment in the Fixed n/w
In EU, investment in the fixed n/w 1.4 times
more than 2009
- Similar patterns of expected investment in Korea
3G Traffic
The limit of mobile capacity(2,300TB)
TB/Month
The optimal level of mobile capacity(1,370TB)
* Source: KT (2011)
4
* Source: ATKEARNEY (2010)
2. Current Internet Pricing & Limitation a. Internet Access
Internet access fee: uniform/flat pricing for each bandwidth/capacity category
Established when finely tuned (usage based) price discrimination was not worthy of- Established when finely tuned (usage-based) price discrimination was not worthy of measurement efforts because nobody (in each category) did not push the n/w to the limit
No price signal linked with traffic generation Economic Inefficiency
- End-user: Flat-rate No additional payment despite high internet usage
- OSP: bandwidth based Ad revenues growing with traffic generated make the price signalfelt less acute
The Absence of Price Signal
End-Users
Broadband(KT) Lite(50M) Special(100M)
OSP
Biz Collocation (IDC) 7 prod (1G~10Mbps)
6
Biz Kornet Express 12 prod (1G~1Mbps)
b. Interconnection2. Current Internet Pricing & Limitation
Internet Interconnection: Settlement-free or limited settlement based on the criteria
crudely made in the early Internet days
- ISPs with a 2:1 difference in the network/traffic size can be settlement-free peers
A root cause of free riding (unfair sharing of network costs)
- Larger networks let incoming traffic reach (terminate) farther than smaller peers
without a compensation for the difference
ClassificationType of
interconnectionSettlement
Internet Interconnection & Free-Riding
A-B / C-DTransit
connectionBandwidth or
traffic
B-CPeering
connectionFree
PeeringISP (B) ISP (C)
Tier2
Tier1
$10 000/G connection
S it hi t h h t
OSP
OSP
Tier2
ISP (D)IDC
IDC
OSPIDC
ISP (A)
$10,000/G$5,000/G
If ISP B wants to charge more to an OSP in its IDC for terminating increased traffic, the OSP can switch to a cheaper ISP (C or D) that peers with B and
6
Switching to cheaper hostend-user
to a cheaper ISP (C or D) that peers with B and remain connected to ISP B.
c. Constraint on Pricing2. Current Internet Pricing & Limitation
Retail pricing constraint : intensive competition, social/political pressure for rate reduction
- The world’s lowest internet access fee due to severe facility-based competitionCoverage - KT: 100%, SKB: 88.8%, LG: 97.9% (KISDI, 2010)
% of Fiber connection - Korea(52%), top rank with Japan (55%)
- Repeated demands for rate reduction from NGOs and the government※ Volume-based pricing failed to be adopted due to consumer resistance in 1994
Internet fee - Korea: 49won/Mbps ≪ New York: 696 won, Paris: 157 won
2000.4 - Reduction: subscription fee 50,000, basiccharge 16,000, calling rate 22/10sec
Pressures by the government & the NGOs
2001 - Rate reduction & provision of free calls Promotion of rate reduction by the Ministry of Finance
※ Volume-based pricing failed to be adopted due to consumer resistance in 1994
Ministry of Finance
2008~2010 - Election pledge: Rate reduction by 20% Presidential Election
2011 - Reduction of basic fee: 1,000 won Rate reduction TF
Wholesale pricing: Crude & Rigid Difficult to reflect rapid changes
Tiering criteria - n/w size, number of subscribers, the rate of traffic exchange
Settlement - Free-peering among the same tiers
7
Settlement Free peering among the same tiers- Payment for transit (the lower tier the higher tier)
※ KCC Interconnection Order No.42 & 46
d. No Incentive to Invest2. Current Internet Pricing & Limitation
Huge growth imbalance in terms of revenue, operating profit and stockprices between network operators and other players in the Internet
Up until a few years ago, the growth of OSPs/CPs helped facilities-basedISPs to attract more subscribers. Now, with the saturated subscriber base, such win-win scenarios broke down. Network operators would not investpif the imbalance were to persist.
Internet Players’ Performance: Revenue, Operating Income, & Stock (’06~’10)
Revenue- The significant growth of device makers &
200%
250%
300% 1046%
≈
OSPs
Operating profit- The dramatic growth of OSPs & solution firms100%
150%
200%UI/Device
OSP
Solution
Content- No growth of n/w firms
Stock price- All players showed growth other than n/w -50%
0%
50%
Revenue Operating
profit
Stock
Content
Network
8
firms ※ Device: Samsung electronics, LG Electronics; OSP: NHN, Daum; Solution: KCP, Danal; Content: SBS, NCSoft; N/W: kt, LGU+, skt
profit
3. Suggestion a. Retail Pricing Reform
Give support to usage-based (and/or usage-cap) pricing
Efficient use of n/w, neutral treatment (no prioritization) of data packets
Gives n/w operators incentives to invest in next-generation Internet
Most Internet users are better off from reduced traffic congestionMost Internet users are better off from reduced traffic congestion
Examples of Data Plans on Fixed n/w Examples of Data Plans on Mobile
Telco Data plan
Abolishment of unlimited data plan
Country Company Data Plan
US AT&T $10/50GB in exceed of 150~250GB/mon (May 2011) AT&T
Abolishment of unlimited data plan (June 2010)
VerizonPlan for abolishing unlimited data plan (2011)
150~250GB/mon (May 2011)
Comcast $10/50GB in exceed of 250GB(Aug 2010)
Time Consideration of implementing l b d
VodafoneImplement of usage cap pricing-500MB/mon (Aug 2010)
Warner volume-based pricing
Canada Telus $2/GB in exceed of 125GB
Bell C d
$2/GB in exceed of 250GB
9
Canada
3. Suggestion b. Interconnection Pricing Reform
Give support to settlement-based peering (with even symmetric ISPs paying
each other for the traffic caused to the other party) Sends right price signals to p y) g p g
CPs/OSPs, Revives win-win Internet ecosystem, Neutral treatment of data packets,
Boosts investment incentives, Induces CPs to multi-home with several ISPs
OSPs are charged for traffic delivery based
Charging OSPs for n/w Costs
Traffic often flows very asymmetrically among
ISP d h l f
Why Paid Peering?
on the incremental costs that they caused
the hosting ISP to incur (i.e. paid peering
or transit charges)
ISPs under the current settlement-free
peering system when heavy-traffic generating
CPs single-home with one of the o t a s t c a ges)
- Telcos in EU consider charging CPs for
n/w usage
interconnected ISPs
- Netfilx takes up 25% of total traffic in North
America When it chose to single-home with
OSP ISPEnd UserTr
affic
Traf
fic
America. When it chose to single home with
Level 3, Comcast (Level 3’s peering ISP)
demanded extra charges for the huge
incremental traffic from Netflix to Comcast
Charges based on traffic Volume
c e e ta t a c o et to Co cast
- Google is ranked 3rd in overall global traffic
carried, generating more than Sprint (Tier 1) 10
3. Suggestion c. Network Management Rules
Rules for reasonable network management need to be established ASAP for
increased transparency for businesses as well as consumersp y
Declare usage-based pricing (retail and interconnection) as basically exempt
from net neutrality regulationy g
- The US (strictly applies net neutrality principles) officially allows for telcos to charge more
to heavy traffic users for their extreme internet usage
Net Neutrality & PricingGlobal Telcos’ n/w management
Telco n/w Management The FCC’s Open Internet Order (’10.12)
BT - Limits Internet speed for the heavy usersduring peak-time (5pm~12am)
SingTel- Provides 1/10 of standard traffic during
peak time while providing standard traffic
‘The Framework we adopt today does not prevent
broadband providers from asking subscribers who use SingTel peak-time while providing standard traffictwice during off-peak
NTT - Usage cap: 30GB upload per day - Limits the heavy users’ usage since 2008
p g
the network less to pay less, and subscribers who use
the network more to pay more.’
Comcast - Delayis traffic during n/w congestion (over 70% of the total n/w capacity)
11
4. Conclusion
A Win-Win situation for both telcos & OSPs in the past
- Telcos: increases in the value of networks due to various contents provided by OSPs
OSP b ib l- OSPs: access to subscribers at low cost
Telcos’ investments are not sustainable if the current situation will last- No win-win: saturation of subscriber base, traffic explosion without corresponding compensation
for telcos due to price signals not linked with traffic
Create (or do not regulate) a price-based (bit neutral) incentive mechanism for telcos to make sustainable investmentsfor telcos to make sustainable investments- Open Internet rules with no ex ante regulation of usage-based retail pricing and settlement-based
internet peering (fact or effect based ex post regulation preferred)
A New Incentive Mechanism in the Internet
- Telco: n/w values
Past: Win-WinData Explosion - Flat-rate
Now: Imbalance No Investment Incentives
- OSPs: access to subs - Settlement-free
New Paradigm Investment
12
g- Usage-based- Settlement-based
Investment Incentives& Win-Win