ISP vs. ISP+CDN: Can ISPs in Duopoly Profit by Introducing CDN Services? Dongmyung Lee Seoul National University June 11, 2012 Joint work with J. Mo and J. Park W-PIN 2012, London, UK

Contents Introduction Model The Game Numerical Results Conclusion 2/14

What is Content Delivery Network (CDN)? CDN: Content Delivery Network ISP A CP BCP A ISP B User A User B Region: : Traffic Flow 3/14 AB

What is Content Delivery Network (CDN)? CDN: Content Delivery Network ISP A CP BCP A ISP B User A User B Region: : Traffic Flow CDN : Cash Flow $ $$ Cache Server Cache Server 4/14 AB

Current Issues related to CDN ISP-operated CDN ▫ “BT Wholesale Readies CDN Launch” (Video Nuze, 2010)  “The goal is to…maintain highest quality of service to their content customers” ▫ “AT&T Announces New CDN Service” (ReadWrite Cloud, 2011)  “AT&T will enable content to flow directly from its 38 data centers around the world, to reduce transit and latency times Other Telco CDNs ▫ Level 3 ▫ Verizon ▫ Deutsche Telekom ▫ Orange France Telecom ▫ Korea Telecom ▫ … 5/14

Problem Statement ISP A users CPs ISP A users CPs CDN CDN: Content Delivery Network ISP A users CPs CDN Key Question: ▫ Is there an incentive for an ISP under competition to vertically integrate CDN? ISP+CDN 6/14

Model Two-sided market with ISPs as platforms ISPs are located à la Hotelling where consumers and CPs are distributed in [0,1] 7/14

Utility Consumer and CP Utility (Hotelling model) ▫ Consumer’s Utility ▫ Content Provider’s Utility ISPs’ Payoffs  t i : market share of ISP i in the consumer side  s i : market share of ISP i in the CP side  h i : hit ratio of ISP i‘s cache server ▫ Full market coverage: 8/14

Delay Delay function  τ i : incoming traffic of ISP i’s network  β i : network capacity parameter (capa.=1/β i ) ▫ Network delay ▫ User’s perceived delay ▫ CP’s perceived delay 9/14

The Game 4-stage Stackelberg game 1.CP pricing decisions:  ISPs determine CP prices a 1 and a 2 2.CP connection decisions:  CPs choose the ISPs 3.Consumer pricing decisions:  ISPs determine User prices p 1 and p 2 4.User connection decisions:  Users choose the ISPs 10/14

Market Share Market Share of an ISP on one side becomes a function of the other Definition 1. (Equilibrium Market Share) An equilibrium market share is defined as the pair (t 1 *, s 1 * ) that satisfies Proposition 1. There exists an equilibrium market share 11/14

Numerical Results (with low congestion, β =3) “Competition effect” vs. “Delay reduction effect” MS of ISP+CDN MS of pure ISP Delay advantage Price advantage Price decrease 12/14

ISP+CDN vs. pure ISP: Who is better? Map of dominance ▫ Linear cache server cost assumption [Delay reduction effect] : [Competition effect] 13/14

THANKS AND QUESTIONS 14/14