Implications of IP interconnection regulation on South Korea's digital ambition

Since its creation and commercialisation, the internet has flourished as a network of networks. Interconnection through the internet protocol (IP) enables the exchange of traffic between and across networks to meet the needs of users, including consumers, enterprises and voluntary and public-sector organisations. The vast majority of IP interconnection agreements globally have been, and continue to be, negotiated commercially. In the vast majority of cases, they are settlement free (traffic is neither ‘counted’ nor monetised).

Over a decade ago, South Korea chose to deviate from this norm. In 2014, the Ministry of Science, ICT and Future Planning revised the Interconnection Standards for Telecommunication Facilities to go beyond telephony. It announced the regulation of IP interconnection fees between domestic internet service providers (ISPs) in South Korea through a sender party network pays (SPNP) regime. Under this approach, an end user’s ISP could levy a regulated payment from parties wishing to deliver traffic to it.¹

Building on a paper we published in 2020, we recently reviewed how the digital infrastructure ecosystem in South Korea responded to these policy choices. We found that the regulation of IP interconnection had resulted in frictions within the sector, including disputes and lawsuits between stakeholders. It led to market dynamics in which larger ISPs can impose high domestic transit and peering fees on all other market participants, irrespective of the underlying costs of interconnecting or delivering internet traffic.

This created regulatory and commercial risk, as well as uncertainty given the time needed to resolve these disputes and the policy and regulatory adjustments that were made to mitigate negative impacts of the regulation. This appears to have contributed to disincentives for international firms to invest in digital infrastructure in South Korea: the density of caches and points of presence (PoPs) deployed by major cloud service providers (CSPs) and content and application service providers (CAPs) is lower in South Korea compared to other developed Asia–Pacific (APAC) countries. South Korea also has a much less vibrant internet exchange point (IXP) landscape than comparable countries, with fewer IXPs, lower average capacity per IXP and fewer interconnecting parties in each IXP.²

This has impacted costs and performance for end users, but also for ISPs. The proportion of traffic exchanged offshore at regional hubs is higher than in comparable neighbouring countries, leading to increased costs for ISPs and increased latency in internet traffic for end users.

There is evidence that this has reduced the attractiveness for further investments into more capital-intensive digital infrastructure projects, therefore compromising South Korea’s ability to become a connectivity hub. Only two new international submarine cables landed in South Korea between 2016 and 2024, the lowest among benchmarked countries in the region.³ Furthermore, as of mid-2025 South Korea’s data-centre facilities are smaller in IT load and are less dense compared to other hubs such as Bangkok, Jakarta, Singapore and Tokyo. This is particularly notable in a global context where investment in data-centre infrastructure is exploding, including to support AI workloads in a decentralised fashion.

Decisive changes to the IP interconnection regulation would be needed to reset the distorted interconnection ecosystem and unlock the significant infrastructure investments needed to position South Korea as an international advanced connectivity hub.

¹ National Statute Information Center, 2020. “Interconnection Standards for Telecommunication Facilities”.

² Internet Society Pulse, 2025. “Internet Society Pulse”.

³ Benchmarks include Australia, Japan, the Philippines and Singapore. TeleGeography, 2025. “Submarine Cable Map”.

Notes:

This report has been prepared by Analysys Mason for Amazon Web Services and is subject to Analysys Mason’s editorial judgement and discretion. The analyses contained within this report are the sole responsibility of Analysys Mason.

This document was originally written in English. The Korean version is a third-party translation.