Economic Effects and Some Implications on Introduction of Indirect Access Scheme into LM Market in Korea

This study analyzes the economic effects that are expected when competition in the LM market intensifies with the introduction of the indirect access policy. To that end, this study estimates consumer surplus and operator´s profit variation with the introduction of the indirect access policy, by combining actual data (or estimated values) such as price elasticity, call volume, usage rates, and access charges, as well as assumptions about forecasted competition. According to the results of the analysis, it has been found that the increase in consumer surplus will to a large extent be due to LM rate reductions as competition toughens with introduction of the indirect access policy into the LM market. However, the net profit of the new indirect access service providers is found to be insignificant. In particular, analysis suggests that the net profit will be negative if the rate drops by 20% compared with the current price level once that policy has been adopted, and further suggests that reductions in the investment of incumbent fixed network service providers is inevitable since the net profit is likely to drop significantly, even when the access charge revenue increases from the indirect access service providers. Consequently, it is evident that more a cautious policy should be pursued before adopting the indirect access system in the LM market, and prior scrutiny should be made regarding the means of compensating for the loss in the local NTS section before making any decision