Vertical Integration of CDN and Network Operator: Model and Analysis

Abstract

Content Delivery Network (CDN) services largely affect the delivery quality perceived by users. While those services were initially offered by independent entities, some large ISP now develop their own CDN activities to control costs and delivery quality. But this new activity is also a new source of revenues for those vertically integrated ISP-CDNs, which can sell those services to content providers. In this paper, we investigate the impact of having an ISP and a vertically-integrated CDN, on the main actors of the ecosystem (users, competing ISPs). Our approach is based on an economic model of revenues and costs, and a multilevel game-theoretic formulation of the interactions among actors. Our model incorporates the possibility for the vertically-integrated ISP to partially offer CDN services to competitors in order to optimize the trade-off between CDN revenue (if fully offered) and competitive advantage on subscriptions at the ISP level (if not offered to competitors). Our results highlight two counterintuitive phenomena: an ISP may prefer an independent CDN over controlling (integrating) a CDN, and from the user point of view vertical integration is preferable to an independent CDN or a no-CDN configuration. Hence, a regulator may want to elicit such CDN-ISP vertical integrations rather than prevent them.