On the competition of CDN companies: Impact of new telco-CDNs' federation

To cope with consumers' ever-increasing demand of high-quality contents in the Internet, content providers (e.g., YouTube) mainly pay to global pure-play CDN companies (e.g., Akamai) instead of ISPs for content delivery. This motivates ISPs to offer their own regional CDN services as Telco-CDNs that compete with the pure-play CDNs for CPs in the CDN market. Unlike the pure-play CDNs with global consumer coverage geographically, Telco-CDNs have the strength of better QoS due to integration of traffic engineering with content delivery. In this paper, we study their competition for CPs by using dynamic game theory, where Telco-CDNs can choose to federate with each other and to which extent. We first analyze the traditional case when Telco-CDNs do not federate and independently operate to locally compete with a typical pure-play CDN. We next study the case when Telco-CDNs form a federation by (i) physically pooling their resources and/or further (ii) economically sharing the total revenue. Depending on the degree of their cooperation (with only (i), called partial federation, or with both (i) and (ii), called full federation), we study how strongly and successfully Telco-CDNs are able to penetrate into the CDN market. Perhaps surprisingly, we show that Telco-CDNs' federation may not help themselves due to the threat of perfect competition with the pure-play CDN.