Welcome back to the eleventh edition of NetMission Digest where we transform recent tech news and policies into a byte-size reader for you. In this issue, we will discuss network usage fees, also referred to as “network/infrastructure cost-sharing”, “fair contribution”, and “fair share”, in the context of Asia.
“Fair share” quickly dominated policy headlines at last year’s Mobile World Congress (MWC) after the GSMA board greenlighted the advocacy campaign on the sidelines of MWC 2022 urging major video streaming service providers to share telcos’ broadband infrastructure costs for taking up most Internet traffic. To many, it seemed like a déjà vu moment from the Net Neutrality controversy.
Before its proliferation in Europe and the Americas, several governments in the Asia Pacific region were already exploring this subject as governments’ competitive and aggressive strategies to upgrade their digital infrastructure (to outrun their neighbors). The Asian Development Bank (ADB) indicated in 2017 that an annual digital infrastructure investment of USD 1.7 trillion would be required through 2030 for regional sustainable growth. In 2023 alone, over 56 digital infrastructure investment partnerships totaling USD 34.8 billion have been formulated across APAC – a drastic jump from 2022 with 31 deals and a combined value of USD 20.7 billion.
In particular, not only is the global discussion of network usage fees arguably galvanized by Korean telcos, but its domestic legal battle and the legislative push on this matter have further piqued the interest of many governments and telcos to look into network usage fees – with evidence that the Korea case is heavily referenced in debates across the world.
Korea: The Legal Battle
The global push came amidst the lawsuit between Netflix Services Korea Ltd. and SK Broadband Inc. (SK) on whether the streaming giant is obliged to (1) negotiate and (2) pay network usage fees to the ISP.
This dispute formally started in November 2019 as SK filed for adjudication before the Korea Communications Commission (KCC) against Netflix for refusing to negotiate on the fees (which some other foreign service providers such as Twitch and Facebook have been paying despite reluctance and protests). In April 2020, Netflix halted KCC’s dispute resolution process by bringing the case to the Seoul Central District Court. In June 2021, the Court (1) dismissed the ruling on Netflix’s obligation to negotiate the fees, while ruling that (2) Netflix would be liable to pay such fees.
Subsequently, a series of back-and-forth appeals, countersues, and court hearings unfolded. On one hand, SK doubled down its complaints against Netflix for being a stowaway from Korea’s Internet development and reluctant to negotiate on the fees. On the other hand, Netflix reiterated their contributions to the country, including a video highlighting their longstanding commitment and a “joint media announcement” between South Korean President Yoon Suk-Yeol and Netflix co-CEO Ted Sarandos on Netflix’s USD 2.5 billion investment plan in Korea.
The three years of legal battle resulted in the formulation of a Strategic Partnership between Netflix and SK to offer customers new bundled offerings and to collaborate on leveraging AI technologies. All Netflix-SK lawsuits have also been settled in September 2023, which coincides with EC’s publication of results of the exploratory consultation with no mentions of “fair contribution”.
Korea: The Legislative Push
Interlaced with the network usage fee debates in court was the promulgation of the revised Telecommunications Business Act (TBA) two months after Netflix filed the lawsuit against SK. With an effective date of December 10, 2020, the amendment mandates value-added service providers (VSPs) that meet the threshold set out by the President’s Enforcement Decree to implement “necessary measures”, including technical measures to prevent excessive Internet traffic concentration and to ensure Internet stability in view of data volume fluctuation trends.
The 2020 TBA amendments can be attributed to the aftermath of its 2016 revision, where the then-Ministry of Science, ICT and Future Planning (now restructured as MSIT) enacted the Interconnection Standards for Telecommunication Facilities that implemented the sending party network pays (SPNP) principles among Korean ISPs. As global streaming services assert market dominance in Korea, especially via K-content Parasite (2019) and Squid Game (2021), local operators petitioned against the “reverse discrimination” against local content providers that have been paying network usage fees (in the form of transit fees under the SPNP model). Alongside the inquiry into foreign content providers, revisions were introduced to TBA, also dubbed the “Netflix Law”.
In fact, at least two other bill proposals (2114012 and 2111519) were tabled to mandate content providers to pay network usage fees. They were, however, shelved under the pressure of a potential breach of the Korea-United States Free Trade Agreement (KORUS) as illustrated by U.S. and international industry trade groups.
While the “Netflix Law” stopped short of requiring (foreign) VSPs to pay network usage fees directly, Twitch announced to limit video source quality and service functions in 2022 and eventually shut down its Korean business in its entirety from February 27, 2024. The Amazon-owned live-streaming business ascribed their decisions to the “prohibitively expensive” operating cost as they “diligently paid all network fees” and other costs to fulfill Korea’s regulatory compliance. The continuous (and somewhat concerted) push by Korean network operators and politicians to make global online service providers more accountable has arguably inspired exploratory consultation in Europe, although European telcos tried to distance themselves from the Korean case.
TL;DR: Taiwan, India, Australia, Japan
Before South Korea had “inspired” the European Commission and the rest of the world, other parts of Asia had started considering the feasibility of network usage fees.
In 2021, Taiwanese telcos refreshed their 2018 appeal to the National Communications Commission (NCC) to reconsider the principle of “net neutrality” as the regulator issued the draft Digital Communications Services Act for comments. The three biggest local telcos argued that alongside Korea’s development, net neutrality was repealed in the U.S. under the Trump administration. They further alluded to the end-to-end quality-of-service Internet delivery, using the analogy that “[I]nternet cables are not water pipes where all substances that flow through should be treated the same”. While the Taiwanese government acknowledged the discussions locally and abroad, its 2022 Digital Economy White Paper indicated net neutrality would continue to be upheld and had no mention of “fair share”.
The Telecom Regulatory Authority of India (TRAI) also launched a Consultation Paper on Regulatory Mechanisms for OTT Communications Services in July 2023 with reference to the BEREC preliminary assessment on the implications of network usage fees, As TRAI explored the need for a “collaborative framework between OTT communications service providers and licensed telecom service providers (TSPs), major local telcos maximized this window to petition for over-the-top (OTT) communications service providers to pay “Fair Share Charges”, which were reframed” as “just a compensation mechanism intended to be paid by large traffic generators (LTGs) to TSPs”. While Indian regulators are still deliberating on the broader regulatory mechanism in 2024, telecom industry groups including GSMA and the Cellular Operators Association of India (COAI) continue to nudge LTGs to pay their “fair share” for network usage.
Australian telcos TPG Telecom and Optus have also started lobbying for “Fair Share Contribution” in mid-2023, including highlighting the matter in Optus’ submission to the Senate inquiry into the influence of international digital platforms. While the Inquiry Report included it as an issue of “Bargaining Imbalances”, the Senate Committee did not delve into this issue for “Possible Solutions”. A spokesperson for the Communications Minister also acknowledged TPG and Optus’ concerns and suggestions as the government is also monitoring developments in other jurisdictions. Contrastingly, Telstra was upfront about not actively pursuing a mandatory contribution from LTGs and would prefer “more commercially negotiated arrangements”.
While Seoul might have popularized the idea of network usage fees, Tokyo made the first move to explore the issue. In 2018, Japan’s Ministry of Internal Affairs and Communications (MIC) initiated an internal review of “the ideal state of the fairness and transparency of network usage and cost-sharing”, which then gathered a Study Group on Net Neutrality in October, based on its 2007 Report on Network Neutrality. The Group’s 2019 Interim report stated a “cooperative framework” shall be established to discuss best practices to ensure “efficient and stable content delivery” and “address the network tightness” (pg 42). However, neither a final report of the Working Group was published and the next steps of the suggested cooperative framework were announced as of date. Reading between the lines of the guidelines published on adjacent issues such as zero-rating services and packet-shaping, it is understood that other subjects (network usage fees and others) would be handled via commercial negotiations or, where appropriate, multistakeholder means.
Epilogue: Mutually Agreed Arrangements
After years of legal scuffles, Netflix and SK signed a commercial partnership deal to settle the disputes. In fact, SK is the last major Korean telco to work with Netflix. The streaming giant has entered into partnerships with LG U+ in 2018 and KT in 2020, as well as smaller telcos such as D’Live in 2016. In 2021, Netflix confirmed the partnership focus with ISPs through its in-house content distribution network (CDN) in South Korea and globally. Via the Open Connect program and commercial partnerships with local ISPs, Netflix argues its CDN alleviates network traffic by at least 95%, especially with ISP partners that have formulated partnership deals. Across the Asia Pacific, we can see at least 400 agreements signed between OTT (video) players and telcos as of 2022, tripling the number in 2019. While not all agreements are formed under the shadow of network usage fee disputes, commercial negotiations seem to be the mutually agreed arrangement between content and telecommunications service providers – as at the end of the day, the two businesses are complementary, and even interdependent in some sense.
Tracing the roots of the network usage fee advocacy is an urgent flag raised by telcos to address the investment gaps in light of technology advancements. Synergy Research Group unveiled that Big Tech companies are “hyper-scalers” with soaring Internet infrastructure investments globally, while telco’s market share of global IT infrastructure spending has been falling with their flat growth rates. The need for investments will only increase and become more pressing to “bridge the gap between today’s telecoms networks and tomorrow’s digital infrastructure”. Instead of shifting the burden from one stakeholder to another, a wiser approach might be relieving existing/projected burdens and uncovering untapped grounds for publicly accountable finances and partnerships. Although the debates on network usage fees are not quite the same as previous renditions of net neutrality discussions, they certainly are reminders of the fundamental principles for a sustainable and open Internet.
By Kenneth Leung (Reviewed and edited by Jenna Manhau Fung, Nawal Munir Ahmad and Vicente Arias González)