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Dispelling the myths surrounding Korea’s network fee arrangement: An interview with Professor KS Park

The conversation with Professor KS Park, founder of www.opennetkorea.org revolved around network fees on online content providers, related Korean legal framework, and more.

“The law has not been extended to include the content providers as the party is obligated to make the payment. So far, [the] sender pay rule applies only among ISPs [internet service providers],” Professor Kyung Sin Park, the co-founder and Executive Director of www.opennetkorea.org and law professor at the Korea University Law School told MediaNama. Park went on to mention that under the current law, content providers (aka OTT platforms) are not required to pay for the traffic generated by their services. 

This clarification is more relevant than ever today as the Telecom Regulatory Authority of India (TRAI) is exploring the possibility of regulating OTT communication platforms in India. One of the regulations being discussed is charging communication platforms a fee (referred to as ‘collaborative frameworks’ under TRAI’s consultation paper) for the use of a telco’s infrastructure. Telecom companies in India, naturally support the imposition of such a fee and reference South Korea’s regulations as an example to bolster their arguments. 

So, to make sense of the situation in South Korea, its telecom regulations, and their impact on the internet landscape and other issues surrounding network fees, MediaNama’s editor Nikhil Pahwa interviewed Professor Park. Here are some of the key themes discussed in the interview. 

Watch the interview here:

Part 1-

Part 2-

Understanding the Internet ecosystem:

Park said that to understand network fees, you first need to understand how the wired internet traditionally works. He raised the following points in a presentation he shared with MediaNama—

  • The Internet allows for communication without gatekeepers. Every participant delivers everyone else’s data without charging money/without conditions, making data delivery costs zero.
  • To have a payment system on the internet would require one to count the number of computers involved in sending data from point A to Point B and then either the sender or receiver would have to pay each of these computers in the middle. This system would kill in internet.
  • So, instead, today everyone just pays only to connect to the internet. Everyone just pays internet access fee, no one pays for the amount of data used, but for the capacity of the connection.
  • This is scientifically feasible since as electromagnetic signals constituting data travel through the medium, the cost is almost zero. It’s just like when you watch TV, you don’t pay more to watch more content, you only pay for your set number of channels.

South Korea’s Sending Party Network Pays law : 

In 2016 the South Korean government introduced the sending party network pays (SPNP) arrangement in the country. Under it, internet service providers were required to pay each other for the traffic originating from their network. Let’s say YouTube has a peering arrangement with telecom ‘A’ in South Korea. Now, if a user of telecom ‘B’ wants to access YouTube content, this content would go from A’s network to B’s and A (the one sending the data) would have to foot the bill for it.

Park says that the impact of this law has been terrible. “This gives disincentives across the board among ISPs to refuse to host the popular content,” he explained saying that ISPs don’t have any reason to host popular content. Further, those networks that choose to host content despite having to pay a sender fee, would then be free to charge OTTs more for hosting their content.

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The after-effects of imposing SPNP: 

Park mentioned that the repercussions of imposing the SPNP arrangement were evident by December 2017, with the South Korean capital Seoul’s IP transit fee (cost of transferring data from one ISP to another) being $3.77 compared to other major cities like Paris where the IP transit fee was $0.45. “And that trend continued to 2021,” Park said, “IP transit fee in Seoul was like eight times London and 10 times Frankfurt.” 

The high transit fee and the hosting charges, “suppress innovation [in the OTT space], especially the ones that use video or real-time information processing,” Park explained. He gave the example of an app that informed people of COVID hotspots, which could not fully perform its functions because of the transit fees. “This really has a suppressive effect on [the] development of the internet economy. That’s why in Korea, after Naver and Kakao, which are the two dominant platforms, we have not seen any unicorn[s],” he said.

Amendment to the Telecommunications Business Act: 

In 2020, Article 22-7 was added to the South Korean Telecommunications Business Act (referred to as the ‘Netflix law’ in submissions to TRAI’s consultation). This article said

A value-added telecommunications business operator who meets the standards prescribed by Presidential Decree, such as the number of users and the volume of traffic, shall take necessary measures prescribed by Presidential Decree, such as securing the means of service stability and dealing with user requests, in order to provide users with convenient and stable telecommunications services.”

Any OTT platforms that attract an average of more than one million users per day and account for more than one percent of the country’s internet traffic are subject to this regulation. Reliance Jio, Vodafone Idea, and researchers V Sridhar (IIIT-Bangalore), Rohit Prasad (Management Development Institute), and Mansi Kedia, (ICRIER, Indian Council for Research on International Economic Relations)  all mention this in their submissions to the TRAI. When Pahwa quoted ICRIER’s submission (which said that under the above-stated act, OTTs would have to ‘ pay a fee to cover network use’) to Park, he responded by saying that “that part must be a mistake or mistranslation,” adding that, “the ‘pay a fee’ [section], such [a] phrase is not in the law.” 

Park explained that it is unclear what the amendment means, and that one can only make a guess based on the context in which it was passed. He said that when in 2016 the SPNP regulation was brought in, Facebook’s content delivery servers (also called caches) were connected with SK Broadband’s network. But because of SPNP, SK Broadband demanded payment for allowing Facebook’s cache servers to connect to its network to which Facebook refused. Instead, it began rerouting traffic into Korea through Hong Kong which led to users experiencing slower speeds because the data had to cross vast distances to reach Korean internet users. He guesses that the amendment was passed to, “make it difficult for Facebook to change the routing of the traffic.” 

When asked why this is called the ‘Netflix law’ Park explained that it was because Netflix, just like Facebook was also involved in a legal battle surrounding network fees (more on that in the next section). However, while the Facebook dispute had been resolved, the Netflix dispute was currently ongoing. 

Netflix versus SK Broadband:

Netflix entered the South Korean market in 2016 and to reduce latency (the speed at which data travels over a network) it installed content delivery servers (also called caches) within SK Broadband’s network. However, SK Broadband demanded that Netflix pay network usage fees on top of installing those caches. Park explained that Netflix refused to do so and filed a lawsuit against SK Broadband, “to get a declaratory judgment from the court that Netflix does not owe SK Telecom anything.” (Quick context: SK Broadband is a subsidiary of SK Telecom) 

Park explained that this is just like the dispute surrounding Facebook, “except that this time, SK Telecom really doesn’t have any financial reason to demand the money from Netflix.” He explained that as of now, SK Telecom and Netflix are directly connected with each other (through caches) and no payment is being exchanged.

Addressing the ‘network congestion’ argument:

Besides the Korean situation, another point that was mentioned in the telcos’ submissions to the TRAI was that OTT platforms that supply video content generate a lot of traffic. Vi explained that these platforms decide whether the quality of the content would be a standard definition or high definition and in doing so, influence data traffic volumes. 

To address this, Park first explained how wired and wireless Internet access works. On the wired internet, “every participant in the network delivers everyone else’s data without charging money, without any condition. That way, it [the wired internet] made the data delivery cost zero for everybody. It’s like I’ll scratch your back, you’ll scratch mine,” Park explained. On the wired internet, people pay for the capacity of their connection and not for the data volume consumed.

On the other hand, to make wireless devices (like mobile phones) connect to the internet, telcos have to build access points which is why it makes sense to charge users for the volume of data that they use. However, he said, “content providers, they are not sending data out through those access points. They are using the traditional internet, they are using the wired internet,” and so it does not make sense to charge them for the data traffic their platforms receive. 

Should OTTs be required to contribute towards infrastructure development?

Pahwa told Professor Park that in India, the telecom market is highly competitive, and as a result, telcos are unable to increase data charges. So, to improve their infrastructure (moving from 4G to 5G and then eventually to 6G) they need to charge OTT platforms. Park responded to this by quoting an Analysys Mason study from 2022, which said that even though data traffic has increased 5 times between 2018 and 2022, network maintenance costs have stayed the same. “Because of technological progress, you can still handle this increased traffic, increased data volume, just maintaining the same level of investment every year,” Park explained. He added that while telcos say they need more money, “the numbers just don’t show that.” [emphasis ours]  

Further, Park added, if telcos feel like they have the social responsibility to handle communication, they should allow for the entry of more players into the market, so that more access points for wireless communication can be created. “But here it is the telecoms that lobby the government to make it more difficult to give out new license[s] for new telecoms,” he explained. He gave the example of how internet platforms like Google and Facebook were both investing in technologies that would help improve internet access. “Are they being welcomed by existing telecoms? No. They are seen as a threat. I know that they are seen as a threat because Korean telcos, they lobbied the government to ban municipal internet [which would allow municipalities to provide internet to their citizens].”


Note: Researchers Kedia, Prasad and Sridhar reached out to clarify that the submission was made by them and that it has been incorrectly attributed to ICRIER on TRAI’s website. This story has been updated to reflect the same.

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