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Why countries should not mess with interconnection agreements

Speaking in the context of the implementation of network usage fee in South Korea, an example that has been used by those suggesting that online platforms should pay telcos in India too, one of the panelists pointed out that sender-party network pays system had actually created a situation where interconnection in South Korean networks became more expensive as opposed to interconnection outside of the country. 

As the responses to Telecom Regulatory Authority of India (TRAI)’s consultation on the regulation of over-the-top (OTT) communication platforms rolled in, one common thread was that those suggesting that online platforms should pay telcos had looked to South Korea to support their arguments. They talked about the sender party network pays system which was put in place in the country starting 2016, but this system, as we heard during MediaNama’s discussion on the ‘International Trends in Network Usage Fees’ on October 4, has negatively affected the internet ecosystem.

 “[In]2016 sender party [network] pay rules came into force in the country. And what it did was really upset the natural balance for interconnection between various networks on the internet in Korea,” Thomas Volmer, the head of global content delivery at Netflix and a speaker at the discussion said. He mentioned that the sender-party network pays system had created a situation where interconnection (transfer of data between networks) in South Korean networks became more expensive as opposed to interconnection outside of the country. 

MediaNama hosted this discussion with support from ADIF, Google, Meta and Netflix. 

Wait, so what is sender-party network pays?

The sender-party network pay rules (SPNP) mean that the person sending a message has to pay for it. “When you send ordinary mail, in an envelope, what do you do? You put a stamp on it, right? So as a sender, you have to pay. When you make a phone call, what do you do? You pay telecom companies, right? So, whoever is pushing the data on the network, [and] quote-unquote ‘burdening the network’, has to pay somebody to have the network deliver the data. That’s the sender pay model,” Professor Kyung Sin Park, founder of Open Net Korea and a fellow panelist at the discussion explained.  

He went on to say that the SPNP system currently operates only among internet service providers (ISPs). Let’s say a customer on Reliance Jio’s network must access Facebook. To make this happen, Facebook data would hop from Facebook’s ISP in the US to ISPs across the world till it finally reaches the user. If Facebook has a cache server (content delivery server) on an Indian ISP’s network, it would just go from that cache server to the Reliance Jio user.

In the original model of data transfer, ISPs would just send data for free, just like Volmer said. But with SPNP “whoever is sending more data to the other ISP should pay the receiving ISP,” he explained. This disincentivizes ISPs from hosting cache servers of popular online platforms on their networks. 

Consequences of the SPNP model: 

Post the implementation of SPNP in South Korea in 2016, “many content providers, including Netflix, we ended up delivering content from outside the country, from Japan, from Hong Kong, from the US even…meaning that when users press play on Netflix, instead of having a local server from our Open Connect program deliver the content, they were streaming from far away,” Volmer explained. 

Volmer said that for many online platforms, delivering content from outside the country led to a rise in latency (delay in data transfer). He added that the SPNP system not only slows down the end customer’s access to services, but also “creates administrative burden because you still have to add on laws to try and fix something because you’re trying to feed a round keg in a square hole.” One such law added on by South Korea to fix latency is section 22-7 of the Telecommunications Business Act which requires platforms to maintain quality of service. This, as Professor Park had mentioned in an interview with us earlier, makes it difficult for platforms to reroute their traffic through other countries. 

I think from a CDN [content delivery platform] standpoint, one of the challenges, if you are serving lots of different content, again, you’re making the internet more efficient and reducing latency, but it changes, again, the model because you end up having to pay for your customer’s content to get delivered from a practical standpoint if that’s what it looks like,” Alissa Starzak, head of public policy at Cloudflare and another panelist at the event, mentioned. She explained that Cloudflare has a free service that would be disrupted if CDNs were asked to pay to deliver content. “We, for our free customers, for example, we can’t afford to serve them locally inside Korea, because they are not paying us anything,” Starzak added. 

Does anyone pay for interconnection?

“I think a tiny, tiny fraction, significantly less than 1% have any sort of paid relationship, and that includes transit. Things that are formally requiring, asking for help in carrying traffic, that includes that,” Starzak said. Barbara van Schewick, associate law professor at Stanford Law School added to this explaining that there are two kinds of interconnection agreements that operate today. 

Either the ISP pays for its own connection to the internet, which means they pay so-called transit providers to send their data to and from the internet. There clearly the last mile ISP is not paid, it pays someone else to connect them to the internet. That makes sense. And then the other kind of agreement that we see with last-mile ISPs is that they interconnect with someone directly. Those were the agreements that Alissa talked about quite a bit. And they exchange the data without a fee,” she explained. The latter, she said, makes up the vast majority of interconnections. 

Van Schewick said that telcos getting paid for delivering the traffic that their customers requested for is an outlier across the world. She said that this is only happening in cases where telcos have “found a way to blackmail the companies’ delivering data into paying them for terminating the traffic to their customers.”  She explained that online services cannot afford to forego serving big telecom companies that have a large customer base and so they end up paying them. “So, what’s the playbook for making everyone pay you for delivering data? Well, you degrade the quality of the unpaid connections into your network,” she explained. 

Degrading connection quality to force payment:

Van Schewick mentioned that the most prominent example of telcos forcing companies to pay them for interconnection was what happened in the US between 2012 and 2015. At the time, the five most prominent ISPs in the US (Comcast, AT&T, Verizon, Time Warner Cable, and CenturyLink) degraded the quality of unpaid connections by “refusing to widen these doors into their network as traffic was growing every day. And as a result, without expanding the doors into the network, there was a huge amount of congestion at the unpaid doors into their networks,” she said. 

She said that this refusal to widen the doors led to a bad situation, where applications were no longer working, videos got stuck: “Basically your internet access stopped working for many hours in the day, generally from 5 p.m. to midnight.” Van Schewick mentioned that Comcast went to Google, Facebook, Microsoft, and Apple and asked them for a fee to ensure that their services worked efficiently. 

This situation was eventually resolved when the Federal Communications Commission (FCC) in the US adopted the Open Internet Rules in 2015. These rules, Van Schewick said, covered a loophole in the previous net neutrality regulations that the US had, which said that the net neutrality protections do not apply to the point where data enters the network. 

Why asking for an interconnection fee is unfair:

Van Schewick mentioned that ISPs today might argue that they deliver more traffic which they would be unable to do, unless they charged platforms. “That is not accurate. And there, I really want to remind everyone that it’s often one thing what people say to the regulator, and it’s one thing what they say to their investors when they cannot lie,” she said. She explained that in an investor presentation in 2021 Vodafone had said that while traffic is increasing all the time, the cost of delivering this traffic has become cheaper and cheaper.

She explained that charging interconnection fees the way companies in the US did, has huge collateral costs for those who cannot afford to pay for interconnections such as startups and free cloud service providers. “And that’s a huge problem because your ability to use the internet should not depend on whether the website you want to visit can pay for access to you,” Van Schewick explained. She added that this practice distorts competition not only between smaller and bigger online businesses, but also between ISPs because smaller ISPs do not have the customer base to pull off these practices. 

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