Contrarian Thoughts On Broadband Policy

South Korea continues to fascinate policy observers because of its broadband leadership and unique, if not contrarian, approach to broadband, transit and interconnection. The new book Nothing Is Free: An In-depth report to understand network usage disputes with Google and Netflix offers some explanations. Author internet policy analyst Dr. Dae Keun Cho who doubles as practice leader of the TMT team at Lee & Ko and as professor of public policy at Sogang University, has been recognized by South Korea’s Prime Minister, the Chairman of the Korea Communications Commission, and the Minister of Information and Communication for this his policy contributions. We discussed the book’s themes of interconnection regulation in Korea, the Netflix-SK Broadband lawsuit, and the policy for network fees.

1. Why did you write this book?

First, I wanted to provide basic reference to support stakeholders participating in policy shaping to have productive discussions. The government, the National Assembly, the media, and users did not know this market well because the transaction practice of internet protocol (IP) interconnection between content providers (CPs), internet service providers (ISPs) and content delivery networks (CDNs) was unfamiliar to them.

Second, I wanted to provide the market with research results organized at the evidence-based level as much as possible for factors that could cause confusion (e.g., terms, overseas countries policy, laws, etc.) among stakeholders. There have been various complaints about this issue. ‘Terminology is inconsistent and difficult’, ‘various theories are mixed and there is no sufficient explanation, so only fragmentary knowledge comes and goes’, ‘sufficient information is not provided on overseas cases, regulatory bodies’ decision documents, reports, etc.’ In view of this situation, I tried to help interested readers understand this issue by addressing as much as possible the factors that hindered the accurate understanding of this issue.

Third, I wanted to rectify errors or issues that needed to be clarified among the various claims surrounding the cost of using the network based on various literature. Wrong information can lead to wrong policy decisions.

2. What should international audiences know about the disputes with Google and Netflix in South Korea?

First, I think it is necessary to admit that if a company uses another company’s resources for its own business, it is natural to pay for it. Google and Netflix must use the ISP’s network to deliver their content to end users. It is obvious that Google and Netflix must borrow ISP’s networks to complete their business models. And for common customers, ISPs are obligated to deliver their customers’ traffic, and CPs like Google and Netflix are obliged to pay a fee to ask ISPs to do their traffic.

Second, the fees that Korean ISPs demand from Google or Netflix are access fees or paid peering. It is not a termination fee according to the SPNP (Sending Party Network Pay), which is controversial in Europe. SPNP refers to the case where the CP already pays the access fee to the originating ISP and also pays the termination fee to the terminating ISP, but Korea is not even receiving the access fee, so it is asking for the fee.

Third, in the term “free peering”, “Free” does not mean that no payment is required. In Korea, some CPs and civic groups used to claim that the Internet is free, suggesting the term “Free Peering”. However, “free” means that the ISP that owns the network has omitted cumbersome cash transactions after providing the network to each other. That is, bartering took place, and no cash was exchanged. Claiming that using the Internet is free is a different story than not exchanging cash as a result of negotiations. This is what the American IP interconnection history tells us.

Fourth, in Korea, broadband Internet service is reclassified as a common carrier’s communication service and ISP is a kind of common carrier. On the other hand, CP/CDN is the user. Therefore, what Korean ISPs demand from Google/Netflix is the fee, not termination fee or interconnection fee (like telephone interconnection). Because Google and Netflix are not ISPs, they do not fit into the reciprocal settlement-free interconnection model. Also, the FCC Net Neutrality Orders (FY 2010, 2015, 2017) also excludes CDNs from BIAS (Broadband Internet Access Service provider). So, it is not in violation of net neutrality regulations for ISPs to charge CPs (connectivity fee, not termination fee).

Of course, Google and Netflix often connect their own CDN and local ISP networks and trade in terms of settlement free transaction. However, it is unknown how they are actually transacting with local ISPs. In particular, when a contract is signed on the premise of payment, it is more difficult to know because the information is not disclosed to the outside world.

3. What explains South Korea’s broadband success?

The key points of Korea’s broadband policy are facility-based competition, creation of a fair competition environment, and designation of universal service. As a result, most households are using the FTTx network for fixed broadband service, and the 5G subscription rate is the highest in the world. All citizens can use the service of at least 100Mbps or higher thanks to universal service. In recent years, the government is preparing to accommodate services such as VR and metaverse that will be introduced by making it compulsory for all new buildings to build optical cables to the homes of subscribers. The Korean government is pursuing these policies because an excellent broadband network is the basis for content innovation, can provide users with new experiences and services, and is the basis for national competitiveness in the digital age. Considering the excellence and coverage of fixed and mobile broadband services experienced by users in the market, innovation environment, and government policies, Korea’s broadband policy can be said to be successful.

4. How does “universal service” differ in Korea versus other countries?

The Telecommunications Business Act in Korea says that “universal service” means any basic telecommunications service which any user may use at a reasonable fee, regardless of time and place. According to the Act, telecommunications operators which have obtained a license and meet certain criteria (revenue size) are obliged to participate in or contribute to the provision of universal services.

Unlike the United States’ real fund, South Korea operates a virtual fund. In other words, operators which provide universal services inevitably incur losses. In that case, businesses that do not directly provide universal services are obligated to compensate for losses. Therefore, businesses that do not provide universal services provide a certain amount to businesses that experience losses.

Korea includes fixed broadband internet service as a universal service, so anyone can use at least 100Mbps service wherever they live. Ofcom in the UK has also included high-speed internet service (10Mbps) as a universal service.