[ANALYSIS] Internet traffic tax or net neutrality?

KT, LG set to address network traffic issue with EU in 2023

By Kim Yoo-chul

The stunning achievement of Netflix-backed Korean drama "Squid Game" has caused a local broadband provider to file legal complaints to press the U.S.-based streaming giant to help pay for costs associated with a massive surge in network traffic.

The basic rationale and core flashpoint in the legal case seen above are who should be held accountable for the rising costs of data fueled by the global streaming boom. Net neutrality is a principle that internet service providers must treat equally all data-driven content flowing through their cable networks and cell towers.

In the U.S., for example, net neutrality advocates were saying keeping the internet a wide open playing field is vital for innovation and this nature has resulted in the rise of Netflix, Spotify, Facebook or YouTube.

But the point of concern is that because traffic on telecom networks will continue to grow at an exponential rate as the sixth-generation (6G) network is being developed, policymakers in the EU, Southeast Asia, South America and developed Asian economies including Korea are all-set to further push big technology companies to possibly pay them for the traffic they send over their network. 6G offers speeds up 100 times faster than the industry's current mainstream of 5G, making it ideal for bandwidth-heavy applications such as streaming games and content.

The logic behind the moves is based on judgements and consensus that rules which stop telecom operators from passing on some of the cost to the biggest drivers of the data growth are plainly outdated in the so-called streaming era.

"Telecom operators have invested to ensure that their networks can support this exponential growth in traffic. While the resulting market is 'two-sided,' telecom operators have effectively only been able to recover network costs from end users," Frontier Economics, a London-based economics consultancy, said in a report to leading European telecom operators.

The logos of Amazon, Apple, Facebook and Google in a combination photo / Yonhap

"How to redefine network neutrality will be the foremost subject of talks at February's Mobile World Congress (MWC) in Barcelona, Spain. Senior executives of major European telecom companies are set to develop and explore the best possible ways on how to establish a price signal that allows telecom operators to boost their investments in high-capacity networks and help over-the-top (OTT) providers to benefit depending on the level of optimization of their traffic volumes," an executive at SK Telecom, the country's top mobile carrier, said.

From the industry's standpoint, this issue is comparable to energy companies trying to collect commissions from set makers for the energy use of various appliances, while end users (consumers) are already being charged for the actual amount of energy used by their machines, according to company executives and lobby groups.

This rapprochement is based on observations that a high share of data traffic is concentrated in the hands of a small number of OTT players including Facebook, Netflix and Blizzard, which also means that this characteristic is consistent with the "beneficiary pays" model that is largely followed in most infrastructure markets.

"Squid Game," for example, topped the charts in all 83 countries where Netflix streams with the company reporting that more than 100 million viewers have watched the Korean drama.

"It is interesting to note that even Netflix accepts contributing directly to the cost of its service delivery to consumers: we understand that in the U.S. areas with insufficient broadband coverage, which cannot support streaming services, Netflix delivers its content on DVDs. In those cases, customers pay Netflix for the DVDs, but Netflix pays the U.S. Mail for the DVDs' delivery to its customers," Axon Research, a market research firm, told its key European telecom clients.

A Seoul court ruled against Netflix in June 2021, accepting SK Broadband's (SKB) claim that network use is essentially a cost and that it could be possible for SKB to ask Netflix for payment, even if the telecom service provider has not done so in the past. The ruling said Netflix must pay SKB at least $22 million for the single calendar year of 2020. But unsurprisingly, Netflix Korea is appealing the ruling.

"SK Telecom, KT and LG Uplus ― the country's three leading telecom operators ― will remain supportive of the EU's efforts to advance the work on the Connectivity Infrastructure Act (CIA), a legislative proposal to reduce the cost of expanding high-capacity networks. Policymakers in Korea are also set to meet EU officials and key stakeholders involved in the CIA legislative proposal process during the MWC fair for detailed talks regarding the EU's efforts on this issue," an official at the Korea Communications Commission (KCC), said in a separate call, adding there are some similarities between SKB's position and that of telecom network operators in Europe and elsewhere.

A matter of consumer protection?

But in the United States, policymakers are still not siding with the EU and other countries about the idea of forcing big technology companies to pay for their use of data.

Android's Nearby Share technology is demonstrated at Alphabet's Google Android plaza booth during the Consumer Electronics Show (CES) in Las Vegas, Nevada on January 5, 2023. AFP-Yonhap

Last week, the U.S. Undersecretary of State for Economic Growth Jose Fernandez reaffirmed Washington's stance to back net neutrality by saying on his Twitter account, "Net neutrality is key to making sure we can all enjoy content when and how we want it." Fernandez was in Seoul for a few days and his schedule included closed-door meetings with Netflix Korea and Motion Picture Association officials.

Pro-net neutrality experts and consumers were saying because traffic growth is also a "good thing" for telecom companies from a profit standpoint ― the more people use online services, the more demand for internet access services follows ― it is quite a fair argument for telecom operators to ask big technology companies for their monetary contribution when they sell data-heavy streaming services to consumers.

"Well, I would say the net neutrality issue is based on concerns by the telecom industry amid the rise of the major OTT industry. I am ready to pay for more premium services being offered by telecom operators on the back of streaming platforms," Choi Jae-ho, a 42-year-old office worker in Seoul, said.

Like what Choi said, because EU legislation rules also guarantee that consumers can access the content and services of their choice in a non-discriminatory manner, and that all traffic is treated equally under the FRAND (fair, reasonable and non-discriminatory) principle, supporters of net neutrality rules stressed the idea of charging online services is discriminatory.

From the industry's standpoint, telecom companies want the government to play an expanded role in bringing big technology firms to the table for discussions. In Korea, telecom industry officials are keenly watching what will happen next in the Netflix-SKB legal fight, according to telecom officials.

Rather than developing discussions regarding the net neutrality debate, Netflix hired a top-tier consultancy, Deloitte, to produce a report in which it states Netflix's investment in content production in Korea has contributed almost 5.6 trillion won to the country's GDP across related fields including publishing, webtoons and consumer goods.