Beyond the data deluge: Building sustainable Internet ecosystem with South Korea’s fair share model

By Dr. Jaijit Bhattacharya

South Korea, a global leader in internet infrastructure, has emerged as a pioneer in addressing this economic disparity. The country boasts the world’s highest fiber-to-the-home adoption rate and cutting-edge 5G technology. This success can be attributed, in part, to a fair share distribution model that ensures Large Traffic Generators (LTGs) contribute equitably to network maintenance.

Remember the dial-up screech? The agonizing wait for a web page to load? Today, such experiences seem like relics of a bygone era. The internet has transformed into a high-speed river of information, carrying data at breakneck speeds and powering everything from social media to online commerce. But this digital torrent comes at a cost.

Today, a handful of large content providers, like Google, Netflix and Meta wield immense influence, dominating internet traffic with their diverse offerings, ranging from streaming services to social media platforms. However, this unprecedented surge in data consumption places immense strain on the underlying infrastructure that carries this influx of information. Telecom operators, responsible for building and maintaining this critical infrastructure, find themselves in a financial dilemma. Despite being custodians of network upkeep, they often shoulder the burden alone, as Content Providers bear little to no responsibility for its maintenance. Telecom operators are left footing the bill for high-quality internet experiences alone, which is discouraging for investments in network upgrades and may lead to hindering internet speeds for everyone.

This critical issue has garnered attention from policymakers globally. A joint report by the International Telecommunication Union (ITU) and UNESCO in 2021 revealed a staggering USD $2 trillion global shortfall in broadband network investment. This lack of investment not only impedes economic growth but also hinders social progress, with half of the world’s population still lacking access to the internet. However, South Korea has got a handle on this issue and the positive outcome has set the ball rolling.

A Model for Fairness: South Korea’s Pioneering Approach

South Korea, a global leader in internet infrastructure, has emerged as a pioneer in addressing this economic disparity. The country boasts the world’s highest fiber-to-the-home adoption rate and cutting-edge 5G technology. This success can be attributed, in part, to a fair share distribution model that ensures Large Traffic Generators (LTGs) contribute equitably to network maintenance.

South Korea’s approach has unfolded in stages. In 2016, the country amended its telecommunication laws to introduce a “Sending Party Network Pays” principle within the Internet Service Provider (ISP) ecosystem. Under this model, major Korean ISPs pay additional fees when sending large volumes of data to each other. This change ensured a fairer burden sharing amongst ISPs. However, the growing burden from content providers remained unaddressed. To tackle this issue, South Korea implemented the Service Stabilization Act within the Telecommunications Business Act in 2021. This act acknowledges shared responsibility for network quality between Internet Service Providers (ISPs) and Large Content Providers (LCPs) – those with over 1 million daily users and 1% of total traffic.

The act mandates negotiations for cost recovery, promoting a market-driven solution. The government, while ensuring transparency through published traffic data, remains neutral on pricing and specific terms, allowing for confidential negotiations between ISPs and content providers. This approach fosters innovation and avoids stifling competition.

Putting the Model to the Test: The Netflix vs. SK Broadband Lawsuit

South Korea’s fair share distribution model faced a crucial test with the highly publicized lawsuit filed by Netflix against SK Broadband over a 2018 dispute regarding network access fees. Netflix’s immense popularity, fueled by shows like “Squid Game,” resulted in a significant increase in traffic for SK Broadband. SK Broadband attempted to negotiate with Netflix for cost recovery and sought mediation from the Korean Communication Commission. Netflix rejected that process.

Netflix then filed a lawsuit against SK Broadband contending that it bore no responsibility to negotiate or pay for the use of SK Broadband’s network. However, the court dismissed Netflix’s assertion, reasoning that broadband operates within a two-sided market framework where parties engage in negotiations regarding data exchange terms. The court emphasized that compensation terms could be resolved through bilateral discussions between the involved parties. In response, Netflix appealed, arguing the absence of a contractual agreement with SK Broadband. Conversely, SK Broadband initiated a countersuit, alleging unjust enrichment on Netflix’s part.

The court clarified that the principles of net neutrality primarily guard against Internet Service Providers (ISPs) manipulating traffic and do not preclude ISPs from seeking compensation for increased usage. Furthermore, the court rejected Netflix’s contention of “double billing,” distinguishing between user fees for network access and content provider fees based on traffic volume. The legal proceedings seemed to increasingly favour SK Broadband, culminating in the court’s decision to appoint a national institute to establish the compensation terms.

The legal battle ultimately concluded in September 2023, with a settlement between both parties. The specific details of the agreement remain confidential, but reports suggest a revenue-sharing model where Netflix users on SK networks purchase subscriptions through their broadband plan. This settlement suggests that Netflix likely contributes towards the network usage costs incurred by SK Broadband.

This settlement not only validated South Korea’s fair share distribution model but also demonstrated its effectiveness in fostering equitable partnerships between content providers and network operators. Most content providers, including Meta, Apple, Amazon and Disney, have reached agreements with Korean ISPs.

Reaping the Rewards: The Benefits of South Korea’s Fair Share Model

South Korea’s fair share distribution model has demonstrably yielded positive results for the country’s digital landscape, creating a win-win situation for consumers, content creators and telecom operators.

Accelerated Broadband Development and Lower Consumer Prices: Payments from content providers have directly contributed to the accelerated development of South Korea’s broadband infrastructure. A 2023 report by Ookla, a global internet testing company, ranked South Korea second, after UAE, in average download speeds at a staggering 507.59 Mbps. This robust infrastructure translates to a better user experience for consumers. Furthermore, the European Commission’s “Mobile and Fixed Broadband Prices in Europe in 2021” report reveals that South Korea boasts some of the most affordable high-speed broadband prices (100 Mbps and above) compared to many European countries. This affordability allows a larger portion of the population to reap the benefits of a high-speed internet connection.

Thriving Domestic Content Market: The enforced network usage fees have spurred a competitive environment for local content producers in South Korea. Since they too are required to contribute to network maintenance, they have a strong incentive to optimize their content delivery and control costs. This focus on efficiency has fuelled the rise of highly competitive local players. According to a report titled “Online Video in Korea”, the impressive growth of Korean streaming services like Tving and Wavve, have captured 20% and 16% of subscriptions in South Korea, respectively.

Content Provider Growth Alongside Contribution: Despite initial opposition, content providers like Google and Netflix haven’t seen negative impacts from South Korea’s fair share model. In fact, these companies have reported consistent growth in revenue, profits, traffic and user base within the country. For instance, Netflix’s revenue in South Korea jumped by an impressive 50 billion KRW (approximately 36 million USD) last year, reaching a total of 823.34 billion KRW (roughly 595 million USD) as per their 2023 audit report. Furthermore, increased network bandwidth, funded in part by their contributions, is likely beneficial. Greater bandwidth can potentially lead to improved video rendering and resolution, both for advertisements and content, which could translate to further growth for these companies.

Paving the Path Forward

As the world grapples with the evolving dynamics of internet governance and infrastructure investment, South Korea’s experience offers invaluable insights. While not a silver bullet, its fair share model provides a compelling blueprint for a more sustainable and equitable internet ecosystem. As countries grapple with similar challenges in their telecom sectors, South Korea’s success provides both inspiration and practical guidance. India, with its vast population and burgeoning digital landscape, stands to gain immensely by adopting South Korea’s approach. By adapting the model to its unique context and addressing affordability concerns, India can bridge the digital divide and unleash a wave of innovation in content creation. Empowering stakeholders through transparency, engagement and adaptability will be key to driving this transformative change. The time is ripe for action; as we navigate the complexities of the digital age, let us draw from South Korea’s experiences to chart a course towards a brighter, more inclusive digital future for all.

This article first appeared in ET Telecom,